A view of the Google EMEA HQ building west of Dublin’s Grand Canal docks seen during the Level 5 Covid-19 lockdown. Friday 22nd January 2021 in Dublin, Ireland.
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Ireland’s economic growth continued to outperform the Eurozone average in the second quarter, although it still grapples with cost of living and energy security pressures similar to its neighbours.
Ireland’s Gross Domestic Product rose 1.8% quarter-on-quarter on higher consumer and business spending, despite a notable slowdown from the 6.3% growth recorded in the first quarter, according to government data. did.
Gross national product, which is subtracted from the many multinationals based in the country that account for 54.8% of the economy, increased by 2.1%.
In contrast, the Eurozone economy as a whole grew by just 0.8% in the second quarter compared to the previous three months.
The drop in business activity in the eurozone has led some analysts, including Royal Bank of Canada and ING, to argue that the eurozone is likely to slip into recession sooner than previously thought. Meanwhile, the UK economy contracted he 0.1% in the quarter amid similar recession warnings.
There are also concerns that Irish growth may not be as robust.
Ireland’s Finance Minister Pascal Donohoe said in a statement on Friday: “While many indicators point to weaker momentum in the third quarter, the outlook for the next few quarters is significantly weaker. ing.
Ireland faces the same pressures as its neighbors regarding cost of living and energy security.
Inflation in Ireland stood at 8.9% in August, just below the Eurozone average of 9.1%, according to preliminary figures released by the European Union’s statistical agency.
Conal Mac Coyle, chief economist at Irish financial consultancy Davey, said things are likely to get worse given that household utility bills rise in the winter. Utilities company Electric Ireland has announced that from 1 October, residential electricity bills will rise by 26.7% and gas bills by 36.5%.
Gerald Brady, head of national policy and chief economist at Ireland’s business lobby group Ibec, told CNBC that there is “no doubt” that businesses are starting to feel the strain as prices for energy, commodities and transportation rise. rice field.
“It’s putting a lot of pressure on operating margins. It’s in every sector, and it’s a broader economic shock,” he told CNBC by phone.
“Consumers are going to be really hit when winter comes, but businesses are already seeing three to five times their bills, so it’s a big challenge for energy-intensive industries.”
This includes dairy companies that contributed €16 billion ($15.9 billion) to Ireland’s economy last year, according to industry group Dairy Industry Ireland.
Its director, Connor Mullwighill, told CNBC that many companies were more profitable last year, but this was “completely wiped out” by rising costs, especially for animal feed, fertilizer, diesel and energy.
Ireland’s employment rate has hit a record high of 73.5% and the tight labor market has also meant companies find it difficult to recruit and retain workers, according to Mulvihill.
European energy markets, particularly Ireland, which imports around 75% of its gas from the UK, face similar concerns about potential energy shortages this winter. The energy company National Grid, which manages UK supply lines, has said Ireland will not be cut off, but power outages in both countries remain possible.
As plans emerge from various European governments to weather the winter cost of living storm, Ireland announces energy bill subsidies and other support measures totaling €6.7 billion in the 2023 budget on Sept. 27 intend to do something.
The country’s current economic health provides additional leeway. Figures released in August show that the state budget has gone from a Covid-era deficit to a surplus of €6 billion.
Many domestic multinationals have been attracted by the low corporate tax rate of 12.5%. Among them are technology giants such as Alphabet, Meta, Intel and Amazon. Pharmaceutical companies such as Pfizer and Johnson & Johnson.
Due to the increased profits these companies made during the pandemic, corporate tax last year increased by 30% year-on-year to a total of €15.3 billion. This is about the same as what was collected in VAT.
Davy’s Mac Coille says Ireland is vulnerable to a slowdown across the sector due to the company dominance.
A planned increase in the corporate tax rate to 15% has also led to questions about whether the relatively small economy can remain attractive to large corporations.
On the consumer spending front, the current upward trajectory also looks fragile, with the KBC Bank Consumer Sentiment Index falling to a late-2020 low in August.
And for many, a long and deepening housing shortage is preceded by new economic challenges.
Home asking prices rose 11% year-on-year, according to real estate website Myhome.ie, and August rental prices hit an all-time high after rising 12.6%, according to figures released by Daft.ie. did.
Rachel, a 27-year-old recruiter from Kildare who now flat hunts in Dublin, says she’s shocked at how bad things have gotten since she moved to the capital four years ago.
“I check real estate sites on my phone all the time, and by the time I click the link, the ads are gone,” she told CNBC. She said she and her friends are feeling the pressure of higher bills.
“For renters, and arguably for those most in need with energy shortages and pensions, there’s real anxiety about what winter will bring. People are afraid of the unknown and they’re definitely looking to their budgets.” .