The Irish economy contracted by 4.6% in the first quarter, a much steeper decline than the flash estimate of -2.7%. The scale of the fall allied to a massive base effect (GDP had risen by 7.9% in the first quarter of 2022) pushed the annual growth rate into negative territory at -0.2%.
The headline figure in the Irish national accounts often masks a wide disparity in the performance of the indigenous and multinational sectors and this was the case in q1, although for a change it was the former that outperformed. Consumer spending rose by 1.7%, boosted by strong auto sales, with construction spending increasing by 8.7% while investment in machinery and equipment excluding aircraft leasing jumped by 16%. Government consumption did fall, by 3.5%, but overall final modified domestic demand grew by 2.7% and by an annual 5.5% which is more consistent than GDP with the very strong employment data seen this year.
The fall in GDP was largely due to a 2.1% fall in exports with merchandise exports down 4.6%. This reflects a fall in contract manufacturing (offshore production for Irish based entities) and may relate to a certain mobile phone company’s issues in China.Imports also fell, by 2.2%, but in this case it was due to a decline in service imports, reflecting weaker spending on R&D and royalties. This is also captured as investment spending on Intangibles and this duly fell sharply as well , by 36%, which also explains why overall capital formation fell by 12.7%.
It is also worth noting that the fall in the quarter is much larger than the component parts would imply, due to a large change in the statistical adjustment figure and as such may be revised.