The Irish economy grew by a modest 0.9 per cent in the third quarter of 2021 as the lifting of restrictions led to stronger consumer spending and a recovery in employment.
The Central Statistics Office (CSO) said the relatively low headline rate reflected increased royalty payments by multinationals in the information and technology (IT) sector here and increased costs generally.
The figures also pointed to only a modest lift in consumer spending, the main driver of domestic demand, of 0.5 per cent, which caught analysts by surprise given it coincided with the reopening of consumer-facing sectors such as hospitality.
Lead statistician Christopher Sibley said the lift in consumption was still above the seasonally adjusted trend in volume terms but also reflected higher prices.
The figures come amid an upturn in inflation, which rose to a 14-year high of 5.1 per cent in October on foot of higher energy prices.
Mr Sibley noted the economy grew in gross domestic product (GDP) terms by 14.5 per cent over the first nine months of the year compared with the same period in 2020, and that spending by consumers was up 4.3 per cent over the same period. However, consumer spending still lagged the same period of 2019 by 7.1 per cent.
Royalties
The CSO’s latest quarterly national accounts indicated that the highly globalised industrial sector, which includes the multinational-led pharmaceutical sector here, grew by 7.4 per cent, while the IT sector contracted slightly as imports of royalties offset increases in output.
Net exports of goods and services, which have increased almost continuously during the pandemic, fell by 4.1 per cent during the quarter as increased imports offset outgoing trade.
The CSO said lower levels of aircraft imports by aircraft leasing companies drove a decrease of 3.8 per cent in capital formation, a measure of the productive capacity of the economy.
Output from the more domestic-focused distribution, transport, hotel and restaurants increased by 5.1 per cent. The construction sector, fuelled by a spurt in homebuilding, also grew by 5.1 per cent in the quarter.
The combined effect of these flows gave rise to a 0.9 per cent increase in gross domestic product (GDP), about average in European terms.
Modified domestic demand, a better measure of underlying domestic demand as it excludes the effects of intellectual property products (IPP) and leased aircraft, rose by 1.4 per cent.
“Today’s figures, while confirming the continued growth in the domestic economy, are slightly below expectations, particularly on the consumer spending side,” Minister for Finance Paschal Donohoe said.
Spending
He noted consumer spending grew by a modest 0.5 per cent, suggesting the figure was somewhat behind what had been expected given the ongoing strength of VAT numbers and the recovery in employment and wages.
“The exceptionally strong annual GDP numbers are broadly in line with expectations and again point to the significant disconnect between this indicator, which is distorted by globalised activities in the multinational sector, and underlying developments in the domestic economy,” he said.
Goodbody chief economist Dermot O’Leary said the growth numbers, while among the fastest in the EU, were lower than his company’s estimates for the quarter.
“Rising inflation and public health measures in response to Omicron are short-term risks, but the Irish economy has shown its ability to bounce back in the past given the strong state of household and business balance sheets.”
