Ireland: Economy slows in Q1 on downbeat domestic activity
According to provisional estimates, economic growth slowed to 1.2% in quarter-on-quarter and seasonally-adjusted terms in the first quarter, down from the downwardly revised 1.7% expansion in the fourth quarter (previously reported: +1.8% quarter-on-quarter, seasonally adjusted). Moreover, in annual terms, activity decelerated to 4.6% in Q1 from Q4’s 6.2% rise. The substantial presence of multinationals using the country as their base leads to marked volatility from one quarter to the next, thus making it difficult to gauge the true health of the Irish economy.
A marked contraction in domestic demand was largely behind the first quarter’s downturn (Q1: -3.4 qoq s.a.; Q4: +57.9 qoq s.a.). Private consumption declined 4.7% over the previous quarter in Q1 (Q4: 0.0% qoq s.a.) amid coronavirus induced lockdowns and rising unemployment. Meanwhile, fixed investment flatlined in the quarter, down from Q4’s 154.1% expansion, while government expenditure rose 0.5% in Q1, matching the previous quarter’s result.
On the external front, export growth slowed to 0.2% in Q1, down from Q4’s 1.7% increase amid a slowdown in global demand due to the Covid-19 pandemic. However, still solid pharmaceutical and IT exports contributed to keeping growth positive in the quarter. Meanwhile, imports fell 1.5%, contrasting Q4’s 37.5% expansion.
Modified domestic demand—the national account metric developed by the CSO that strips out the more volatile components such as research and development, and aircraft leasing operations—contracted 3.8% in Q1, contrasting the 2.8% expansion logged in Q4. The downturn thus indicates falling domestic activity, consistent with the GDP headline in this case.
GDP is seen contracting this year as the coronavirus pandemic wreaks havoc on the economy. A crippled global trading environment will depress the external sector, while containment measures are set to suppress domestic demand and increase unemployment. Fiscal stimulus and liquidity-boosting measures should cushion the downturn, however.