State’s economic growth weakened earlier this year, Donohoe warns
By Gráinne Ní Aodha, Pennsylvania
Finance Minister Paschal Donohoe played down the high GDP figures, warning that national economic growth slowed in the first quarter of the year.
National accounts for 2021 and estimates for the first quarter of 2022, released on Friday, showed Ireland’s GDP grew by 13.6% in 2021 and 6.3% in the first quarter of this year.
Mr Donohoe said the growth this year was due to a 5.3% increase in exports.
“It’s important to put this strong growth in context,” he said.
“This growth has come from a very small number of sectors dominated by multinationals, with limited links to the national economy.
“Indeed, the gross value added in the sectors of multinationals (multinational enterprises) increased by more than 20%, while the national sectors increased by around 5%.
“As I have said for a number of years now, GDP is not an accurate measure of what is happening in the Irish economy, and that view has been reinforced by today’s figures.
“I put a lot more emphasis on metrics like modified domestic demand, which better reflects underlying domestic economic activity.”
Modified domestic demand (MDD) – which is the sum of personal and government consumption and investment, and excludes things like changes in stock values - rose just under 6% the last year, driven by a 4.5% rise in consumer spending.
In the first quarter of this year, the MDD contracted by 1%, as consumer spending fell by minus 1.3% in the face of the Omicron wave of Covid-19 and the economic fallout from the war in Ukraine.
Donohoe continued, “Today’s numbers confirm a weaker first quarter for the domestic economy this year, with modified domestic demand contracting 1%.
“The combination of restrictions associated with the Omicron wave in January and soaring energy and other commodity prices weighed heavily on demand during the quarter. With mounting cost of living pressures, households reduced spending as consumer spending fell 1.7%.
“Today’s release highlights the challenges facing our economy. The dynamics of the domestic economy and those of our trading partners are slowing and inflationary pressures are increasing.
Figures released this week show Ireland’s consumer price index rose 9.1% on the year to June, from 7.8% on the year to May.
The estimated inflation rate for the year is between 7 and 8%.
Despite calls from opposition parties to announce new measures to help people cope with the cost of living ahead of the Dáil hike for the summer holidays on Thursday, the Irish government said it had already announced a back-to-school program, an energy subsidy and a reduction in fuel prices, arguing that further support would be announced as part of the “cost of living” budget in September.
Mr Donohoe said: ‘It is neither affordable nor appropriate to absorb all the price shock.
“Borrowing costs are on an increasing trajectory and our tax base is increasingly dependent on a small number of multinationals.
“In the meantime, we need to ensure that policy does not inadvertently add new inflationary pressures to the system.”