The Irish economy grew by 10.8 per cent in the first quarter of 2022 — one of the strongest performances seen anywhere on the globe — as it shrugged off the effects of the pandemic. However, the growth in gross domestic product (GDP) was primarily driven by multinational exports and not reflected in underlying domestic activity.
Modified domestic demand — a better measure of conditions domestically — contracted by 1 per cent in year on year terms while personal spending on goods and services fell 0.7 per cent. The squeeze on real incomes from higher inflation is expected to curb consumption in the coming months. A deepening of the current energy crisis could also pitch the euro zone economy into recession, a scenario that would significantly impact Irish exports.
The latest quarterly national accounts from the Central Statistics Office (CSO) point to a two-tier Irish economy, with multinational-dominated sectors growing by 14.1 per cent while sectors focused on the domestic market experienced more modest growth of 7.6 per cent and, in some specific cases, contracted.
The multinational-dominated “industry” sector, which includes big pharma, grew 15 per cent to almost €49 billion, while the IT sector grew 4.3 per cent to €19 billion.
The domestically dominated distribution, transport, hotels and restaurants sector expanded by 11.9 per cent to €9.5 billion following a further easing of Covid restrictions, with the Omicron variant proving less impactful on activity generally than earlier strains, the CSO said. By contrast, construction activity — in value terms — fell 3.7 per cent to €1.9 billion.
The strong headline GDP number was primarily driven by a 5.2 per cent increase in exports. Net factor income outflows — which include multinational profits — amounted to of €34.7 billion, the highest level on record. Consequently, gross national product (GNP), which includes the outflow of multinational profits, decreased 0.4 per cent in the quarter.
The balance of payments current account recorded a surplus of €17.4 billion in flows with the rest of the world, compared with a surplus of €19 billion in the first quarter of 2021.
Responding to the figures, Minister for Finance Paschal Donohoe said: “While GDP growth was exceptionally strong in the first quarter, growing by 10.8 per cent compared with the previous quarter, part of this is no doubt a ‘washing-out’ of some of the one-off factors that led to the unusual negative quarter at the end of last year.”
“It is important also to put these volatile figures into context. GDP is not an accurate measure of what is going on in the domestic economy, given the size of the multinational sector,” he said.
“Today’s figures confirm a weak first quarter for the domestic economy as a result of numerous headwinds at the start of the year, including the Omicron wave, inflationary pressures and the increased uncertainty related to the war in Ukraine,” Mr Donohoe said.
KBC Bank Ireland economist Austin Hughes said: “Not for the first time, new data on economic growth present a confusing picture in relation to current conditions in the Irish economy. The strength of the multinational sector is very apparent and appears solidly based but weakness in domestic-focused activity may be somewhat exaggerated.”
