Investment in Ireland

Ireland - Investment

GDP bounces back in Q3, logging best reading in nearly four years

The economy bounced back strongly in the third quarter, growing at the fastest rate since Q4 2016 as the easing of coronavirus lockdown measures supported activity. GDP expanded 11.1% on a seasonally-adjusted quarter-on-quarter basis in Q3, contrasting the 3.2% contraction recorded in Q2. Moreover, economic activity rebounded in annual terms, expanding 8.1% in the quarter—contrasting Q2’s 3.2% decrease and marking the best result since Q2 2018. That said, 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.

The strong upturn reflected a notable improvement in domestic demand (Q3: +7.4% s.a. qoq; Q2: -42.6% s.a. qoq). Household spending jumped 21.3% on a seasonally-adjusted quarterly basis in Q3 compared to the 19.1% contraction in Q2, as consumers resumed their purchases amid the reopening of businesses. Moreover, fixed investment rebounded, growing 4.4% in Q3 and contrasting the 64.4% contraction in the previous quarter. Meanwhile, public spending growth moderated to 0.1% in Q3 (Q2: +9.6% s.a. qoq).

On the external front, exports of goods and services bounced back in the third quarter, growing 5.7% and marking the best reading since Q2 2018 (Q2: -2.9% s.a. qoq), amid recovering global demand. In addition, imports of goods and services rebounded, growing 1.5% in Q3 (Q2: -35.8% s.a. qoq) and marking the best reading since Q4 2019.

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—expanded 13.9% in the third quarter, contrasting the previous quarter’s 16.4% decline. The upturn thus indicated rising domestic activity, consistent with the GDP headline in this case.

Looking ahead, the economy should recover in 2021, after the blow dealt by the pandemic and associated lockdown measures this year. A revival in global demand should boost the external sector, while fiscal and monetary stimulus should support domestic activity. Downside risks stem from a protracted health crisis and a potential no-deal Brexit, however.

FocusEconomics Consensus Forecast panelists see the economy shrinking 4.0% in 2021, which is down 0.3 percentage points from last month’s forecast. For 2022, the panel sees economic growth of 3.5%.