An economic contraction of 6.1% would normally be cause for alarm, but today’s Irish GDP figures are well above the level expected by most forecasters and are being met with a sense of positivity. The contraction will be considerably less than others in Europe and will likely keep Ireland atop the headline growth charts, albeit with the most severe quarterly contraction ever recorded.
By way of context the UK economy contracted by over 20% during the same period. As always with Irish GDP the headline figure does not tell the full story. A major contributing factor to the comparatively modest contraction was a very sharp fall in imports, down over a third in the quarter. This was largely due to falls in Intellectual Property imports as multinationals paid less royalties back to overseas parent companies according to the CSO.
Consumer spending fell by almost 20% and with the Covid-19 adjusted unemployment figure reaching almost 30% earlier in the quarter it is true that citizens will not feel markedly different to their UK counterparts despite the wildly different headline figures.
The positive numbers provide the Government with a tricky messaging challenge as the public may well feel that this means they have considerable spending available to support the economy, but this will be only partially true. Today’s figures, coupled with relatively robust early year tax figures should not be downplayed, but taken in context with other data the severity of the Covid-19 impact is still very clear. Nevertheless, forecasters are likely to be revising up their Irish growth estimates for 2020.
