Ireland in technical recession as domestic economy falls flat in third quarter

Conor Humphries, Reuters

The domestic economy did not grow between the second and third quarters of the year as a fall in investment expenditure largely offset growth in consumer spending, Central Statistics Office data showed on Friday.

Quarterly national accounts also showed gross domestic product (GDP) fell by 1.9 per cent quarter-on-quarter versus an initial estimate of -1.8 per cent.

This was the fourth consecutive quarter of decline, meaning that the Irish economy is technically in recession.

With the Republic's large multinational sector often distorting GDP, officials prefer to use modified domestic demand (MDD) to gauge the strength of the economy. MDD was flat in the third quarter after growing 0.3 per cent in the second quarter and contracting 0.3 per cent in the first.

"Encouragingly, personal consumer spending increased by 0.7% in the third quarter, broadly in line with pre-pandemic norms and up 2.5% on an annual basis," Minister for Finance Michael McGrath said in a statement.

The GDP decline "reflects, in no small part, the ongoing fall-off in demand for Covid-related pharmaceutical products" produced in Ireland, McGrath said. "We are also seeing a marked softening in global economic conditions."

Growth in the State's domestic economy has softened in recent months following a sharp bounce back from the Covid-19 pandemic that resulted in MDD growth of 9.5 per cent in 2022, faster than GDP growth in any other euro zone economy.

Unemployment has risen to 4.8 per cent from a near record low of 4.1 per cent in February, with retail sales posting their first annual decline of the year last month and surveys showing growth in the services sector slowing for six straight months.

A sharp slowdown in inflation to 2.3 per cent last month should offer some respite.

Before Friday's release, the Department of Finance had forecast MDD, which strips out some of the ways multinational operations inflate activity, to grow by 2.2 per cent this year and again in 2024.