Irish economy grew by 12.2% last year despite price squeeze and slowdown internationally

The Irish economy grew by a better-than-expected 12.2 per cent last year despite a severe cost-of-living squeeze and a significant slowdown in the global economy. This was significantly ahead of Government forecasts and made Ireland the fastest growing economy in Europe once again.

The Central Statistics Office (CSO) published a flash estimate of Gross Domestic Product (GDP) in the fourth quarter of 2022 to coincide with the publication of Eurostat growth figures due out on Tuesday.

“This is the first time that the CSO has published a preliminary estimate of GDP 30 days after the end of the reference quarter,” the agency said.

The figures show GDP, the standard measure of growth, grew by an estimated 3.5 per cent in the final three months of last year compared with the previous quarter. The growth was driven mainly by “expansion in the manufacturing sector”, the CSO said.

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The manufacturing sector in Ireland is dominated by pharmaceutical firms, which have continued to trade strongly despite the deteriorating international outlook. Pharma products account for over 50 per cent of the Republic’s goods exports.

The fourth quarter figure meant GDP – on an annual basis – is estimated to have increased by 12.2 per cent, when compared with 2021. While this was marginally down on the 13.5 per cent growth recorded in 2021, it is the strongest growth figure registered by any euro zone member.

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Welcoming the latest figures, Minister for Finance Michael McGrath said: “While some volatility is likely between this flash release and the detailed release in March, it is broadly in line with what my department projected for 2022 at budget time, and reflects the continued strength of the multinational sector in Ireland last year.”

“Other metrics mirror this growth, such as very robust goods exports and strong corporation tax receipts last year,” he said.

However, Minister McGrath cautioned that while GDP continues to grow robustly, “it does not reflect events on the ground in the domestic economy as it is greatly influenced by the outsized role that the multinational sector plays in our economy”.

“Internationally, incoming data suggest that the downturn may not be as severe as previously assumed,” he said, noting the International Monetary Fund (IMF) was likely to make a modest upward revision to its growth forecasts for this year, owing to reduced price pressures, increased fiscal supports and the reopening of the Chinese economy following its zero-Covid policy.

“While set to remain relatively high over 2023, inflation in Ireland appears to have peaked sooner than had been expected, driven by an easing in energy prices, some of which has already been reflected at the pump,” he said.

Goodbody economist Shaun McDonnell said the latest numbers meant Ireland was the fastest growing economy in Europe last year.

“It must be remembered that GDP growth data for Ireland are skewed by multinational activities, some of which is from sources that do not reside in Ireland,” he said. “Indeed, the growth in Q4 was driven primarily by expansion in the manufacturing sector according to CSO commentary, which is at odds with the manufacturing Purchasing Managers’ Index (PMI), measuring domestic business activity, which averaged a slightly contractionary reading of 49.6 across the three-month period to December 2022,” Mr McDonnell said.

“The performance in total manufacturing is driven, we suspect, by sectors such as pharmaceuticals and medical devices, which contribute substantively to Ireland’s GDP,” he added.

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Mr McDonnell said modified domestic demand, a measure of domestic economic activity, provided a better depiction of the Ireland’s true economic condition. “On this measure we expect growth to fall substantially to 0.7 per cent in 2023, reflecting economic headwinds such as a curtailment in household spending in the face of higher living costs and the eventuality of higher mortgage rates.”