Ireland appears to have been the only country in the Euro Area to record economic growth last year, with real GDP rising by 3.4%., which also means it outpaced China (2.3%). Nominal GDP is now €366bn, and it has actually doubled in seven years. The 35% rise recorded in 2015 plays a significant part of course but excluding that year the average rise in nominal GDP since 2013 is 7.2% and 6.2% in real terms, a remarkable performance.
Growth in 2020 was achieved despite big Lockdown related falls in domestic demand, including a 9% decline in consumer spending and a 10% fall in building and construction. The contraction in investment spending on machinery and equipment was larger, at 25%, while the decline in Intangibles (R&D and Intellectual Property ) was 35%, bringing the total fall in investment spending to 32%.
Government spending rose substantially, including large transfers to support household and businesses, and the increase in Government consumption in the national accounts was 10%. However, the Government component in GDP is so small now that the net impact on growth in 2020 was less than 1%. The main reason the Irish economy grew last year was the performance of the export sector, which due to its composition (chemicals, pharma, and ICT) performed very well despite the pandemic, rising by 6.2% in volume terms , with all of the growth coming in terms of merchandise exports.The corollary to that export gain was higher multinational profits but overall factor outflows actually fell, albeit offset by a larger fall in investment income inflows , leading to a big rise in net outflows. Consequently GNP growth was much weaker than GDP, at 0.6%.
The 2020 growth figure was achieved despite a large seasonally adjusted 5.1% fall in GDP in the final quarter, although the component breakdown is a little odd, in that exports grew by over 4%, but that was outstripped by a 24% increase in imports. The latter is subtracted from the GDP measure but looks high relative to the consumption and capital formation figures and we would not be surprised if the Q4 figure is not revised upward.
Absent that revision the big fall in the final quarter left the annual change in GDP in q4 at just 1.5%, a much lower carryover effect than we anticipated. Growth in GDP over the first half of 2021 will be flattered by positive base effects but the economy is now entering the year with far less momentum which allied to the Lockdown over q1 has negative implications for the 2021 growth figure as a whole..