Irish economy enters technical recession following unexpected 4.6% fall in GDP

Excluding construction, the globalised industry sector contracted by more than 18% in the first three months of 2023

Excluding the construction sector - which grew by 12% in the quarter - the globalised industry sector contracted by more than 18%

Gross domestic product has decreased significantly more than expected following a contraction of 15.7% in multinational-dominated sectors.

New findings from the Central Statistics Office found that GDP fell by 4.6% in the first three months of 2023, with Gross National Product - which excludes multinational profits and repatriations - falling even more sharply by 8%.

This is the second consecutive quarter in which economic activity has contracted, fulfilling the technical criteria for a recession.

In addition, final domestic demand - a measure of personal, government and investment spending - decreased by 4.9% in Q1 2023, reflecting the lower levels of investment in intangible assets.

The CSO findings were, however, welcomed by Finance Minister Michael McGrath who pointed to rising domestic demand and growth in personal spending.

Modified domestic demand - which excludes the activity of multinationals and focuses on underlying domestic activity including government spending and investment - rose in the quarter by 2.7%. Furthermore, personal spending also rose by 1.7%, exceeding peak pre-pandemic levels despite continued inflationary pressures.

With CSO figures reporting just 3.8% of people out of work, Minister McGrath said, “Our economy is now clearly at full employment and it is important that budgetary policy is calibrated so as to avoid adding to inflation. We need to address capacity constraints, including those in the housing market."

Excluding the construction sector - which grew by 12% - the globalised industry sector contracted by more than 18%, with multinational-dominated sectors seeing the biggest quarterly decline since the first quarter of 2017.

Despite mass layoffs impacting Irish employees, the information & communication sector posted an increase of 4.0% in Q1, with the finance and insurance sector also seeing growth of 8.3% compared to the previous quarter.

The first three months also saw investment on capital formation fall by 12.7%, representing around €3.3bn, with the CSO saying this also reflected lower levels of investment in Intangible Assets. Net exports fell by 1.9%, equating to just under €1bn, with government spending on goods and services rising by 3.5%.

Internationally, the Current Account of the Balance of Payments recorded a surplus of €13.8 billion in flows with the rest of the world in Q1 2023, a dis-improvement of €3.2bn compared with the  recorded in Q1 2022. Net outflows of multinational profits were €35.2 billion in the quarter, an increase of €3.4bn quarter-on-quarter.

Despite a larger-than-expected fall in GDP, Finance Minister, Michael McGrath welcomed "a strong start to the year," for the domestic economy, citing record low unemployment of 3.8% and growth in the construction sector. Mr McGrath did, however, add that he was "conscious" of falling GDP, which he said reflected, "a fall in exports and, specifically, the globalised activities of the multinational sector.

"Multinational production can be extremely volatile on a quarterly basis with large swings a pattern of recent years. Indeed, given the outsized role the multinational sector plays in our economy, GDP is clearly not a useful measure of the living standards of domestic residents.”