Economy grew by 13.6% last year as multinational exports surged

The Irish economy grew by 13.6 per cent last year — outgunning most of its peer countries — as it shrugged off the effects of the pandemic and exports surged.

However, the growth in gross domestic product (GDP) was primarily driven by the multinational sector and not reflected in underlying domestic activity.

The latest annual national accounts from the Central Statistics Office (CSO) show modified domestic demand — a better measure of domestic conditions — increased by a more modest 5.8 per cent in 2021. This was revised down from a previous estimate of 6.5 per cent.

The same measure suggested the economy contracted by 1 per cent in the first quarter of 2022, a reflection of Covid restrictions still in place at the start of the year, which also triggered a 1.7 per cent contraction in consumer spending in the first quarter.

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The CSO said modified domestic demand was a more accurate measure of underlying demand conditions as it excludes the globalisation effects of trade in intellectual property and the trade in aircraft by leasing companies.

Overall the figures pointed to a two-tier Irish economy with multinational-dominated sectors growing by 20.7 per cent in 2021 while all other sectors grew by 4.8 per cent.

Output in the industry and ICT sectors, which play host to some of the biggest global names in tech and pharma, grew by 21.4 per cent and 16.1 per cent respectively while the domestic-focused distribution, transport, hotels and restaurants sector grew by just 3.8 per cent.

The figures show the construction sector contracted by 3.1 per cent, reflecting the impact of pandemic-related health restrictions, which led to the closure of many building sites.

Personal consumption of goods and services, the main driver of domestic economic activity, increased while exports grew by 14.1 per cent in 2021. Lower imports of intellectual property products led to a decrease of 8.3 per cent in overall imports.

The balance of payments current account recorded a surplus of €60.7 billion in flows with the rest of the world.

“Today’s figures confirm a weaker first quarter for the domestic economy this year, with modified domestic demand contracting by -1 per cent. The combination of restrictions associated with the Omicron wave in January and the surge in energy and other commodity prices weighed heavily on demand over the quarter,” Minister for Finance Paschal Donohoe said. “Faced with the uncertainty associated with the war in Ukraine and mounting cost-of-living pressures, households cut back, with consumer spending falling by -1.7 per cent.”

“Today’s release underscores the challenges our economy faces. Momentum in the domestic economy and that of our trading partners is slowing and inflationary pressures are mounting,” he added.

Employers’ group Ibec said the figures confirmed broad growth across both international and domestic-facing sectors in the wake of Covid impacts last year.

Ibec economist Hazel Ahern-Flynn said: “Last week’s exchequer returns confirmed that, despite global headwinds from the invasion of Ukraine and inflationary pressures, the Irish business model is continuing to deliver resources to the State, with higher-than-expected returns across VAT, corporation tax and income tax reflecting high employment and strong business and retail activity.”

“The momentum we have entered this year with will provide the buffer needed to meet these ongoing challenges,” she said.