Economy officially in technical recession as GDP shrinks more than expected in third quarter

GDP fell by 1.9% between July and September, a greater drop than previously estimated

The Irish economy contracted more than initially expected between July and September of this year as gross domestic product (GDP) fell by 1.9 per cent.

Quarterly national accounts released by the Central Statistics Office (CSO) on Friday show that the decline was greater than a preliminary estimate published in October, which put the GDP contraction at 1.8 per cent.

This was the fourth consecutive quarter of decline, meaning that the Irish economy is technically in recession.

The CSO noted that the shrinking of the economy last quarter was driven largely by a contraction in multinational industry as multinational-dominated sectors account for more than half (52 per cent) of all total value added in the economy.

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Sectors dominated by multinationals contracted by 3.8 per cent in the third quarter, and all other sectors shrank by 0.7 per cent.

Among domestic sectors the largest contraction was in agriculture, forestry and fishing, which shrank by 15.4 per cent in the third quarter, while financial and insurance services declined by 8.5 per cent. The largest growth in GDP was in the information and communication sector, which expanded by 3.1 per cent.

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Gross national product (GNP), a measure of the economy that excludes the profits of multinationals, declined by 1.1 per cent in the third quarter.

Over the first nine months of 2023, the economy contracted by 1.3 per cent in GDP terms compared to the same period in 2022, while GNP expanded by 6 per cent.

Exports fell by 2.1 per cent in the third quarter, while imports were down by 1.7 per cent, leading to a quarterly decline in overall net exports of 3.1 per cent or €1.3 billion. In the first nine months of the year overall net exports fell by 5.9 per cent or by €8.6 billion.

Minister for Finance Michael McGrath noted that GDP “is not a useful measure in assessing the living standards of domestic residents given the outsize role the multinational sector plays in our economy”, adding that a decline last quarter reflects an ongoing fall off in demand for Covid-related pharmaceutical products.

Mr McGrath highlighted that modified domestic demand, his “preferred metric” which measures domestic activity such as personal, government, and investment spending, was unchanged in the third quarter.

He added that a 0.7 per cent increase in consumer spending in the third quarter was supported by strong employment growth and easing of inflation. “I am cognisant that many households continue to be impacted by price pressures and Government continues to play a key role in protecting those most acutely impacted,” he said, adding that many Budget 2024 supports for households hit people’s pockets earlier this week.

Ellen O'Regan

Ellen O’Regan

Ellen O’Regan is an Irish Times journalist.