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A simple revision and we are in recession

CSO revises second quarter GDP number down, pushing Irish economy into recession in the process

Not that it made a blind bit of difference but the Central Statistics Office (CSO) revised us into a full-blown recession last week.

While publishing its latest quarterly national accounts, which indicated the economy here contracted in GDP (gross domestic product) terms by 1.9 per cent in the third quarter, the agency also revised down (from +0.5 per cent to -0.4 per cent) GDP growth in the second quarter.

The upshot of this meant the economy has now contracted for four consecutive quarters, more than meeting the technical definition of a recession, which is two consecutive quarters of negative growth.

So despite the fact we’re experiencing near full employment, a low level of business failures and only a modest fall-off in consumer spending, the Irish economy is in recession.

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The downturn has been brought about by a decline in multinational exports and increased import values linked to inflation, which has reduced net exports overall. In terms of modified domestic demand (MDD), the CSO’s preferred indicator for the Irish economy, the economy has contracted in three of the past five quarters. Growth in MDD terms was recorded as zero in the third quarter of 2023.

It’s a testament first to globalisation and second to the small, export-led nature of the Republic’s economy that you can have a recession without the usual telltale signs: job losses, bankruptcies, crashing household expenditure.

The CSO has got it in the neck at times for producing GDP numbers that bear little relationship to conditions on the ground, figures that have been derided as “leprechaun economics” by Nobel Prize-winning economist Paul Krugman. But it is working to a standardised textbook. The traditional GDP model of economic growth was devised back in the 1930s when global trade was dominated by traditional commodities like oil and steel and not when intangible assets worth billions of euro were being shifted from jurisdiction to jurisdiction.

Globalisation has changed the model that underpins the collation of national accounts and Ireland just happens to in the vanguard by virtue of housing so many of these big multinationals.