Business

Recession confirmed last year as GDP shrinks by 3.2%

Economy went into reverse in 2023 on back of slump in multinational exports, CSO figures show

The figures show the economy was effectively in a technical recession for the entirety of 2023

Eoin Burke-Kennedy
Fri Mar 1 2024 - 12:04

Ireland officially fell into recession last year as multinational exports slumped in the face of weaker global demand but the domestic economy still managed to grow, aided by stronger-than-expected consumer spending.

Central Statistics Office (CSO) figures published on Friday show the economy as a whole shrank by 3.2 per cent in GDP (gross domestic product) terms in 2023.

The CSO noted that the more globalised sectors of the economy, including the multinational-dominated “Industry” sector, contracted for the first time since 2013.

This was “driven largely by a fall of 4.8 per cent in exports,” the agency said.

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The figures show the economy was effectively in a technical recession for the entirety of 2023 with GDP contracting in all four quarters.

The domestic economy as measured by modified domestic demand (MDD), a more reliable barometer of domestic activity, grew by 0.5 per cent on the back of a 3.1 per cent increase in consumer spending.

Consumer spending was underpinned by strong employment growth with figures published last week showing a record 2.71 million people are now employed in the economy. Incomes also rose in real terms by 3.3 per cent, the CSO said.

Worryingly, however, MDD contracted by 0.4 per cent in the final quarter of last year on the back of a fall-off in private-sector investment. Another quarterly contraction would turn Ireland’s technical recession into a real one.

Minister for Finance Michael McGrath noted that despite the downturn in GDP, the domestic economy had grown modestly in MDD terms on the back of consumer spending underpinned “by strong employment growth”.

“That said, today’s data show that consumer spending was flat at [the] tail end of last year – with the tightening of monetary policy weighing on spending,” he said.

“In this context, I would highlight the easing of inflation – to 2.2 per cent in February, its lowest rate since July, 2021 – which will help support the purchasing power of households and underpin spending over this year. Ireland’s estimated inflation rate is now 0.4 per cent the euro-area rate,” he said.

In its latest bulletin, the CSO noted the impact of ongoing global events and decelerating inflation varied across sectors.

The more globalised sectors of the economy contracted for the first time since 2013 with the multinational-heavy “Industry” sector shrinking by 11 per cent.

The information and communication sector continued to grow however, increasing by 8 per cent in 2023.

There was a mixed picture for sectors focused on the domestic market, with economic activity in the financial and insurance sector growing by 7.5 per cent while the distribution, transport, hotels and restaurants sector grew by 4.5 per cent.

Meanwhile euro-area inflation eased less than anticipated in February, appearing to support the European Central Bank’s (ECB) caution about cutting interest rates too soon.

Consumer prices rose 2.6 per cent from a year ago in February, Eurostat said on Friday. That was above the 2.5 per cent rate expected by economists. Core inflation, which excludes volatile components such as food and energy, also moderated less than envisaged, to 3.1 per cent.

The latest figures all but extinguished speculation that ECB policymakers might start cutting interest rates before June on the back of a visible slowdown in price growth across the bloc and a marked slowing of the economy.

Eoin Burke-Kennedy

Eoin Burke-Kennedy

Eoin Burke-Kennedy is Economics Correspondent of The Irish Times

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