Ireland: GDP rebounds in Q1
GDP bounced back solidly in the first quarter, expanding 7.8% on a seasonally-adjusted quarter-on-quarter basis and contrasting the 4.4% contraction seen in the fourth quarter of last year. Meanwhile, in annual terms, economic growth picked up pace, accelerating to 11.8% and logging the strongest expansion since Q1 2018 (Q4 2020: +1.5% yoy). That said, the significant presence of large multinationals which use Ireland as their base of operations leads to volatility from one quarter to the next, thus making it difficult to gauge the true health of the Irish economy.
Looking at the details of the press release, domestic demand deteriorated significantly over the previous quarter (Q1: -11.5% s.a. qoq; Q4 2020: +10.4% s.a. qoq), reflecting the impact of the nationwide lockdown in place throughout the period. Household spending contracted at a more pronounced pace of 5.1% in seasonally-adjusted quarter-on-quarter terms in Q1, compared to a 2.4% contraction in Q4 2020. Moreover, fixed investment contracted 19.5% in Q1, marking the worst reading since Q2 2020 (Q4 2020: +28.1% s.a. qoq). Meanwhile, public spending growth accelerated to 1.1% in Q1 (Q4 2020: +0.1% s.a. qoq).
Similarly, modified domestic demand—the national account metric developed by the Central Statistics Office that strips out the more volatile components such as research and development, and aircraft leasing operations—tumbled 5.4% in seasonally-adjusted quarter-on-quarter terms in Q1, following the prior quarter’s flat reading.
On the external front, growth in exports of goods and services improved to 5.8% in Q1 (Q4 2020: +4.8% s.a. qoq). Conversely, imports of goods and services deteriorated, contracting 8.9% in Q1 (Q4 2020: +23.9% s.a. qoq).
Looking ahead, the economy is seen expanding at a quicker pace this year, as the gradual lifting of restrictive measures releases pent-up demand and buoys domestic activity. Moreover, exports should gain steam in line with the recovery in key trading partners. However, trade barriers with the UK, despite the signing of an FTA, and the possible prolongation of Covid-19 restrictions cloud the outlook.