Inflation is set to remain above pre-pandemic levels for at least another three years, according to the Central Bank.

In its latest Quarterly Economic Bulletin, the regulator said the Irish economy will continue to grow strongly in the coming years.

It said the economy looks set to grow by just over 7% this year, over 5% next year and just under 5% in 2024.

The banks said the increase is based on strong domestic demand supported by income growth, the use of savings built up during the pandemic and strong exports.

It expects to see unemployment fall to 5.8% this year and return to pre-pandemic levels by 2024. It means the economy is expected to generate 167,000 new jobs this year.

Economy

Director of Economics and Statistics at the Central Bank, Mark Cassidy, told Newstalk the overall outlook for the economy is positive.

“The economy overall has shown itself to be fairly resilient to the effects of COVID with employment and output already back to or above pre-COVID levels,” he said.

“With most of the restrictions now removed, given the strong dynamics we are seeing in the labour market in particular, the outlook remains very positive and we are forecasting strong growth in domestic demand of 7.1% this year and around 5% in both 2023 and 2024.”

Central Bank Quarterly Economic Bulletin. Image: Central Bank

He said strong employment growth is driving the recovery in the economy.

“The performance of the labour market has been quite remarkable with significant increases in the number of people at work and also in labour market participation,” he said

“The increase in female employment has been particularly notable so we are forecasting significant further employment growth over the next three years

“So around 170,000 net new jobs and for the unemployment rate to fall below 5% by 2024.”

Inflation

The main cloud on the horizon is the level of inflation – which the Central Bank said is now at a 21 year high due to surging demand, supply bottlenecks and rising energy prices.

The bulletin now expects inflation to remain higher for longer than previously thought.

It said energy prices and supply chain issues should ease as the pandemic recedes – leading to a reduction in inflation from the second half of this year.

As the economy grows however, inflation is forecast to remain above pre-pandemic levels until after 2024.

Modified Domestic Demand is expected to end the year above its pre-pandemic levels before growing by as much as 17% in the next two years.

The regulator said the expansion will be largely driven by a recovery in personal consumption, supported by wage increases, the normalisation of savings rates and the spending of pandemic savings.