IRELAND’S DOMESTIC ECONOMY entered a technical recession at the end of last year, according to new figures from the Central Statistics Office.
A ‘technical recession’ is the term used when a country’s economy experiences a decline for two consecutive quarters.
This happened in the final three months of last year when Modified Domestic Demand (MDD) fell by 1.3% after a 1.1% decline in the third quarter of 2022.
However, MDD grew by 8.2% across the year as a whole, which the Department of Finance has described as a “post-pandemic rebound”.
Finance Minister Michael McGrath said that the 8.2% increase in MDD was “slightly ahead of the 7.7% growth my Department had projected in the Budget last September”.
Ireland uses the metric of ‘Modified Domestic Demand’ (MDD) in an effort to exclude large multinational activity that can inflate economic activity.
A commonly used metric is Gross Domestic Product (GDP).
However, writing for The Journal, economist Ciarán Casey noted that GDP struggles to accurately capture economic activity in Ireland.
“Very simply, GDP is a measure of the total economic output of a country, including both goods and services,” writes Casey.
However, GDP measures the output within a country’s borders, regardless of the producer.
GDP can be compared to yet another metric, that of Gross National Product (GNP).
It measures economic activity that excludes the profits of multinationals and assigns output to the nationality of the person or company who produces it.
“In most countries in Western Europe the difference [between GDP and GNP] is minimal: historically in the region of 2%,” notes Casey.
But he adds: “In Ireland, the two measures began to part ways significantly in the early 1990s. By 2021, GDP was a whopping 32% higher, at €426 billion.”
While MDD grew by 8.2% last year, GDP grew by 12%.
However, the Irish economy experienced weaker growth than both of the above when using the metric GNP, which increased by 6.7% last year.
Finance Minister Michael McGrath noted: “It is important to remember that GDP is not reflective of the living standards of domestic residents, given the outsized role the multinational sector plays in our economy.”
However, he acknowledged that “the economic activity that takes place here by the MNC (multinational corporation) sector is considerable”.
For example, the value of exports produced and exported from Ireland last year in the pharmaceutical sector reached €134 billion.
Meanwhile, the IDA estimates that around 300,000 people are employed by MNCs in Ireland.
The multinational sector grew by 19.4% last year, compared to a 7.2% growth in all other sectors.
Elsewhere, Minister McGrath said he was “encouraged to see that despite inflationary pressures, consumer spending increased” by 6.6% last year.
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