The Irish economy, as measured by gross domestic product (GDP), shrank by 4.6 per cent in the first quarter of this year on the back of a major contraction in the multinational-dominated industry sector.
The Central Statistics Office (CSO) also revised down its estimate of GDP for the final quarter of last year to -0.1 per cent, down from an original estimate of 0.3 per cent. The revision means the economy, as measured by GDP, has now experienced two consecutive quarters of negative growth, meeting the definition of a technical recession. The CSO, however, cautioned that the decline in GDP at the end of last year was marginal and may yet be revised up.
The agency’s latest quarterly national accounts show the globalised industry sector, which is dominated by big pharma, contracted by 18.2 per cent in the first quarter. As a result net exports posted a decline of 1.9 per cent or €900 million.
Minister for Finance Michael McGrath said: “Multinational production can be extremely volatile on a quarterly basis, with large swings a pattern of recent years. Indeed, given the outsized role the multinational sector plays in our economy, GDP is clearly not a useful measure of the living standards of domestic residents.”
The CSO figures show that modified domestic demand (MDD), a better indicator of domestic activity, expanded by 2.7 per cent in the first quarter despite the impact of higher prices and higher mortgage repayments. Driving this expansion was personal spending on goods and services, the main driver of domestic growth, which rose by 1.7 per cent.
The CSO said personal spending in the first quarter exceeded the peak pre-pandemic level of personal spending recorded in second quarter of 2019.
The figures indicate that most sectors “focused on the domestic economy” experienced an increase in economic activity. Output in the construction sector and the agriculture, forestry and fishing sector expanded by 12 and 15.9 per cent respectively. Activity in the distribution, transport, hotels and restaurants sector, which is heavily dependent on the consumer spending, grew by 2.7 per cent quarter-on-quarter.
Mr McGrath welcomed the increase in modified domestic demand, noting the “expansion was broad-based, with both consumer and investment spending robust in the quarter”.
“Consumer spending increased by 1.7 per cent when compared with the previous quarter, with Government supports, the easing of energy prices and an improvement in confidence all playing a role. Strong employment growth in the first quarter was also a key factor,” he said.
Goodbody economist Dermot O’Leary said: “Irish GDP fell for the second consecutive quarter in Q1, but caution is warranted in over-interpreting this to mean Ireland has entered recession. Pharma appears to be the main culprit, but output can be volatile here. Domestic spending accelerated in the quarter, with consumer spending continuing to grow despite inflation headwinds.”
The CSO figures show gross national product (GNP), a barometer that weeds out the profits of multinationals, declined 8 per cent in the first three months of the year.