Ireland: Economy records best result since Q4 2016 in the first quarter
GDP bounced back in Q1, increasing 10.9% on a seasonally-adjusted quarter-on-quarter (s.a. qoq) basis, contrasting the 6.2% contraction recorded in the fourth quarter of last year. Q1’s reading marked a more than five-year high.
That said, the large figure was largely due to statistical noise. Changes in inventories and export growth explain most of the surge in GDP. Both were affected by the balance sheet movements of multinational corporations, which have little impact on domestic economic activity. Growth in exports of goods and services improved to 5.2% in Q1 (Q4 2021: +1.5% sa qoq). Conversely, imports of goods and services deteriorated, contracting 12.3% in Q1 (Q4 2021: +23.7% sa qoq). Meanwhile, modified final domestic demand, which strips out the distortions arising from the activity of multinationals, fell -1.0% in Q1.
More of a surprise was the fall in consumer spending. Private consumption contracted 0.7% in Q1, marking the steepest decline since Q1 2021 (Q4 2021: -0.5% sa qoq). This came despite the removal of most Covid-19 restrictions in January; it is likely that the positive effect of this was outweighed by the impact of rising inflation on consumer purchasing power.
Government consumption, meanwhile, dropped at the sharpest pace since Q2 2020, contracting 0.4% (Q4 2021: +0.6% sa qoq). Moreover, fixed investment contracted 39.5% in Q1, marking the worst result since Q2 2020 (Q4 2021: +75.8% sa qoq).
On an annual basis, economic growth gained traction, rising to 11.0% in Q1, from the previous period’s 9.6% growth.
Looking ahead to Q3 2022, sequential GDP growth is likely to be weaker, as consumer spending remains constrained. Inflation reached its highest rate since 1984 in May, with the release of pent-up spending on services from the relaxation of Covid-19 restrictions gradually petering out. Additional government measures to ease cost of living pressures are unlikely before the introduction of the 2023 budget in October this year.