The Irish economy, as measured by real GDP, contracted for four consecutive quarters last year, with the annual figure falling by 3.2% . Nominal GDP also declined, to €505bn from €506bn in 2022. The pace of decline accelerated through the second half of the year and real GDP fell by 3.4% in the final quarter, substantially worse than the initial -0.7% flash estimate. That left the annual change in the final quarter at -8.7%, which gives a very weak carry over into 2024, and the economy may well struggle to record positive growth even with a recovery in external trade.
Exports have been the engine of Irish growth for a long time now but 2023 saw a sharp reversal of the seemingly inexorable rise, with a 4.8% fall in volume terms following double digit annual gains over the previous four years. Service exports held up well, rising by over 8%, but there was an extraordinary collapse on the merchandise side, by €45bn or 13%. Goods shipped from Ireland fell by €10bn, reflecting weaker Pharma and organic chemicals, but goods outsourced to production abroad, largely in China, fell by €34bn, probably down to a specific phone manufacturer.Exports in total ended the year down 9.5% so a strong recovery would be required to give positive export growth for 2024.
Imports had also weakened through the year but rebounded sharply in q4 on the back of a surge in service imports related to intellectual property. That resulted in a modestly positive import growth for the year as a whole. The IP service import is also captured and offset by Intangibles in capital formation (therefore largely GDP neutral), so that component also rose modestly in 2023, despite a 1% fall in building and construction.
Consumer spending rose by over 10% last year, but prices increased by 7% so spending in real terms grew by 3.1%, with a notable switch by consumers to cars and services amid soft retail sales. Despite this growth, modified domestic demand rose by only 0.5%, dampened by the fall in construction and a decline in investment in machinery and equipment.
These GDP figures and indeed the modified domestic demand outturn sit uneasily with other data such as tax receipts and employment growth (up by 90,000 last year or 3.4%) and in this case GNP might be a better reflection of underlying economic activity: that adjusts GDP for profit and interest flows, and the net outflow was lower last year so GNP actually rose strongly, by 4.4%.