The economy contracted more than previously thought last year, even as conditions overall remain positive, new data from the Central Statistics Office (CSO) shows.
Ireland’s gross domestic product (GDP) shrank by 5.5 per cent in 2023, compared to the original estimate of a 3.2 per cent contraction, the revised data showed on Friday. The CSO said the fall was driven largely by a 13.8 per cent fall in exports. It followed growth of 9.4 per cent in 2022 and 13.6 per cent in 2021.
The drop was due mainly to a fall-off in pharma exports which followed a collapse in demand for Covid-19 vaccines and medications in the first half of the year.
GDP expanded by 0.7 per cent in the first three months of the year, down from a previous estimate of 1.1 per cent.
GDP is generally the preferred yardstick for economists and investors assessing a country’s economy, yet it is widely seen as a poor measure of the Irish economy. That is because of the flow of assets, including intellectual property and leased aircraft, through the country from multinationals operating here which can lead to big increases and decreases from quarter-to-quarter.
Modified domestic demand (MDD), which strips those movements out, is seen as a more useful measure of Ireland’s economic health. MDD grew 2.6 per cent for the year, compared to a previous estimate of 0.5 per cent.
Goodbody Stockbrokers chief economist Dermot O’Leary focused on the MDD figure, which also expanded 2.2 per cent in the first three months of 2023 compared to a year ago.
MDD “continued to grow at a steady pace,” he wrote in a note to clients, adding that consumer spending, government and modified investment were “all growing at a similar pace.”
“The revisions suggest that the performance of the domestic economy in the period post-Covid was even more impressive than previously thought, with higher consumer spending being a major contributor,” he wrote. “With household balance sheets in good shape, employment and earnings continuing to grow and inflation falling, further growth can be expected in the coming 12 months.”
Overall, the multinational dominated sector contracted by 16.2 per cent – the first time it has shrunk since 2013. Last year those businesses accounted for 46.6 per cent of total value added in the economy, compared with a 52.5 per cent share in 2022.
“Despite facing significant inflationary pressures, consumer spending nevertheless drove growth in the domestic economy last year,” Minister for Finance Jack Chambers said. “Compared with the previous year, consumer spending increased by nearly 5 per cent last year. This performance reflects the strength of the labour market, which has been at full employment since mid-2022.”
There was an increase of 6.1 per cent overall for sectors focused on the domestic market in 2023.
The agriculture, forestry and fisheries sector grew by 14.8 per cent in the year, while the financial and insurance sector expanded by 14.1 per cent, and real estate activities increased by 10.9 per cent.
Still, the construction sector fell by 2.9 per cent while the distribution, transport, hotels and restaurants sector posted a decline of 1 per cent in the year.
Looking at expenditure in the economy, personal spending on goods and services increased by 4.8 per cent. Government spending on goods and services increased by 4.3 per cent in the year.
Personal spending reached €141.3 billion in 2023, exceeding the €123.6 billion pre-pandemic peak level of spending in 2019 by 14.3 per cent.
