Irish GDP Plunge Causes Unexpected 0.2% Eurozone Contraction in Q1

The Eurozone economy unexpectedly contracted by 0.2 per cent in the first quarter, according to a revised estimate published Friday by Eurostat. This was primarily due to a «staggering» 12.1 per cent slump in Irish GDP, which accounts for about 4 per cent of the Eurozone’s GDP. Eurostat had initially estimated 0.1 per cent growth for the 21-country bloc.

Ireland’s national accounts are highly volatile, distorted by cross-border financial flows from multinational corporations headquartered there. Rory Fennessy of Oxford Economics noted that excluding Ireland, Eurozone growth remained steady at around 0.2 per cent per quarter. Bank of Ireland stated the 12 per cent GDP plunge, reflecting a small number of pharmaceutical multinationals, is not a meaningful guide to the real economy.

Multinational-dominated sectors in Ireland contracted by 27.1 per cent in Q1, while domestic industries grew by 0.4 per cent. The Irish government’s preferred metric, modified domestic demand, grew by 0.6 per cent. Despite the Eurozone GDP revision, the European Central Bank is expected to raise interest rates next week for the first time in nearly three years to combat rising inflation, which hit 3.2 per cent in May, above the 2 per cent target.