According to Ireland’s Central Bank, employees in the country are likely to witness their most significant salary increment in ten years, with a projected near 9% increase in real income (accounting for inflation) over the forthcoming three years. This optimistic wage forecast is attributed to a rapid decrease in headline inflation, anticipated to average at merely 2% this year. Additionally, the current intense competition in the labour market is also contributing to the projection of salary growth.
In its most recent economic bulletin published every quarter, the Central Bank predicts an average yearly increase of 2.9% in ’employee compensation’ from 2024 to 2026 in real terms. However, the bank has expressed caution that the salary increases could be unequal due to recent alterations to the minimum wage, as well as backdated and incremental hikes to public-sector pay from the new agreement set in place.
With the boost in real incomes, the Central Bank suggested that customer spending is likely to be driven, which would subsequently support a modest but sustained growth in the national economy. The domestic economy, as delineated by Modified Domestic Demand (MDD), is anticipated to expand on average by 2% per annum over the next three years. Yet, external demand weakness and domestic capacity limitations are predicted to slow down the growth rate, the Central Bank noted.
The Central Bank has also raised caution that domestic factors are now the prime causes of inflation. Although headline price growth fell to 4% in January and is expected to average only 2% this year, the bank warned that inflation in the service sector continues to be above the 5% mark and is forecasted to decrease only gradually until 2026. It also highlighted potential risks that could disrupt the current predictions of stable growth and reduced inflation.
Among these risks are another surge in energy prices due to the ongoing geopolitical strife in the Middle East, a long-term downturn in the global economy negatively impacting exports and labour cost rises outpacing productivity, thereby creating excessive inflationary pressures.