- GDP grew by 11.8 per cent year-on-year in the first quarter of 2021.
- This exceptional growth was led by exports which grew by 18 per cent year-on-year primarily due to strong growth in ‘contract manufacturing’.
- However, Modified Domestic Demand – a proxy for the domestic economy – fell by 5 per cent year-on-year, in-line with expectations.
- Consumer spending fell by around 12 per cent year-on-year in the first quarter while new housing output was down 21 per cent.
- While the level of restrictions in the first quarter of the year is in line with that of the first lockdown in the spring last year, the fall in domestic activity was not as severe.
- Looking forward, a recovery in the domestic economy commenced in the second quarter and should accelerate into the second half of the year.
The CSO today (4th June) published the Quarterly National Accounts for the first quarter of 2021. Commenting on the figures, Minister for Finance, Paschal Donohoe T,D, said:
“I note the exceptionally strong GDP growth in the first quarter of 2021. This was driven by a relatively small number of sectors with, in some cases, the increased activity generating limited domestic employment. It is for this reason that I have often said that GDP is not an accurate measure of what’s going on in the Irish economy.
“I place a much greater emphasis on measures such as Modified Domestic Demand and GNI* in assessing the underlying economy in Ireland. Modified Domestic Demand fell by 5 per cent year-on-year in the first quarter, a figure that is in-line with expectations and reflects the impact of Level 5 restrictions in the first quarter. Encouragingly, while the level of restrictions was comparable with that of the first lockdown in the spring last year, the fall in domestic economic activity was much less severe on this occasion. This points to a weakening in the relationship between restrictions and economic activity, a phenomenon observed in many countries and one with reflects adaptation and innovation by firms and consumers.
“More recently, the acceleration of the vaccination programme and the efforts of the Irish people have allowed for a gradual phasing out of many restrictions. This relaxation has supported economic recovery in the second quarter. This rebound in activity is confirmed by business and consumer confidence indicators, ultra-high frequency payments data, as well as May’s tax receipts. In the labour market, the number on the Pandemic Unemployment Payment has fallen by more than a third from its peak in February, with weekly declines of over more than 25,000 over the last fortnight. Further large declines are in store as hospitality re-opens. Record housing starts in April indicate a recovery in the construction sector.
“The Government’s Economic Recovery Plan sets out a new phase of supports and policies to drive a jobs-rich recovery. When the virus has been brought fully under control, it is expected that economic recovery will do much of the ‘heavy lifting’ in restoring the public finances. Nevertheless, when we have emerged from the pandemic, it will be imperative to put the public finances on a sustainable trajectory in order to avoid outlier status. The forthcoming Summer Economic Statement will include further details on our deficit reduction framework and a medium-term fiscal anchor, with the objective of stabilising the debt ratio and ultimately reducing it to lower and safer levels.”
Ends.
Note to editors:
Modified (final) domestic demand, a proxy for the domestic economy, is the sum of personal and government consumption and investment, excluding investment in imported IP and aircraft for leasing. It also excludes changes in the value of stocks.
Part of the increase in GDP reflects ‘contract manufacturing’. This occurs when a company overseas manufactures products on behalf of an Irish incorporated company. The inputs used in this production process – the know-how, or intellectual property required to make the goods – are owned by the company in Ireland. When the finished goods come out of the factory abroad, they too are owned by the Irish company not the contract manufacturer. When the finished goods are then sold to a customer in a third country, this is treated as an export of goods from Ireland under national accounting rules, even though the production and sale took place overseas.
The number on the PUP is currently 309,500 (31 May); during the third wave of the virus, the number peaked at 481,000 on 8 February.