Simon Barry: Look to the labour market to better understand the health of the Irish economy 

Analysis of the first three quarters of 2023 confirms the decline in GDP last year was indeed about the multinationals, but the labour market offers much better news

CSO revisions leave the jobless rate at 4.3% for 2023 as a whole, marking the second-best year in 26 years of available data.

Incoming news on the performance of the Irish economy has acted as a stark reminder of the care needed when interpreting some key economic indicators. 

Most notably, the early or “flash” estimate of real GDP for the fourth quarter of last year recently released by the Central Statistics Office showed a fifth consecutive quarterly contraction in the volume of total output.  

Of course, it is well known Irish GDP figures can be subject to extremely high levels of volatility linked to the growing presence of many large multinationals. But that does not mean we should simply fall into the habit of routinely dismissing the GDP figures without subjecting their signal to thorough analysis, especially when the picture they paint is so stark.

Over the past 60 years, apart from the global financial crisis and the subsequent European sovereign debt crisis, Ireland has only ever once recorded a full-year drop in annual GDP, and last year's 1.9% decline was much more pronounced than the 0.2% fall recorded in 1983.

The latest GDP figures naturally raise important questions. Analysis of available figures for the first three quarters of 2023 confirms the GDP decline last year was indeed mostly about the multinationals and their weak exports. 

A thorough analysis of the labour market can play a hugely important role in developing a clear sense of how the Irish economy is performing. On this front, last week’s news from the CSO offered considerable encouragement. 

With new benchmark information available to CSO statisticians from the latest results of the quarterly Labour Force Survey, the CSO revised its prior guesstimates for monthly unemployment for the final three months of last year. 

This left the jobless rate unchanged at 4.5% in the fourth quarter. Moreover, the revisions leave the jobless rate at 4.3% for 2023 as a whole, marking the second-best year in 26 years of available data.

One caveat is that the unemployment figures point to an inflection point. The 4.5% jobless rate over the second half of the year was a bit higher than the 4.2% recorded in the first half — consistent with a modest amount of loosening in what has been an extremely tight labour market. 

Overall, labour market indicators generally offer a comparatively clean read on how the economy is faring relative to the often-noisy and volatile growth metrics. 

Extremely low unemployment last year offers a more meaningful picture of the health and trajectory of the Irish economy than the sizeable output decline recorded in the GDP figures. 

• Simon Barry is an independent economist