Is the economy of Ireland half the size we thought?

Today we are going green in a manner of speaking as we take a look at the economy of the Emerald Isle. Or rather most of it as the situation between Ireland and Northern Ireland is rather fraught. But if we stay south of the border we see some similarities with our themes but we can open with a difference.

Initial estimates for the fourth quarter of 2021 indicate that there was a decrease of 5.4% in GDP in real terms in Q4 2021 compared to the previous quarter while GNP fell by 2.1% ( Central Statistics Office)

So we saw a fall in the last quarter of 2021 and a reminder of one of the features of the Irish economy. For newer readers it has a lot of multinationals which do create some economic activity but create a lot more of the equivalent of simply having a letter plate in Ireland as money flows through. That is why it reports GNP in its economic headlines and the difference is material as we go from 104.4 billion Euros to 81.1 billion.

The economy does get bounced about by some wild swings at times due to those issues.

Exports increased by 1.3% in Q4 2021 compared with Q3 2021 while Imports rose at a significantly faster rate of 22.7% which meant that overall net exports for the quarter were 39.4% lower in Q4 compared with Q3 or just under €20 billion lower in money terms quarter-on-quarter.

There is another attempt going on to measure the economy but care is needed as it is less than half of GDP.

Modified Domestic Demand, a broad measure of underlying domestic activity that covers personal, government and investment spending, increased by 1.3% in Q4.

Looking Ahead

The Central Bank of Ireland tells us this.

The economy began 2022 with strong growth momentum from the lifting of pandemic restrictions. However,
higher inflation, the result of sharply rising energy and higher food prices, as well as greater uncertainty and negative consumer confidence effects, all imply headwinds to growth.

What does that mean in terms of numbers?

Accordingly, modified domestic demand growth has been revised down to 4.8 per cent in 2022, 4.3 per cent in 2023
and 3.9 per cent in 2024.

Modified Domestic Demand

There is an issue here as not only is Ireland using a different metric from other countries ( GDP) there is the fact that it keeps changing its own measure. We have had people looking at GNP, then the Central Bank of Ireland producing a modified GNI ( I is for Income) and now we have a modified domestic demand. So it is not only difficult to compare Ireland with others it is hard to compare it now with its own past.

Why is it being used?

In Ireland, imports and exports are very large but are mostly related to transactions of foreign-owned corporations (including Contract Manufacturing) that are high in value, but in the end have little impact on the Irish economy. So when we count imports and exports in GDP, some of the large values we include do not reflect much on the domestic economy.

Let me welcome the honesty here as we do not see enough of that. It goes further.

Modified Total Domestic Demand goes further in trying to exclude those large transactions of foreign corporations that do not have a big impact on the domestic economy.

These are.

Aeroplanes purchased by leasing companies in Ireland but then operated in other countries are part of capital investment in TDD but are excluded from Modified Total Domestic Demand. Intellectual Property(IP) purchases are large transactions which generally only relate to foreign-owned corporations and generate profit that flows out of the economy with relatively little impact.

But there is an issue.

Modified Total Domestic Demand is therefore a smaller number than GDP and it more truly reflects how Households, Government and domestic Corporations in Ireland are doing.


This area matters for many reasons but the situation has been exacerbated by the growth forecasts above as they have consumption soaring. Let us look at where Ireland stands.

Prices on average, as measured by the EU Harmonised Index of Consumer Prices (HICP), increased by 6.9% compared with March 2021.

Indeed the hammer was down in March.

The HICP increased by 2.1% in the month. This compares to an increase of 0.9% recorded in March of last year.

The most significant monthly price changes were increases in Housing, Water, Electricity, Gas & Other Fuels (+6.1%) and Transport (+5.3%). There were decreases in Clothing & Footwear (-0.9%) and Health (-0.3%).

The Central Bank of Ireland thinks that will pretty much be the state of play for the rest of 2022.

Consumer price inflation is expected to average 6.5 per cent this year, the result of strong energy price inflation that is also passing through to increases in core HICP (excluding energy).

I can see how the quarter just gone saw a post Covid rebound but fail to see how the rest of 2022 will be this strong?

