Ireland: GDP growth weakens in the second quarter
Economic growth lost momentum in the second quarter, with GDP increasing 1.8% on a seasonally-adjusted quarter-on-quarter basis (Q1: +6.2% s.a. qoq).
The slowdown was primarily due to a deteriorating external balance; exports of goods and services increased 3.0% on a seasonally-adjusted quarterly basis in the second quarter, which was below the first quarter’s 5.3% expansion. Conversely, imports of goods and services bounced back, growing 5.5% in Q2 (Q1: -14.0% s.a. qoq). This weaker external balance may have been due partly to distortions arising from movements on multinationals’ balance sheets: Multinational-dominated sectors grew more slowly in Q2 than in Q1.
More positively, the domestic economy performed more strongly in Q2. Modified domestic demand, a measure that strips out the effect of distortions arising from multinational activity, grew 4.3% in Q2 after having contracted 1.0% in Q1. Looking further in detail at the domestic economy, private consumption increased 1.8% in the second quarter, which contrasted the first quarter’s 0.1% contraction. Government consumption recovered, growing 2.7% in Q2 (Q1: -4.8% s.a. qoq). Meanwhile, fixed investment rebounded, growing 17.9% in Q2, contrasting the 45.3% contraction recorded in the prior quarter.
The strong performance of the domestic economy—despite inflation averaging at a more than two-decade high in Q2—was likely due to a reopening effect after most Covid-19 restrictions were eased earlier this year. Customer-facing services sectors—notably distribution, transport, hotels and restaurants plus arts, entertainment and other services—grew faster in Q2 than in Q1.
On an annual basis, economic growth accelerated to 11.1% in Q2, compared to the previous quarter’s 10.8% expansion.
Going forward, our panelists expect a sharp slowdown in Q3. Inflation has been higher in the quarter so far, while consumer confidence has fallen, and as a result, private consumption is likely to soften. Meanwhile, additional government measures to ease cost of living pressures are unlikely before the introduction of the 2023 budget in October this year.