Investment in Ireland

Ireland - Investment

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.

FocusEconomics panelists project GDP to expand 4.1% in 2022, which is down 0.1 percentage points from last month’s forecast, and 4.1% in 2023.