Ireland enters recession after GDP shrinks by record level in second quarter

Shoppers on Winthrop St, Cork. The personal consumption of goods and services decreased by 19.6% in the second quarter. Picture: Larry Cummins

The Irish economy has entered recession after contracting by 6.1% in the second quarter according to data from the Central Statistics Office (CSO).

The fall is the largest quarterly decline in GDP on record, surpassing the 4.7 per cent decline recorded in the fourth quarter of 2008.

Releasing the figures the CSO also revised down GDP growth for the first quarter of 2020 to -2.1% with the State recording two consecutive quarters of negative growth due to the impact of the coronavirus pandemic.

Despite the large reduction, the fall in Ireland's GDP was amongst the smallest in Europe and well below the EU average of almost 12%.

The figures show the personal consumption of goods and services, a key measure of domestic economic activity, decreased by 19.6% in the second quarter. This was partly offset by an increase of €37.8 billion in net Exports of Goods and Services. 

Minister for Finance Paschal Donohoe said the figures highlight the dual economic impact of the pandemic with net exports positively contributing to GDP in year-on-year terms on the back of robust growth in pharma exports, while the domestic economy suffered a severe hit.

“Looking forward, a recovery in GDP clearly occurred in the third quarter. Retail sales in July were almost 5 per cent above the pre-pandemic level," he said adding that indicators point to a continuation of this trend in August, albeit at a more modest rate of growth.

Neil Gibson, Chief Economist at EY said an economic contraction of 6.1% would normally be cause for alarm, but the figures are well above the level expected by most forecasters and are being met with a sense of positivity. 

"The contraction will be considerably less than others in Europe and will likely keep Ireland atop the headline growth charts, albeit with the most severe quarterly contraction ever recorded," he said.

Business group Ibec said the figures for April, May, and June captured the worst impacts of the lockdown on the economy. 

"Despite unemployment rising to 23% during the period, the economy only shrank by 6.1%. This follows recent data showing robust tax returns over the Summer period," Chief Economist Gerard Brady said.

"As we head toward 2021, the tide of the first impacts of Covid on the economy is beginning to recede and reveal the true economic damage left behind in the labour market. 

"There are close to half a million people unemployed and large sectors of our economy are facing extremely challenging operating environments," he said.

Mr Brady said the figures do provide some hope. "Ireland’s export-orientated business model has proven robust to the global challenge of Covid. We are a country with a skilled population, global outlook, and welcoming business environment, which sits at the core of one of the World’s largest markets."

Separate figures from the CSO for July show that Industrial Production increased by 8.8% in July compared to June and was 13.4% higher than July 2019. The food sector recorded one of the largest increases with output jumping almost 30%.