A shrinkage in the multinational sector of Ireland’s economy last year shows Ireland cannot rely on one part of the economy and needs budget surpluses, Paschal Donohoe has said.
The Public Expenditure Minister said that despite global uncertainty, the country can “take heart” from some figures on Ireland’s economy.
Figures published by the Central Statistics Office (CSO) on Friday indicate that the multinational sector in Ireland contracted by 6.8 per cent in 2023, with all other sectors growing by 3.8 per cent.
“This is the reason why we have to run budget surpluses,” Mr Donohoe said.
“It is the reason why it’s so important to ensure that our national finances never become too reliant on any particular parts of our economy.
“But overall, there’s much to take heart from the figures today, to see inflation down and to see employment continue to be at such a high level, despite what has happened with interest rates and despite the change in the global economy.
“These are important and good developments and the focus of the Government will be now on maintaining that across the rest of the year.”
Around half of the €23.8 billion in corporation tax revenue Ireland received last year was windfall, and the Government and fiscal watchdog has repeatedly warned it cannot be relied on.
The Government is setting up two funds – the Future Ireland Fund and the Infrastructure, Climate and Nature Fund – to use windfall revenues.
Around 0.8 per cent of GDP will be put in the Future Ireland Fund each year from 2024 to 2035, for an expected total of €100 billion, and the climate fund is expected to grow by €2 billion for the next seven years.
The CSO figures show that GDP fell by 3.2 per cent in 2023, driven mostly by the contraction in the multinational-dominated industry sector, such as pharma companies.
Modified Domestic Demand (MDD) – a rough measurement of the domestic economy – grew by 0.5 per cent, according to the figures.
GDP fell by 3.4 per cent in quarter four of last year compared with quarter three, while MDD decreased by 0.4 per cent.
Jennifer Banim, assistant director general at the CSO, said the more globalised sectors of the Irish economy had contracted for the first time since 2013, with the industry sector shrinking by 11 per cent.
“Overall, the multinational sector contraction was 6.8 per cent and in 2023 these sectors accounted for 51.5 per cent of total value added in the economy,” she said.
The figures also show that personal spending on goods and services increased by 3.1 per cent in 2023 and is 10.2 per cent higher than a pre-pandemic peak from 2019.
Mr Donohoe said: “There is so much in figures today that is welcome, that does point to the prospect for things that really matter continue to improve across the year.
“It’s very difficult to measure our national income overall because of how open our economy is, but in the things that really matter to people the figures today show some positive news.
“I’d have to, in particular, point out where we are with inflation today, seeing inflation fall to this level is a really important development and it should give us every hope of continuing our efforts to get inflation down in 2024.
“Also, to continue to see employment growth, and to see so many people with a job with the potential for more jobs to be created in the year, again, it’s really important.”
An index of prices across the EU published on Thursday estimated that inflation in Ireland was at 2.2 per cent in February.
Mr Donohoe was asked about a reported row with Professor Michael McMahon, chairman of budgetary watchdog the Irish Fiscal Advisory Council (IFAC).
“IFAC are an extremely important organisation here in Ireland. They’ve played a really valuable role in helping us develop the right budget policy for our country, and the figures today showed that we are getting the balance right,” he said.
“To see inflation fall to the level that it has shows that the overall budget strategy for the country at the moment is making a difference to supporting living standards and not stopping inflation fall.
“I have in all the decisions that I’ve made, as is the case that Minister (for Finance Michael) McGrath, shown full respect for IFAC and supported them in their growth as an organisation and any of the discussions in relation to pay have now been resolved.”
