By Padraic Halpin
DUBLIN, April 21 (Reuters) - Growth in Ireland's domestic economy may slow to between 1.5% and 2.1% this year from an earlier forecast of 2.3% due to the inflationary impact of the war in the Middle East, Ireland's finance ministry forecast on Tuesday.
Despite the downgrade, the ministry expects to run a higher budget surplus of 2.5% of modified gross national income this year, up from the 1.4% forecast in October, thanks in part to higher corporate tax income from foreign multinational
firms.
Modified domestic demand (MDD), which strips out the way Ireland's large multinational sector distorts gross domestic product (GDP) readings, has grown strongly in recent years thanks to robust consumer spending, investment and low unemployment, expanding by 4.9% last year.
The finance ministry sees its so-called "reference" scenario of 2.1% MDD growth for 2026 slipping to 2% in an adverse scenario where oil prices average $90 per barrel for the rest of the year and 1.5% in a severe outcome where they average $130 per barrel.
Modified Domestic Demand is forecast to grow by between 2% and 3% in 2027, it said.
Inflation for the year could reach 3.3%, or 4.6% in the most negative scenario, compared to an earlier forecast of 1.9%, the ministry said. It could then peak as high as 6.7% early next year under the most severe scenario.
BUDGET SURPLUS PROVIDES SCOPE FOR FUEL SUPPORT
The government has sought to soften the impact of surging fuel prices with two packages of spending increases and tax cuts totalling 755 million euros ($888 million). The second, larger package was introduced in response to a wave of public demonstrations.
Ireland's favourable budgetary position is entirely driven by record levels of corporate tax paid by foreign companies. The finance ministry marked up this year's corporate tax forecast to 35.3 billion euros from the 34 billion euros seen last October.
The ministry included forecasts out to the end of the decade for the first time, predicting further increases to 45.2 billion euros in 2030.
($1 = 0.8499 euros)
(Reporting by Padraic Halpin; Editing by Conor Humphries)
