IRISH GROWTH DATA FOR Q4 2022 & FOR THE FULL YEAR

As always, quarterly growth data difficult to interpret, but definite slowdown in the later part of the year, but overall the picture is still quite healthy.

The CSO published preliminary national accounts data on economic activity for the fourth quarter of 2022 and the first detailed attempt to provide a picture of economic activity for the full year.

First, let us look at the annual data:

·         Gross Domestic Product (GDP) expanded by 12 per cent in real terms in 2022.

·         Net factor outflows, which is mainly the difference between profits repatriated by foreign-owned multinationals operating in Ireland to their overseas shareholders and profits repatriated back to Ireland by Irish companies operating overseas. In 2022, there were net factor outflows of €131.9 billion, which is the highest level ever seen in this country. This basically reflects the strong business performance of multi-nationals operating in Ireland, which has been obvious from employment growth, export growth and corporation tax revenues over the past couple of years.

·         Output from the multi-national dominated sectors expanded by 19.4 per cent in 2022, and output from all other sectors increased by 7.2 per cent. The multi-national component accounted for 55.7 per cent of total value added in the economy.

·         Gross National Product (GNP), which is what we are left with when the net factor outflows are subtracted from GDP, expanded by 6.6 per cent. GNP was once the key measure to look in an Irish context, but its significance has been superseded by developments in the economy since 2015 in areas such as IP assets, multi-national accounting practices and aircraft leasing. Modified Domestic Demand is now a more accurate measure of what is happening in the ‘domestic’ economy.

·         Modified Domestic Demand – which is basically a broad measure of underlying domestic activity that covers personal, government and business investment spending, and as such is a better gauge of what is really happening on the ground in the economy, expanded by a very healthy 8.2 per cent.

·         Personal spending on goods and services expanded by 6.6 per cent in 2022.

·         Net spending by central and local government expanded by 0.7 per cent.

·         Gross Domestic Fixed Capital Formation, which is basically investment spending, expanded by 25.9 per cent.

·         Exports of goods and services expanded by 15 per cent and imports of goods and services expanded by 19 per cent.

In summary, 2022 was a very strong year for the Irish economy, which should come as no surprise given what we have seen in areas such as employment, unemployment, tax revenues and exports. However, it is clear that activity did soften towards the end of the year, which should also come as no real surprise, given the headwinds from elevated inflation, higher business costs and the significant increases coming through on the interest rate front.

The media headlines have been grabbed by the fact that modified domestic demand contracted in Q4 for the second successive quarter, meaning that the domestic side of the economy went into technical recession in Q4. To understand what is happening here, it is necessary to look at the seasonally adjusted quarter profile of growth components.

Looking at the data for Q4:

·         GDP in the final quarter expanded by 0.3 per cent during the quarter.

·         GNP expanded by 4.7 per cent.

·         Personal spending on goods and services expanded by 1.1 per cent during the quarter.

·         Net spending by central and local government expanded by 2.5 per cent.

·         Gross Domestic Fixed Capital Formation, which is basically investment spending, contracted by 46.5 per cent. This number is heavily distorted from quarter to quarter due to factors such as IP assets and aircraft leasing. However, a significant slowdown in business spending on IT equipment was recorded in the second half of the year, following a surge during the Covid lockdown. IP investment was also down sharply.

·         Exports of goods and services expanded by 0.4 per cent and imports of goods and services contracted by 13.4 per cent.

·         Modified Domestic Demand contracted by 1.3 per cent during the fourth quarter, following a contraction of 1.1 per cent in the third quarter – thereby delivering the technical definition of recession.

·         Construction output fell by 6.1 per cent quarter-on-quarter; output from Agriculture, Forestry & Fishing declined by 19.9 per cent.

Compensation of employees increased by 0.9 per cent during the final quarter, and was 3.9 per cent higher than the final quarter of 2021.

As is the case every quarter, Irish growth data are difficult to interpret. However, it is clear that overall activity levels were strong in 2022, but growth did slow later in the year. Given that interest rates are still rising, it is probable that the domestic component of the economy will be fairly flat in the first quarter.