Irish economy defies deteriorating outlook to register strong growth in June

Stronger-than-expected retail sales continues to drive growth in the Irish economy, according to the Economic and Social Research Institute (ESRI).

The think tank’s latest “nowcast” – which utilises real-time data – indicates that modified domestic demand grew by 3.5 per cent year-on-year in June. “This is up slightly from our May 2023 estimate of 3.1 per cent,” the ESRI said.

Modified domestic demand is considered a more reliable gauge of domestic economic conditions in Ireland, comprising spending by households, investment by enterprises and net spending by Government.

“While June saw a further tightening of financial conditions and more negative business sentiment indicators than 12 months ago, there were strong improvements in retail sales as well as an increase in industrial production from 12 months ago,” the ESRI said.

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Based on data from April, May and June, the agency estimated that modified domestic demand grew by a stronger-than-previously estimated 3.4 per cent in the second quarter of 2023.

Provisional estimates from the Central Statistics Office (CSO), published last month, suggest the more conventional measure of growth GDP rose by 3.3 per cent in the second quarter.

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The official figures show the Irish economy contracted by 2.8 per cent in terms of GDP in the first quarter as activity within the multinational sector slowed. This followed a contraction of 0.1 per cent in the final quarter of last year, which meant the economy here entered a technical recession – defined as two consecutive quarters of negative growth.

Strong growth in the second quarter appears to be bolstering growth across the euro zone which rose by 0.3 per cent in GDP terms in the second quarter.

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Higher interest rates designed to fight inflation have clouded the outlook as they make it more expensive for households and businesses to borrow, invest and spend.

On an annual basis, the euro zone grew by just 0.6 per cent, its worst performance since the recession of 2020-21.