The Irish economy, as measured by gross domestic product (GDP), unexpectedly contracted by 1 per cent in the second quarter, as multinational output and exports fell. This was down from a previous estimate that the economy grew by 1.2 per cent.
The revised figures, detailed in the Central Statistics Office’s latest quarterly national accounts, means GDP in the first half of 2024 shrank by 4.4 per cent compared with last year.
Minister for Finance Jack Chambers blamed the contraction on “continued volatility in the multinational sector”.
“While I recognise the fall in GDP in the second quarter of this year, GDP is not a useful measure in assessing the living standards of domestic residents, given the outsized role the multinational sector plays in our economy,” he said.
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“The fall in GDP reflects the volatile nature of activity in the multinational sector,” Mr Chambers said.
The CSO’s figures show that GDP was dragged lower by a 65 per cent drop-off in capital formation which relates to changes in intellectual property (IP).
While Modified Domestic Demand (MDD), a more accurate measure of underlying domestic activity, fell by 0.5 per cent in the second quarter, it grew in annualised terms by 1.5 per cent, which Goodbody economist Dermot O’Leary said was in keeping with a 2 per cent growth rate for the economy as a whole in 2024.
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Broken down on a sector-by-sector basis, the CSO said activity in the globalised “industry” sector, which is dominated by big pharma companies, fell by 0.7 per cent in the three months until the end of June, while the information and communication sector posted a decrease of 0.9 per cent over the same period.
There was a mixed picture for sectors focused on the domestic market, with overall activity falling 1.8 per cent for the sectors combined.
The finance and insurance sector contracted by 9.8 per cent, while the distribution, transport, hotels and restaurants sector, a strong indicator of domestic consumption, declined by 1.1 per cent. However, overall personal spending on goods and services grew by 1.1 per cent in the quarter.
Mr Chambers noted that the preferred metric for the domestic economy, MDD, recorded positive growth, which boded well for domestic activity and living standards.
“I am pleased to see that consumer spending contributed positively to this growth, with consumption increasing by 1.3 per cent on an annual basis,” he said.
“The growth in consumer spending, alongside robust exchequer figures released yesterday and the strength of our labour market, highlights the relatively healthy position of our domestic economy at present,” Mr Chambers said.
The latest exchequer data showed corporation tax receipts more than doubled in August compared with the same month last year and are on course to eclipse last year’s record €24 billion haul. The were also positive trends for income tax and VAT.
The figures provided a timely bounce for the exchequer ahead of the budget, but the Irish Fiscal Advisory Council warned cost pressures were continuing to mount.
“Looking ahead, inflation has now eased back significantly and is expected to remain on a stable trajectory over the short term. This will help boost real incomes, which should further support growth in our domestic economy in the second half of the year,” he said.
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