Oliver Mangan: Irish economy is bucking global trend by performing well

CSO figures show robust opening quarter despite a dip in spending

The past week saw both the OECD and World Bank make dramatic cuts to their growth forecasts for the world economy for this year, largely on the back of the fallout from the War in Ukraine. 

The Organisation for Co-operation and Development is now projecting global growth of 3% for this year, down from its previous estimate of 4.5%, while the World Bank has cut its 2022 forecast from 4.2% to 2.9%. 

Meanwhile, we have also seen the Central Bank of Ireland, the Economic and Social Research Institute, the Department of Finance, and others, lower their growth forecasts for Ireland in recent months.

Recent data, though, suggest that we could well see Irish GDP growth forecasts revised upwards again, in marked contrast to the trend elsewhere.

Central Statistics Office figures released last week showed a very robust opening quarter to the year, despite some sluggishness in spending. Output rose strongly across the economy.

We know the multinational sector is performing very well, with output up by 13.4% on year earlier levels in the first quarter. And output in the rest of the economy picked up strongly in the first quarter as the last of the Covid restrictions were lifted.

This was led by a 12% increase in hospitality, transport and distribution, but output rose strongly across all private sector services as the economy reopened fully.

The one soft spot in the economy in the opening quarter was domestic spending, which was held back by Covid restrictions still in place during the first month of the year, as well as ongoing disruptions to supply chains, most notably in the motor trade. 

Consumer spending dips

Consumer spending fell slightly in the first quarter, which is consistent with the trend in retail sales figures. 

Overall, modified final domestic demand, which excludes certain categories of global investment activity that distort the data, fell 1%. However, when one includes the rebuilding of inventories, modified total domestic demand rose strongly in the quarter, in line with the increase in output in domestic sectors of the economy. 

The available data for the second quarter point to ongoing strong growth in activity, with a large rise in retail sales in April, strong services and manufacturing purchasing  managers' index surveys for April and May, as well as a further decline in unemployment and continuing buoyant tax receipts.

The latest forecasts are for Irish economy to grow by around 6% this year. However, even if GDP remained unchanged over the remainder of the year from it level in the first quarter, it would still grow strongly. 

We can expect to see Irish GDP forecasts revised upwards over the summer and the domestic economy looks to be on course to grow by around 5%.

The strength of the economy is likely to see the Irish government finances move back into surplus in 2022 in marked contrast to the deficit of €8.25bn projected in the  budget. It is also resulting in much lower unemployment. 

The Irish economy will eventually be impacted by a slowing world growth, elevated inflation and higher interest rates, but for now it is bucking the global trend of weakening activity.

Oliver Mangan is chief economist at AIB