Ireland’s economy grew faster than the average for the euro zone in the second quarter, but the same constraints on its neighbors’ living standards and energy security still exist there.
According to official data, Ireland’s gross domestic product climbed by 1.8% quarter over quarter due to stronger consumer and business expenditure, however this was significantly less than the 6.3% rise reported in the first quarter.
Gross national product, which excludes earnings from the numerous international corporations with local headquarters and makes up 54.8% of the country’s economy, increased by 2.1%.
Comparatively, the second quarter of the euro zone’s economy saw a meager 0.8% growth over the same period last year.
Some economists, including those at the Royal Bank of Canada and ING, believe the euro area may enter a recession sooner than originally anticipated due to a decline in corporate activity. The U.K. In contrast, the GDP shrank by 0.1% throughout the quarter despite similar recessionary predictions.
Furthermore, some people worry that Ireland’s growth might slow down.
“A number of indicators suggest that momentum has eased in the third quarter, while the outlook over the coming quarters has weakened considerably,” Paschal Donohoe, the Irish minister of finance, stated in a statement on Friday.
Regarding living expenses and energy security, Ireland is subject to the same challenges as its neighbors.
Irish inflation in August was estimated by the statistics office of the European Union to have been 8.9%, just under the 9.1% average for the euro zone.
Conall Mac Coille, chief economist at the Irish financial consultancy Davy, believes that given the increase in family energy costs during the winter, the situation is only likely to get worse. Residential electricity and gas bills will increase by 26.7% and 36.5%, respectively, starting on October 1, according to utility company Electric Ireland.
There is “no doubt,” according to Gerard Brady, head of national policy and chief economist at Irish business advocacy group Ibec, that businesses are beginning to feel the pinch as costs for energy, commodities, and transportation increase.
“That’s putting a lot of pressure on operating margins. It’s in every sector as well, it’s a broad economic shock,” he told.
“Consumers will really feel the hit when winter arrives, but businesses are already seeing bills three to five times higher, so for energy-intensive industries it’s a huge challenge.”
Dairy Industry Ireland, a trade organisation, estimates that dairy companies contributed 16 billion euros ($15.9 billion) to the Irish economy last year.
Conor Mulvihill, its director, told CNBC that while many companies have seen revenue growth over the past year, this growth has been “absolutely obliterated” by rising costs, particularly for things like electricity, animal feed, fertilizer, and diesel.
With Irish employment at a record high of 73.5%, a congested labor market has made it difficult for businesses to find and retain employees, according to Mulvihill.
Ireland shares similar concerns about the possibility of shortages this winter due to its close ties to the European energy market, particularly the U.K.’s, from which it imports around 75% of its gas. Controlled by the energy company National Grid, the U.K. Supply lines won’t be shut off, according to Ireland, although blackouts in both nations are still a possible.
As strategies from many European governments to weather the winter cost-of-living storm emerge, Ireland is scheduled to unveil energy bill grants and other support measures totaling 6.7 billion euros in its 2023 budget on September 27.
The nation has extra wiggle room given its current economic situation. According to data published in August, the state’s finances have improved from a deficit during the Covid era to a surplus of 6 billion euros.
Technology behemoths like Alphabet, Meta, Intel, and Amazon, as well as pharmaceutical companies like Pfizer and Johnson & Johnson, are just a few of the multinationals operating in the nation, many of which have been drawn in by its low 12.5% corporate tax rate.
These businesses’ increased profits during the epidemic contributed to a 30% year-over-year increase in corporate tax last year, which came to 15.3 billion euros, or almost the same amount as it took in in value added tax.
According to Davy’s Mac Coille, Ireland is susceptible to sector-wide slowdowns because of the dominance of a small number of firms.
The relatively small economy’s ability to retain its appeal to major corporations has also come under scrutiny in light of the impending increase in the corporate tax rate to 15%.
A consumer mood index from KBC Bank fell in August to a low for late 2020, making the present upward trajectory in consumer expenditure appear shaky.
And for many people, a persistent and progressively worse housing crisis play out in front of new economic challenges.
According to the real estate website Myhome.ie, asking prices for homes are up 11% year over year, and Daft.ie data shows that rental prices reached an all-time high in August after increasing 12.6%.
Currently looking for a place to live in Dublin, Rachel, a 27-year-old HR professional from Kildare, says she has been startled by how much worse things have gotten since she first moved to the city four years ago.
“I’m checking property sites on my phone constantly and by the time I’ve clicked the link, the ad has been taken down,” she spoke to CNBC. According to her, the quality of what you can buy for the same amount of money has decreased, and she and her friends are under pressure from rising bills.
“For renters, and definitely for people most in need — in energy poverty, on pensions — there is a real anxiety around what the winter holds. People are afraid of the unknown and are definitely looking to the budget,” she said.