Irish GDP grew by 27% over last two years

Irish GDP grew by 12% in real terms last year, following a 13.6% increase in 2021, and the average figure over the past six years is an extraordinary 9.1%. The spike in inflation in 2022 also boosted nominal GDP, which rose by 17.9% , to €502bn, from under €300bn as recently as 2017.

Exports have been the key driver of that stellar growth although the net export contribution in 2022 was more modest, boosting GDP by 2.5%, with investment spending the main engine last year, contributing 7.5%. Capital formation in total grew by 26%, including a strong performance from construction ( 10%) with a 45% surge in housebuilding. Spending on machinery and equipment also had a strong year, up 29%, with Intangibles rising by 34%. The latter is extremely volatile (it fell 57% in 2021) as it is strongly influenced by multinational spending on intellectual property and R&D, and also captured as a service import, and therefore broadly GDP neutral.

Despite the rise in inflation last year (the CPI increased by 7.8%) real consumer spending rose by 6.6%, which was the strongest increase since 2007. Real government spending growth was a modest 0.7% , following the pandemic related increase over the previous two years, while stock building was very strong, adding over 2% to GDP. GNP, which adjusts for the net international flow of profits and interest, grew by 6.7%, following a big rise in multinational profit outflows, although again over the past two years the increase in GNP is over 20%.

The CSO also produce an estimate of final domestic spending (i.e excluding all foreign trade and stock building) adjusted for the impact of aircraft leasing and multinational spending on intellectual property, and this modified domestic demand figure grew by 8.2%.

The quarterly breakdown shows the economy slowing in the second half of the year, with GDP growing by just 0.3% in the final quarter. Export growth eased substantially, to 0.4%, but the main factor dampening the GDP figure was a 46% plunge in investment sending. This also depressed imports,so avoiding a fall in GDP, and reflected declines in construction , spending on machinery and equipment and intangibles, the latter extremely large at 62%. As noted this component is volatile (it rose by 91% in q3 for example) and is likely to be the main factor behind the large revision to the q4 data, as the CSO had initially announced that GDP had risen by 3.5% in q4.

That estimate captured international attention because it added 0.1% to the overall euro GDP estimate but that now disappears, which alongside a downward revision to the German data for q4 (now put at -0.4%) means that the euro area may well have contracted after all in q4. From an Irish perspective the softer than expected final quarter will impact growth estimates for 2023, although the carryover effect is still very strong, with annual growth in q4 at 12%.