Headline growth numbers at odds with real feel of Irish economy

Ireland is a confusing place at the best of times. Contradictory trends abound. We seem — on paper at least — to be getting wealthier and wealthier while problems in housing and health seem to be worsening.

The latest growth numbers from the Central Statistics Office (CSO) are a case in point. They indicate that the economy grew by a whopping 10.8 per cent in annual terms in the first quarter of 2022, against a backdrop of war and higher inflation. You would be hard pressed to see that performance matched anywhere else in the world.

The growth, measured in gross domestic product (GDP) terms, was largely driven by multinational exports in the industry and IT sectors. However, GDP has become increasingly remote and at odds with the real feel of the Irish economy, precisely because it is dominated by the activities of multinationals that funnel most of their profits back home to parent companies in the US.

“GDP is not an accurate measure of what is going on in the domestic economy, given the size of the multinational sector,” Minister for Finance Paschal Donohoe said in his response to the latest figures.

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A more accurate barometer is consumer spending, the mainstay of any economy, and that fell by 0.7 per cent, perhaps the first sign that rising prices, particularly for energy and food, are beginning to impact consumer purchasing power. The CSO also noted that its preferred indicator for the domestic economy, modified domestic demand, contracted by 1 per cent year on year in the first quarter.

The CSO’s figures tell us that in Ireland, we have two economies. The multinational, foreign direct investment (FDI) one, which is uber-rich and driving forward at breakneck speed, and the domestic one, where most of us are employed, which is lagging further and further behind and is now facing the prospect of a major decline in living standards on the back of surging energy and food prices.

The growing divergence between the two appeared to accelerate under Covid, a pattern that looks to be continuing in the face of the new crisis, inflation.