The latest European Commission economic forecasts are generally seen as being a glass half full, as it were. The threatened recession will be avoided, the commission believes, and inflation has peaked. But across the EU, the cost-of living crisis has taken a bite. The EU economy was in “broad stagnation” in the second half of last year, the commission finds, and indeed had Irish multinational-fuelled GDP growth not been so high, the bloc would have recorded no growth, or even a small decline.
The GDP factor is also helping to put Ireland at the top of the league for expected growth this year, with a forecast expansion of 4.9 per cent compared to an EU average of 0.8 per cent. Official forecasters have predicted that modified domestic demand — a measure which factors out many of the multinational distortions — will rise by 1.2 per cent this year and while this forecast may well be revised upwards, Ireland’s growth is not as far above the average as the top-line GDP figures suggest.
As the commission drily puts it in its section on Ireland, “the performance of multinational corporations could swing growth in either direction”. This is true in the “real” economy, of course, where we wait to see the impact of the tech job cuts; so far, the unemployment rate has remained near historic lows, though many of the cuts may still have to happen.
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However, multinational factors could also affect the top-line figures and the runaway GDP growth which — at 12 per cent plus last year — bears little resemblance to reality. If multinationals are heavily affected by slower international growth or change the way they use their Irish subsidiaries, for example, it could pull down GDP growth significantly. It could also affect corporation tax revenue, of course.
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For now, the fact that the EU looks set to avoid the kind of growth wipeout that had been feared is positive. The markets that the big players are selling into from Ireland look set to hold in, if not grow. But the balance in Irish exports this year will be vital to watch to see if the growth engine that has propelled the economy is slowing.
