Ireland’s latest economic data confirms a reversal of the pattern seen in recent years. Normally, the multinational sector surges ahead while the domestic economy lags behind. Now, according to the latest Central Statistics Officer (CSO) figures, Gross Domestic Product (GDP), the traditional economic measure distorted in Ireland’s case by multinational activity, is on the decline, while domestic indicators are solid.
As ever with Irish economic data, nothing is simple. GDP is on the decline because of a fall-off in exports to the US in the early months of the year, mainly from the pharma sector. Given the strength of recent investment in this sector, this is hard to understand and could be due to temporary factors in one or two big companies.
That said, the general fall-off in international economic growth is bound to have some impact on exports, so this trend is worth watching. In turn, lower exports would hit the jobs market and could affect corporate tax revenues.
The domestic part of the economy is clearly strong. The key indicator here is unemployment, down to a historic low of 3.8 per cent. Consumer demand remains strong, though it could be hit by higher interest rates. There are clear capacity constraints across the economy, most obviously in housing but also in areas from energy, to water services, to social infrastructure like schools and hospitals.
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Recent tax revenue figures, including from the multinational sector, have also been buoyant. Growth here, too, could slow. And international tax negotiations could yet threaten revenues from around 2025 on through the implementation of another part of the OECD tax deal. But for now there are no signs of any fall-off in these key receipts, which have done so much to support the Irish exchequer in recent years and another overshoot of the target looks on the cards for this year.
Meanwhile, the strong growth in the domestic economy and particularly the buoyant jobs market has been encouraging, albeit creating some risks for the Government, as adding too much demand in the budget could boost inflation. In terms of the multinational sector, the familiar risks remain, notably the reliance on a small number of very big companies.
The Government has received much advice of the need for caution in case corporate tax receipts fall sharply, or some other sudden economic problem hits. Ireland paid a heavy price after 2008 for policy which added demand to an economy already going at full steam.
These points are well made. But Ministers have an opportunity, too, to use the current fortunate set of circumstances to achieve some longer-term goals – putting cash aside, reducing the national debt and building vital investments. Deciding to do this requires a budget package which stays within sensible limits in terms of 2024.