The latest figures from the Central Statistics Office (CSO) shows that the Irish economy outperformed all expectations in 2020, with GDP growing on the back of the ongoing robust performance of the multinational sector and a smaller contraction in domestic demand due to aggressive government support.
Goodbody Stockbrokers say pent-up consumer demand and international recovery should aid the rebound when restrictions ease.
Ireland experienced the fastest GDP growth in the developed world last year, confirmed by the CSO today. Even after falling by 5.1% quarter on quarter in the fourth quarter, GDP grew by 3.3% in 2020, buoyed by a robust contribution from the multinational-dominated sectors of pharma and ICT. The dichotomy between the exporting and domestic sectors was never larger than it was in 2020; Output (Gross Value Add(GVA)) in the foreign-owned sector increased by 18% in 2020, while other domestic industries declined by 9.5%.
The foreign-owned sector now accounts for more than 50% of total GVA, up from 25% in 2014. In a year of domestic lockdowns, Ireland benefited from its world-leading positions in hosting the so-called largest companies in sectors that are considered the beneficiaries of the pandemic – pharma & IT.
Goodbody have often warned against focusing too much on Irish GDP data mainly due to distortions caused by the large multinational presence in the country, such as IP imports, contract manufacturing and aircraft leasing. However, they say there is no doubt that the multinationals make an enormous contribution to the “real economy”.
The cleanest gauge of this is the impact on the labour market. Wages were effectively flat in 2020, although there were huge variations across sectors. Wages in the ICT (+9% yoy) continued to grow strongly, while wages in the manufacturing sector also grew (2.4%). This growth occurred through a combination of increases in both wage levels and employment in these sectors, with multinationals playing a pivotal role. This has also helped in bolstering tax revenues at a time of increased stress.
According to Goodbody Stockbrokers, "It is worth noting that after the initial shock of the pandemic, the economy coped better throughout the rest of the year partly due to the very important contribution from government fiscal measures."