Strong domestic growth recorded last year despite fall in GDP
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Despite a major contraction in the multinational sector last year, newly revised figures from the CSO show that the domestic economy grew far more than expected, with higher consumer spending a large contributor.
The CSO had originally estimated that gross domestic product contracted by 3.2% during 2023 while modified domestic demand (MDD) was estimated to have grown by only 0.5%.
However, the CSO has now revised these figures to say that GDP actually contracted by 5.5% while MDD grew by 2.6%.
GDP is not a good measure of the Irish domestic economy as it is heavily influenced by the presence of the numerous multinational companies based here.
MDD is the preferred metric for measuring growth in the domestic economy because it strips out the activity of multinationals as well as the large aircraft leasing sector.
In addition, gross national product — an economic measure that excludes the profits of multinationals — grew by 5.5% in the year.
Chief economist at Goodbody Dermot O’Leary said that the revisions suggest that the performance of the domestic economy last year was “even more impressive than previously thought” with higher consumer spending being a major contributor.
“With household balance sheets in good shape, employment and earnings continuing to grow and inflation falling, further growth can be expected in the coming 12 months,” he said.
Mr O’Leary added that the “large and volatile multinational sector is to blame for most of the revisions”.
Personal spending on goods and services during 2023 increased by 4.8% reaching €141.3bn.
This exceeded the pre-pandemic peak of €123.6bn in 2019.
Government spending on goods and services increased by 4.3% in the year.
According to the CSO, sectors focused on the domestic economy grew by 6.1% last year with the largest increases seen in the agriculture, forestry, and fisheries sector, up 14.8%, followed by the financial and insurance sector up 14.1%.
However, contractions were seen in the construction sector, down 2.9%, as well as the distribution, transport, hotels, and restaurants sector which posted a decline of 1%.
Overall, the multinational sector contracted by 16.2% during the year with exports falling 13.8%.
The heavily globalised industry sector contracted by 21.7% largely due to a major slowdown in the pharmaceutical sector as the need for covid-related products receded.
In comparison, the information and communications sector — which includes the big tech companies — grew by 7.4%.
Finance Minister Jack Chambers said despite facing significant inflationary pressures, “consumer spending nevertheless drove growth in the domestic economy last year”.
“While I recognise that GDP fell last year, GDP is not a useful measure in assessing the living standards of domestic residents.
"The annual decline reflects the volatile nature of multinational production,” he said.
“Looking ahead, inflationary pressures have eased considerably with the headline rate at its lowest level in three years.
"This should boost household purchasing power and, as the year progresses, support growth in our domestic economy."
The CSO also released quarterly accounts for January to March this year, which show MDD grew by 1% and GDP grew by 0.7%.