Real GDP in Ireland grew by 10.8% q-o-q in the first quarter of 2022, a big rebound after a marked fall in the last quarter of 2021.
Last update : Summer 2022 Economic Forecast (14/07/2022)
|GDP growth (%, yoy)||5,9||13,5||5,3||4,0|
|Inflation (%, yoy)||-0,5||2,4||7,3||3,3|
These dynamics were the results of different transactions by multinational enterprises (MNEs). A surge in investment in 2021-Q4 was related to the on-shoring of intellectual property which was offset by a simultaneous surge in imports of services, with no impact on GDP. Part of the surge in imports of services, however, was related to the payment of royalties for the production of drugs exported in 2022-Q1. The time lag in the production process led to the GDP contraction in 2021-Q4 and the ensuing rebound in 2022-Q1 (see Box 1.1).
When activities of MNEs are stripped out of the accounts, the economy is seen to have contracted in the first quarter, particularly due to falling investment in non-residential construction and equipment, while private consumption contracted, owing to COVID-related restrictions and rising inflation.
Consumer sentiment took a hit after Russia invaded Ukraine, with households reassessing their future financial situation in light of the expected economic deterioration, a trend reinforced by rising inflation. Meanwhile, the labour market performed very strongly, with unemployment falling to 4.7% in May. This is expected to revive private consumption going forward.
Despite the very strong first quarter reading, real GDP growth for 2022 is revised slightly down to 5.3%, while the 2023 annual growth projection is revised down to 4.0%, reflecting the deteriorating global outlook, weakening sentiment, and persisting inflationary pressures.
The outlook for the economy is surrounded by high uncertainty also due to factors which are specific to Ireland, such as recent developments regarding the disapplication by the UK of the Protocol on Ireland / Northern Ireland under the EU-UK Withdrawal Agreement.
HICP inflation kept on rising and stood at 9.6% in June 2022. Energy prices in May were 46.2% higher than in the previous year. While large parts of inflation are imported, the services inflation is more connected to domestic developments. It was above 5% over the last few months. HICP inflation is now projected to rise to 7.3% in 2022 before declining to 3.3% in 2023, when energy prices are expected to contribute negatively.