Ireland's gross domestic product (GDP) is expected to contract this year, the first negative GDP growth since 2012.
A new report released today by the Economic and Social Research Institute (ESRI) states that the domestic economy will continue to grow this year and next,
However, the report noted that GDP is expected to decline by 1.6 percent this year due to "the disproportionate influence of multinational corporations on overall economic data."
Professor Kevin McQuinn, a co-author of The report, told The Journal that GDP, export and investment data were sometimes "distorted" because of deals linked to multinational companies.
"They won't give you a basic picture of how the economy is performing," he said. "Typically over the last 10 years, they tend to overstate the strength of the performance, most notably in 2015 when the Irish economy officially grew by 25 per cent."
"What you're seeing now is the opposite, in terms of changes in domestic demand, which is our estimate of potential growth in the economy." This year will be positive growth, but the overall GDP figure will be negative."
Revised domestic demand, which includes consumption and revised investment, will grow 1.8% this year.
Last year's growth and consumption, strong tax returns and a 4 percent unemployment rate all strongly point to underlying economic growth this year, McQuinn said.
"But there are certainly problems with some of the export data and investment data that have to do with some cross-country related considerations that have caused overall GDP to actually contract or decline this year."
Asked what was causing the slowdown in multinational corporate activity, McQuinn pointed to the pharmaceutical sector, which he said had been "a real driver of the Irish economy over the last three or four years".
"There has been some evidence over the last period of time that export growth related to pharmaceuticals is slowing, which is almost inevitable. You can't continue to have the kind of growth that we've seen, especially after the pandemic."
He also said the "rapid" rise in global interest rates by central banks in the EU, the US and the UK had "inevitably" had a negative impact on demand for exports of goods and services linked to the Irish economy.
At the same time, inflation continues to weigh negatively on the outlook for the Irish economy. According to the report, while the pace of price increases has continued to decline to current levels, ESRI still expects the consumer price index to grow 6 percent this year and 3.2 percent next year.
McQuinn said the agency had expected inflation to come down more. He cited a rebound in food and oil prices, as well as higher housing costs as reasons for this.
"In some areas, you will continue to see persistent inflation. But on balance, we think inflation will continue to decline next year, but not as quickly as we previously thought."
The report noted that Ireland's domestic economy is currently operating at full capacity, "particularly in employment-intensive sectors such as construction," and in this environment, additional domestic pressures could feed through to prices in the short term.