Over the forecast horizon, consumption is forecast to grow by 7.4 per cent this year, slowing to 4.7 per cent and 3.9 per cent in 2023 and 2024, respectively.


This was 3.1 billion last year in terms of output but 2022 will see lots of swings. The positive for farmers is higher prices for their output but the negative is this.

Shortages of fertiliser and maize, or the large increases in the price of these products over recent weeks, will
have knock-on implications for the agriculture sector and, ultimately, food prices ( Central Bank of Ireland)

Also higher food prices will subtract from consumption which makes me doubt the earlier numbers even more.

House Prices

This was the topic around a decade ago and looking at the numbers below may soon be so again.

Residential property prices (houses and apartments) increased by 15.3% nationally in the year to February. This compares to an increase of 14.8% in the year to January 2022 and an increase of 3.0% in the twelve months to February 2021.

We have lift-off! Also it comes on the back of previous rises as the index sat at 100 in 2015 is now 155.3. Just in case there were “never again” themes after the last property crash we have this now.

Property prices nationally have increased by 117.3% from their trough in early 2013.

It has led to quite a crisis.

The average home in Ireland now costs about €330,000. The median disposable income of a household with two working-age adults is about €50,000-€55,000 (putting their gross income at probably about €80,000); there’s clearly an affordability crisis. ( David McWilliams)

For renters it may be even worse.

According to Glassdoor, the going graduate salary in Dublin is currently about €35,000 (including bonuses, etc), leaving take-home pay of just over €29,000, which works out at €2,428 per month or €560 per week. The latest Daft report points to a 10.3 per cent annual rise in rental prices, pushing the average one-bed rent up to €1,407. ( David McWilliams)


There are a lot of numbers bandied around concerning the Irish economy but as you can see it is an area of grey rather than black and white. We see its GDP and indeed GDP per capita numbers used but in fact the Irish think that a number less than half the size is a better guide. This has all sorts of consequences as how do you measure its relative debt?

A General Government surplus is expected to emerge next year, rising to 1.9 per cent of GNI* in 2024. Meanwhile General Government Debt is forecast to be 84.7 per cent of
GNI* in 2024.

As you can see we have yet another metric in play.

But this highlights the issue of how we can be told Ireland is doing so well and yet it has a housing affordability crisis at the same time. Also in the David McWilliams piece there was the opposite of what we are usually told.

But the price of materials is crippling everyone and, even if the client can pay, it’s hard to get your hands on everything – from wood to piping to radiators. In fact, they’ve just come back from a run to Belfast to get a few things. It may be tight up there, but not quite as bad as down here.


10 thoughts on “Is the economy of Ireland half the size we thought?

  1. I suspect the way Ireland plays around with its numbers is something to do with how much it has to pay the EU every year

    • Ireland would want to reduce it’s economic performance to reduce contributions to EU but then it will have the problem that buzz highlighted below!

  2. Had to get its debt to gdp ratio below 120%.
    Hardly more fraudulent counting foreign firms taking advantage of a tax haven, than counting drugs & prostitution.

    • Hi Hotairmail

      There are genuine difficulties here which as you say mostly result from Ireland’s business model. Some years ago I used to go regularly on business and remember the tax-free district in Dublin being built. It has succeeded but at the cost of others.

  3. Of topic inflation still heating up in US CPI ahead of forecasts which could mean more rate hikes a probability. US and UK markets pulled back a bit lately but they look to me like in bearish terittory.

    As for US I remember in the 70s or early 80s I had a conversation with a client who lived in Dublin I think who said property was hot then.

    As for latest data I had also friends in Ireland who said to me houses were cheaper than the UK but I suppose like anywhere it is location location.

    • Hi Peter

      One of the curiosities of the situation is that the largest house price falls on the island of Ireland were in fact in Northern Ireland. Prices peaked there just shy of £225,000 on average and are now £159,000.

  4. Hello Shaun,

    We can say the same thing about the Neatherlands? They are just a big transport hub but I’ll concede the good are “real” and not financial.

    With Ireland it is what does it get? bigger house prices ? off the megre wages the companies pay to a few office workers?

    For the top dogs I can see the advantage of more kudos and money for them but for the average man on the street its poor .


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