This past week has been quite significant for the Irish economy, with a myriad of events like impressive corporate tax returns and the shutdown of an R&D enterprise by a multinational heavyweight. The week also witnessed the State’s financial watchdog issuing a sobering alert. As we await an anticpated interest rate cut from the European Central Bank this Thursday, here’s what we’ve uncovered.
Firstly, in an surprising turn, there was a shrink in the gross domestic product (GDP) by 1% in Q2, due to a decrease in multinational output and exports. This is a striking deviation from the preivous prediction of a 1.2% growth in the economy. As per the Central Statistics Office’s recent quarterly national accounts, these revised numbers point to a 4.4% contraction in GDP in the first half of 2024 as compared to the previous year.
The contraction was attributed to the “consistent instability in the multinational sector” by Finance Minister Jack Chambers. He indicated that the GDP dip in this year’s Q2 is not an accurate reflection of domestic residents’ living standards due to the significant role the multinational sector plays in the Irish economy.
Secondly, there was also a silver lining. Corporation tax returns saw a huge increase over two-fold in August compared to the same period last year, the new data revealed. This spur in business tax income improved the government’s financial health in the run-up to the budget.
Exchequer figures indicate that last month, government amassed €3.7 billion in corporation tax, a surge by €1.9 billion or nearly 109% from August 2023. The Department of Finance suggested that the most of the growth was likely due to timing, balancing a fall earlier in the year.
The corporation tax earnings of €16.3 billion to date this year, however, still mark a substantial 28.4% rise than the same timeframe in 2023, bringing an additional €3.6 billion to the State’s bank.
Might office building in Dublin soon hit a standstill?
Intel Research and Development have announced their plan to shut down their Shannon facility in Co Clare towards the end of next year, relocating their Ireland operations to the Leixlip campus. Currently, there are about 750 employees at the Shannon base, all of whom have been given redundancy or early retirement options, similar to the ones made available to the workers at other group locations. The announcement did not suggest any extra job losses due to this planned closure. The Shannon facility, which opened in 2000 under the banner of Intel Shannon, operates independently within the town.
On a positive note, the Dublin economy has seen an improvement in retail expenditure, job opportunities and foreign direct investment (FDI) in Q2, as per the latest Dublin Economic Monitor report put together by the city’s four local authorities. The Dublin S&P PMI highlighted a slight drop in activity velocity, but the service sector’s “robust” contribution maintained the overall growth momentum. In addition, a surge in construction activities is likely indicative of accelerated house building efforts in the capital. On the flip side, the manufacturing sector has registered a downturn for seven out of the past eight quarters.
MasterCard data suggests that retail spending within Dublin continued its upwards trajectory in Q2, mirroring the moderate growth rate shown in Q1. Overall expenditure grew by 0.7% in comparison to Q1 and by 2.3% in comparison with Q2 of 2023. Despite the hurdles posed by the Covid-19 pandemic, consumer expenditure has seen quarter-on-quarter growth for the past four annual cycles.
Meanwhile, the Government has come under fire from the Irish Fiscal Advisory Council, the country’s budgetary watchdog. As part of a pre-budget submission, the Council criticised the Coalition government for its callous approach of adding to the current price pressures within the Irish economy. Its decision to implement tax cuts, increase daily expenditure and continue the capital investment growth simultaneously under the forthcoming budget has been labelled as recklessly “fuelling the fire” during a period of record high employment and wage inflation.
The council indicated that, despite a decline in energy costs, prices associated with home expenses such as rent, dining, and healthcare, are experiencing a swift growth. They estimated that continuous violations of the government’s expenditure regulation have resulted in an increase of €1,000 in annual household expenses. This regulation aims to keep yearly public spending increase below 5%— a rate deemed manageable for the economy.