Dáil Éireann Debate, Thursday - 22 June 2023
221. Deputy Bernard J. Durkan asked the Minister for Finance how Ireland's economic performance currently compares with other EU countries in the eurozone or outside it; and if he will make a statement on the matter. [30450/23]
View answerEconomic growth prospects across the Eurozone and the European Union remain subdued for the year ahead. In the first quarter of 2023, the European economy flat-lined with Eurozone GDP falling by 0.1 per cent, while GDP growth of 0.1 per cent was recorded for the wider European Union driven by a fall in consumption as incomes continue to be eroded by increasing prices. GDP contracted in Germany and the Netherlands by -0.3 and -0.7 per cent, while the Italian and French economies saw positive growth of 0.1 and 0.6 per cent.
While Irish GDP contracted by an estimated -4.6 per cent, this reflects the disproportionate contribution to Irish GDP by Irish-resident multinational enterprises, with much of this driven by contract manufacturing, i.e. activity which is outsourced to manufacturers outside the state. My preferred metric of domestic economic activity - Modified Domestic Demand (MDD) - increased by 2.7 per cent in the first quarter of the year when compared to the last quarter of 2022. This was driven by strong investment in the construction sector and by firm investment in plant and machinery. In contrast to the wider European economy, private consumption contributed positively to economic growth in the first quarter of the year. Bolstered by a resilient labour market – which has since reached a record low unemployment rate in May of 3.8 per cent - private consumption increased by 1.7 per cent in the first quarter.
Looking ahead, the OECD recently forecast growth of 0.9 per cent for the Eurozone for 2023. While this is an upward revision since the previous round of forecasts in March, it is low by historical standards. For Ireland, the OECD have forecast growth in MDD of 1.8 per cent for 2023, broadly in line with my Department’s projection published in the spring forecasts as part of the SPU. However, given stronger-than-expected growth in the domestic economy in the first quarter, there is a chance that MDD in 2023 could surprise on the upside. Despite this, domestic and continent-wide risks remain tilted to the downside, with persistent core inflation (excluding energy), instability in the financial sector and increased geopolitical tensions posing a threat to growth prospects for the year ahead.
