Exports boom drives Ireland's economy, but inflation starting to bite  

Output of multinationals is strong but cost-of-living crisis hitting households hard

Households are feeling the pinch as prices spiral.

The output of the multinationals drove the economy in the early months of the year, but early signs were already emerging that the cost-of-living crisis was bearing down on many households, new official figures suggest.

The Central Statistics Office data showed Ireland's GDP expanded at the fastest rate in Europe, by almost 12%, in the first three months of the year compared with the previous quarter, thanks to surging exports of the multinationals.   

However, the picture was complicated as other measures of Irish economic performance hinted that the climb in consumer prices was dramatically curtailing household spending, even before the February 24 invasion of Ukraine. 

The CSO figures show personal consumption had shrunk from the final quarter of 2021 and meant that modified domestic demand — a more trustworthy measure of how Irish households are faring — contracted by a significant 1% in the quarter. 

The exports of the IT and pharma multinationals continued to boom, helping to drive GDP growth, but consumer prices were already affecting household spending, said Goodbody chief economist Dermot O'Leary. He said: 

Inflation is already biting and will continue to be a feature over the coming quarters.

The CSO figures are the latest to confirm the huge contribution of the multinationals, as exports and the high paid jobs they provide have buoyed the economy for a number of years.   

However, a slew of data in recent weeks, including employment and the exchequer tax returns, appear to show that the economic strength is much more broad-based and not simply down to a handful of foreign-owned multinationals, such as Apple, Pfizer, and Google, which have major European operations in Ireland.             

"Not for the first time, new data on economic growth present a confusing picture in relation to current conditions in the Irish economy," said KBC Bank chief economist Austin Hughes, referring to the CSO's GDP figures.

Strength of multinational sector

"The strength of the multinational sector is very apparent and appears solidly based but weakness in domestic-focused activity may be somewhat exaggerated" too, Mr Hughes said.

He said there are undoubtedly households who wield "substantial spending power", but much depends on what type of job you hold in Ireland. 

Meanwhile, the exchequer returns for the end of May released earlier this week, showed the Government finances are in an extraordinarily healthy state to protect vulnerable households from the cost-of-living crisis. 

The exchequer collected record amounts of revenue from Vat, income, and corporation taxes, allaying fears that the Irish economy and in particular household spending would be hit hard by the worst surge in consumer prices for a generation.

Figures released in late May, showed the number of people in employment, at 2.5 million, had reached record levels and had pushed beyond the levels before the onset of the Covid-19 crisis.