Investment in Ireland

Ireland - Investment

Statistical noise causes GDP to record largest drop on record in Q4

GDP dropped 5.4% on a seasonally-adjusted quarter-on-quarter basis in the fourth quarter, contrasting the 1.2% expansion logged in the third quarter and marking the worst reading on record. That said, the poor reading was likely driven by statistical noise. Modified final domestic demand, a metric which strips out distortions arising from multinational activity, rose by 1.3% in seasonally-adjusted quarter-on-quarter terms.

The weaker reading was largely driven by an acceleration in imports of goods and services, which grew 22.7% in Q4 (Q3: +4.3% s.a. qoq) due to significant imports of intellectual property by multinational firms. Meanwhile, exports of goods and services growth sped up to 1.3% in Q4 (Q3: +0.6% s.a. qoq).

This said, the quarter’s growth in modified final domestic demand did mark a slowdown from the previous quarter (Q3: +2.3% s.a. qoq). Moreover, private consumption contracted 0.3% in Q4, marking the worst result since Q1 2021 (Q3: +0.3% s.a. qoq). Therefore, it appears that there was some slowdown in underlying economic activity amid the disruption caused by the Omicron Covid-19 variant and related restrictions.

Government spending, meanwhile, bounced back, growing 0.9% in Q4 (Q3: -0.1% s.a. qoq). Meanwhile, fixed investment rebounded hugely, growing 76.5% in Q4, contrasting the 1.0% contraction logged in the prior quarter.

On an annual basis, economic growth slowed markedly to 9.6% in Q4, following the previous period's 11.3% expansion. Q4's reading marked the slowest expansion since Q4 2020.

Looking ahead to Q1 2022, underlying economic activity is likely improving. A recent fall in Covid-19 cases allowed the government to announce the end to most restrictions in January. This should mean an increase in private consumption activity. That said, red-hot inflation is likely to somewhat limit consumers’ abilities to spend, dampening underlying economic momentum.

FocusEconomics panelists project GDP to expand 5.6% in 2022, which is unchanged from last month’s forecast, and 3.9% in 2023.