From bumper corporate tax receipts to a major multinational closing an R&D facility to a sobering warning by the State’s fiscal watchdog – it has been quite an eventful seven days in the life of the Irish economy. With the European Central Bank expected to cut interest rates on Thursday, here are five things we’ve learned.
1. Gross domestic product (GDP) unexpectedly contracted by 1 per cent in the second quarter, as multinational output and exports fell, which was down from a previous estimate that the economy grew by 1.2 per cent. The revised figures, detailed in the Central Statistics Office’s latest quarterly national accounts, means GDP in the first half of 2024 shrank by 4.4 per cent compared with last year.
Minister for Finance Jack Chambers blamed the contraction on “continued volatility in the multinational sector”.
“While I recognise the fall in GDP in the second quarter of this year GDP is not a useful measure in assessing the living standards of domestic residents given the outsized role the multinational sector plays in our economy,” he said.
2. But it wasn’t all bad news. Corporation tax receipts more than doubled in August compared with the same month last year, new figures showed, with the latest spike in revenue from the business tax boosting the Government’s financial position ahead of the budget.
Exchequer returns show the Government collected €3.7 billion in corporation tax last month, up by €1.9 billion or almost 109 per cent on August 2023. The Department of Finance said the bulk of the growth likely reflected a timing factor, with the increase offsetting a decline earlier in the year.
In the year to date, however, corporation tax receipts of €16.3 billion are still running a notable 28.4 per cent higher than they were in the same period in 2023, generating an additional €3.6 billion for the State coffers.
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3. That being said the volatility of the job market even in times of plenty was laid bare as staff at Intel Research and Development were told the company plans to close its facility at Shannon in Co Clare by the latter part of next year, with the base for the firm’s operations in Ireland moving to Intel’s campus in Leixlip.
About 750 people are employed by Intel Research and Development in Shannon, and staff there have been offered the same redundancy or early retirement options made available to workers in other parts of the group.
In its messaging to staff it was not suggested, however, that any additional job losses would result from the closure of a facility in the town which opened as Intel Shannon in 2000 and remains a separate entity.
4. Meanwhile, there were positive signs as retail spending, employment and foreign direct investment (FDI) in Dublin all increased in the second quarter of the year, according to the latest Dublin Economic Monitor published by the four Dublin local authorities.
The Dublin S&P Global Purchasing Managers’ Index (PMI) showed a softening in the rate at which activity is expanding, but the “robust” services sector continued to drive growth, while an increase in construction activity likely reflected the acceleration in house building in the capital. In contrast, a deepening downturn was registered in manufacturing, which has been in contraction for seven of the last eight quarters.
According to MasterCard data, meanwhile, retail spending in the Dublin economy continued to increase in the second quarter, maintaining the moderate growth rate recorded in the first three months of the year. Total expenditure increased by 0.7 per cent compared to the first quarter and was up 2.3 per cent compared to the second quarter of 2023.
Spending by consumers has now risen on a quarter-on-quarter basis in every quarter for four years despite challenges including the Covid-19 pandemic.
5. While many of the economic indicators augur well, this week also saw the State’s budgetary watchdog accuse the Government of “needlessly” adding to price pressures in the Irish economy.
In a pre-budget submission the Irish Fiscal Advisory Council claimed the Coalition was pursuing an “everything now” approach in the upcoming budget by simultaneously promising tax cuts, higher day-to-day spending and a continued ramp-up in capital investment. At a time of record high employment and rising real wages, this would add “unnecessary fuel to the fire”, it said.
While falling energy prices had brought some relief, the council said that domestic prices, including rents, food services and medical costs, were continuing to rise rapidly.
In its submission it claimed that successive breaches of the Government’s spending rule had already added €1,000 to yearly household expenses. The spending rule seeks to limit annual increases in public spending to 5 per cent, viewed as a sustainable rate for the economy.
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