It has indeed been a whirlwind week for the Irish economy, marked by various significant events. Including an unexpected contraction in the gross domestic product (GDP), strong corporation tax revenue, and a strategic business closure – here are five revelations.
1. Unexpectedly shrinking by 1% in the second quarter due to a decrease in multinational output and exports was the country’s GDP. This contrasts with prior predictions that pointed to an economic growth of 1.2%. These revised numbers, revealed in the latest quarterly national accounts by the Central Statistics Office, indicate a 4.4% contraction in the GDP for the first half of 2024 compared to the previous year. Finance Minister, Jack Chambers, attributed this to “consistent instability in the multinational industry” and stated, “The second quarter’s GDP drop isn’t a reliable indicator of domestic inhabitants’ living standards, given the multinational sector’s predominant role in our economy.”
2. Yet there was good news as well. Corporation tax revenues in August had escalated, more than doubling compared to the same time last year, and providing a significant financial boost to the Government prior to the budget, as per recent data. Treasury receipts report a collection of €3.7 billion in corporation tax last month, an almost 109% rise, i.e., €1.9 billion more than in August 2023. Citing a timing factor, the Department of Finance recognised this as recovery from an earlier decrease. Still, the €16.3 billion corporation tax revenue up to this point represents a remarkable 28.4% increase compared to the equivalent period in 2023, contributing an extra €3.6 billion into State funds.
3. Despite the abundance, the instability of the job market was exposed as Intel Research and Development unveiled its plan to close its Shannon, Co Clare facility by late next year. The company’s operations in Ireland will be shifted to Intel’s Leixlip campus. Around 750 employees at the Shannon facility were presented with redundancy or early retirement options similar to those provided to staff in other parts of the group.
In the communication with its employees, there was no implication that the shutdown of a local facility, which has been operating independently since 2000 under Intel Shannon, would lead to further job cuts.
In other news, there were encouraging indicators in the capital as the recent Dublin Economic Monitor, commissioned by the four Dublin local authorities, showed upturns in retail expenditure, employment, and overseas direct investment (FDI) during the second financial quarter.
Although the Dublin S&P Global Purchasing Managers’ Index (PMI) indicated a slight slowdown in the rapidity of overall growth, a vigorous services sector kept the expansion ongoing. The rise in building activity probably mirrors the acceleration of house construction in the city. However, a strengthening contraction was noted in the manufacturing industry, which has been shrinking for seven out of the last eight quarters.
Based on MasterCard data, customer spending in Dublin maintained its consistent growth from the first quarter, with overall costs rising by 0.7 per cent compared to the first quarter, showing a 2.3 per cent increase when compared to the second quarter of 2023. Despite hurdles such as the Covid-19 pandemic, consumer expenditure has noted a quarter-on-quarter increase consistently for the past four years.
While the economic indicators predict a healthy future, this week also witnessed the state’s financial watchdog criticising the Government for unnecessarily augmenting pricing pressures on the Irish economy.
The Irish Fiscal Advisory Council, in an anticipatory budget submission, claimed that the Coalition is taking a “everything at once” strategy for the forthcoming budget. They are concurrently pledging tax reductions, increased routine expenditure, and consistent escalation in capital investments. In an era of unprecedented employment level and escalating real wages, this would unjustifiably “fan the flames,” it warned.
While dropping energy costs offered some breathing room, the council warned that local prices comprising rents, food services, and medical expenses, are increasing at a brisk pace.
The council warned in its proposal that repeated deviations from the Government’s spending rule have added an extra €1,000 to annual household expenditures. This spending rule strives to cap yearly public spending hikes at 5 per cent, deemed as an economically stable rate.