The Irish economy contracted by 2.8 per cent in terms of gross domestic product during the first three months of the year as activity within the multinational sector shrunk amid global headwinds, the Central Statistics Office (CSO) has confirmed.
Revised national accounts also show that the Republic’s economy contracted marginally by 0.1 per cent between October and December 2022, meaning that it entered technical recession — defined as two consecutive quarters of negative growth — in the early part of this year. However, the 2.8 per cent decline in growth in the first quarter was less than the 4.6 per cent previously estimated.
“The industry sector recorded a significant decrease over the same period compared with the previous quarter, falling by 13.2 per cent, more than offsetting the growth in the information and communication sector of 4.9 per cent in the quarter,” said national accounts statistician Gordon Cavanagh.
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Lorcan Blake, associate director in Grant Thornton’s business consulting unit, said the revisions “further underline the sway that multinationals have over our economic status”. He said: “While the scale of the Q1 decline in Irish GDP was less than originally estimated, a 9 per cent contraction in sectors dominated by multinationals is of concern – especially as global economic uncertainty continues.”
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Domestically focused sectors, however, continued to expand, with quarter-on-quarter growth recorded in construction (4.3 per cent) and agriculture, forestry and fishing (2.1 per cent). The distribution, transport, hotels and restaurants sector grew by 1.7 per cent.
Commenting on the figures, Minister for Finance Michael McGrath said that some of the headwinds that existed at the start of the year “remain ever-present” in the second half of 2023.
“Our economy is still facing significant capacity constraints, particularly in our housing and labour markets, which are keeping non-energy inflation much higher than expected,” he said. “Growth has also slowed in many of our key export markets, weighing on demand for Irish exports as a result.”
Released on Friday, revised CSO figures also highlight the extent to which the domestic economy shook off the impact of the Covid-19 pandemic in 2022.
As measured by modified domestic demand — a growth metric that strips out the distorting impact of the multinational sector here — the indigenous economy grew by 9.5 per cent in 2022, ahead of previous estimates of 8.2 per cent.
The ending of Covid-19 restrictions boosted activity across domestic-focused sectors, said CSO assistant director for economic statistics Jennifer Banim, with the distribution, transport, hotels and restaurants sector growing by 16.9 per cent after two years of tough public health restrictions.
Overseas firms
Multinational-dominated sectors here, meanwhile, expanded by 15.6 per cent in 2022. Construction and real estate activities both posted growth of 4.2 per cent. Foreign companies also accounted for an increasingly large share of value added to the economy last year at 54.6 per cent, up from 51 per cent in 2021.
Overall, the CSO said that Irish gross domestic product — the total value of all goods and services produced within the economy — grew by 9.4 per cent in the year compared to previous estimates of 12 per cent.
Gross national income in the Republic, a measure of overall growth that excludes multinationals, increased by 6.7 per cent.
Mr McGrath said the figures highlight the “strong post-pandemic rebound” in the domestic economy. “Despite multi-decade high rates of inflation, it is encouraging to see the very strong growth in both consumer and investment spending,” he said.
“Consumer spending increased by 9.5 per cent last year, an upward revision relative to earlier estimates that is now more in keeping with robust VAT receipts. This performance reflects the strength of the labour market as well as the important role Government supports have played in helping to mitigate the impact of inflationary pressure.
“As a result of the upward revisions last year, the reported growth rate in modified domestic demand and consumer spending in the first quarter this year have been revised downwards — both were essentially flat in the first quarter. That said, higher frequency data — such as the 3.8 per cent unemployment rate recorded in June — confirm the strength of the economy.”
