Minister McGrath welcomes growth in the domestic economy during the second quarter

in the second quarter of this year, Modified Domestic Demand – a proxy for the domestic economy – expanded by 1 per cent relative to the previous quarter
consumer spending increased by 0.9 per cent in the second quarter, reflecting the strength of the labour market
GDP was up 0.5 per cent over the quarter but was down -0.7 per cent on an annual basis, reflecting the volatility of production in the multinational sectors and falling demand for COVID-related pharma exports

The CSO today (1 September) published the Quarterly National Accounts for the second quarter of this year. Commenting on the figures, Minister for Finance Michael McGrath said:

“Firstly, while GDP was up on a quarterly basis in the second quarter I am conscious that it fell by -0.7 per cent relative to the same period last year. This reflects a fall in COVID-related pharmaceutical exports triggered by the passing of the pandemic, as well an easing exports associated with so-called ‘contract manufacturing’. As has been well documented, multinational production in Ireland is extremely volatile and, given the outsized role the multinational sector plays in our economy, GDP is clearly not a useful measure of domestic living standards.

“In terms of the domestic economy, I am encouraged to see that Modified Domestic Demand (MDD) – my preferred metric of domestic economic activity – grew at a solid pace in the second quarter of the year. These data are consistent with trends in the labour market, where figures published last week show employment at its highest level ever at end-June.

“Importantly, consumer spending was a key driver of growth in the second quarter, increasing by 0.9 per cent over the quarter. This reflects a number of factors including the easing in inflationary pressures over recent months, the strength of our labour market and the role that government support has played in supporting households. With three-quarters of our working age population in employment – a record high – this should support continued expansion of consumer spending in the coming quarters.

“While today’s data confirm continued growth in the domestic economy, I am conscious of several headwinds. Our economy is clearly operating at full-employment and capacity constraints, in both our housing and labour markets, are increasingly binding. Externally, growth is slowing in some of our main trading partners, and this could have knock-on implications for Irish exports.

“It is against this backdrop that Budget 2024 is being framed. We will, once again, need to strike the right balance: ensuring that budgetary policy is calibrated in a manner which avoids adding to the price pressures in our economy while, at the same time, supporting households and delivering the infrastructure and public services that our society needs.”

Notes

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.