Ibec lowers perspective and warns about ‘wrong’ reactions

Business group Ibec has lowered its growth outlook for this year to take into account the economic impact of rising costs and supply chain challenges, exacerbated by the Russian invasion of Ukraine.

The group estimates the war will shave 1-2 percentage points off the growth rate from the 6.1% it had forecast late last year.

He now anticipates economic growth of around 4.3% in the coming year.

Energy and commodity prices will stay much higher for longer, Ibec predicts, even if inflation growth, currently at a 22-year high of 6.7%, slows.

It warns that any “premature or ill-judged” monetary policy reaction to the inflationary environment could trigger an unnecessary economic contraction.

“The coming year will be a stark balancing act for policymakers globally,” the report warns, adding that measures to support households and businesses must be “precisely targeted” to prevent further stoking of inflation.

“Ibec calls on the government to step up work through the Labor Employers Economic Forum to ensure better coordination and targeting of fiscal, social welfare and other labor market policies that can address inflationary pressures”, Gerard Brady, Chief Economist and Head of National Policy at Ibec. saying.

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Overall consumer trends in the first few months of the year captured the strong momentum underlying the economy with retail sales volumes in the first two months up 12% from the same period in 2019.

But Ibec warns that the global environment will drag down growth this year and next, with rising energy costs, record transportation and commodity costs, and global supply chain challenges that will result in a slowdown in business investment and a consumer spending lower than expected.

“Rising energy prices will introduce a relative price shock to consumer spending,” Brady said.

“This is where households, when faced with higher spending on energy bills, cut consumption elsewhere. Overall consumption remains unchanged, but other sectors of the economy, particularly those that rely on discretionary spending, lose out.” “, he added.

Challenges from commodity inflation are already evident in parts of the economy, the report notes, which has the potential to damage the ability to deliver housing and infrastructure.

“It is vital that the government works with industry to ensure that contracts are tailored to the challenges of inflation and remain viable so that much-needed infrastructure projects continue to address the multiple quality of life and sustainability issues that the country faces,” Brady added. .

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