Domestic economic growth slowed more than expected in 2023, figures show

Padraic Halpin, Reuters

The Republic's domestic economy expanded by just 0.5 per cent last year, far below the 2.2 per cent expected by the Department of Finance following a continued fall in investment in the final quarter, official data showed on Friday.

With Ireland's large multinational sector often distorting gross domestic product (GDP), officials prefer to use modified domestic demand (MDD) to gauge the strength of the economy. MDD contracted 0.4 per cent quarter-on-quarter from October to December.

GDP is still the measure used to calculate the State's share of activity across the euro zone. This measure contracted by 3.4 per cent quarter-on-quarter versus an initial estimate of -0.7 per cent, and by 3.2 per cent in 2023 having grown by 9.4 per cent a year earlier, Central Statistics Office data showed.

Modified domestic demand grew just as sharply in 2022, up 9.5 per cent, thanks to a post-pandemic rebound in consumer spending and a 15.9 per cent surge in modified investment linked to workers returning to their offices and major manufacturing plant projects.

The 7.1 per cent fall in modified investment in 2023 was a far worse outcome than the 0.2 decline the Department of Finance had forecast in October. The 3.1 per cent increase in personal consumption last year was broadly in line with the department's estimates.

Minister for Finance Michael McGrath said the growth in consumer spending together with the strength of the labour market – where employment grew 3.4 per cent year-on-year in 2023 – were "a good measure of the underlying health of the domestic economy."

"That said, today's data show that consumer spending was flat at the tail-end of last year – with the tightening of monetary policy weighing on spending," Mr McGrath said in a statement.

"In this context, I would highlight the easing of inflation – to 2.2 per cent in February, its lowest rate since July 2021 – which will help support the purchasing power of households and underpin spending over this year."

Mr McGrath's department most recently forecast modified domestic demand growth of 2.2 per cent for 2024, supported by a similar rate of consumption growth to 2023 and flat modified investment. It will update those forecasts next month.