About the NTMA
Business Areas

Irish Economy and Public Finances

  • Macroeconomic outlook
      • Coming into 2024, the most recent data paint a modestly positive picture for the Irish economy. This is against the backdrop of softer real economic growth in 2023. GDP fell by 3.2% in 2023. However, Irish GDP is distorted by the presence of multinationals. For this reason, Modified Domestic Demand (MDD) is a more accurate measure of underlying domestic growth. MDD was up by 0.5% in 2023 versus 2022 on the back of strong consumption and a labour market operating at near full employment.
      • Despite growth in personal consumption (+3.1%) which comprises the majority of MDD, the actual outturn for MDD was softer than the Department of Finance’s forecast of 2.2%. This is due to a sharp decline in modified investment of -7.1%. While there was some softness in the more domestically-focused building and construction sector, this decline is largely driven by base effects from a sharp surge in modified investment in 2022.
      • The labour market has been at full employment for some time with an unemployment rate of 4.2% in February. Employment growth was strong in 2023 (4% y-o-y), the labour force has been growing and participation rates remain near all-time highs. The tight labour market has yet to translate fully into wage growth with real earnings growth still negative.
      • Headline inflation has eased to 2.2% in February from its peak of 9.6% as the effect of the spike in energy prices abates. Inflation continues to have an impact on consumer spending, which grew by 3.1% in 2023, slightly below its pre-pandemic average of 3.9%.
      • The domestic side of the Irish economy as measured by domestic GVA grew by 3.8% in 2023. Professional, admin and support services were up by 0.7% while distribution, transport, hotels, and restaurants grew more robustly by 4.5%. Activity in the construction sector fell by 3.0% due to continuing building materials inflation as well as a readjustment to a higher interest rate environment.
      • Multinational sectors like Industry (which is Pharma dominated) and ICT performed exceptionally during Covid and the years following. 2023 showed signs of slowdown for the Industrial sector. In 2023, Industry declined by 11.0%, following average growth per annum of 21.5% between 2020 and 2022. This was also the first annual decline in this sector since 2016. In the ICT sector, growth was 8.0% in 2023, slightly faster than the 7.1% rate seen in 2022 but notably slower than average annual growth rate of 20.3% seen in 2020 and 2021. The softness in these sectors was reflected in exports, which fell by 4.8% in 2023. This marks the first annual decline in exports since 2012.
      • The rising cost of living is partially offset by the improvement in household balance sheets seen over the past three years. Coming into the Covid crisis, Irish households were in a much better financial position than the last recession. Ireland had used the previous ten years to repair private sector balance sheets. From 2014-2019, disposable income expanded in aggregate and debt levels declined. In 2013, the debt-to-income ratio for Irish households was 193%. In Q3 2023 this was down to 90%, the lowest ratio since the early 2000s.
      • Household balance sheets are not heavily indebted. Mortgage debt is mostly fixed at low rates for the next few years. The household savings ratio has been falling since its second peak in Q1 2021 and was 10.2% in Q4 2023. The significant amount of savings accumulated during the pandemic makes the current decline a return to normality.
      • The last few years have highlighted the unique structure of the Irish economy. Ireland has a standard domestic retail/services economy which is augmented by a highly productive and fast-growing multinational sector. The domestic side struggled with Covid while the multinational sector raced ahead. The two-speed nature of the Irish economy means that volatility can be expected in the usual measures of economic activity. For instance, GDP fell by 3.2% in 2023, the biggest decline in the Euro area. This follows a growth rate of 9.4% in 2022, which was the fastest pace of growth in the Euro area.
      • Similar to GDP figures, current account data in Ireland should be taken with extreme caution given the presence of multinationals. Indeed, the unadjusted current account recorded a surplus of €16bn in 2018 but then a deficit of €70.8bn in 2019. In 2023 a surplus of €49.8bn was recorded. The swings are due in part to the import of intellectual property into Ireland by multinational companies. A clear understanding of the current account is difficult in the face of these distortions. The CSO has released a modified current account (CA*) measure which aims to be consistent with its GNI* calculation. This CA* metric was in surplus from 2014-22 (between 0.5 and 11.2% of GNI*).
  • Key Economic Figures
    • 2022 2023 2024F 2025F 2026F 2027F
      Consumer spending (% chg vol) 6.6 3.1 2.4 3.1 2.8 2.7
      Government spending (% chg vol) 0.7 1.7 0.6 0.7 1.1 1.5
      Modified Investment (% chg vol) 19.8 -7.1 1.8 1.6 5.0 4.9
      Exports (% chg vol) 15.0 -4.8 2.8 4.6 3.9 3.9
      GDP (% chg vol) 12.0 -3.2 2.6 3.9 3.5 3.6
      Modified Domestic Demand (% chg vol) 8.2 0.5 1.9 2.3 2.9 2.9
      Nominal GNI* (%chg vol) 15.3 6.4 5.4 4.6 4.9 4.8
      Nominal GDP (€bn) 502.6 504.6 531.9 565.6 598.2 632.5
      Employment (% chg) 6.6 3.4 1.9 1.5 1.5 1.1
      Unemployment rate (% labour force) 4.5 4.3 4.6 4.7 4.7 4.7
      HICP (% chg yoy) 8.1 5.2 2.1 2.1 2.0 2.0
      GDP Deflator (% chg yoy) 5.3 3.0 2.8 2.3 2.2 2.1
      General Government Balance (€bn) 8.0 8.3 8.6 9.7 8.7 10.7
      General Government Balance (% GNI*) 3.0 2.9 2.8 3.0 2.6 3.0
      Primary Government Balance (% GNI*) 4.2 4.1 3.9 4.1 3.7 4.2
      General Government Debt (€bn) 224.8 220.7 220.8 223.2 226.4 232.4
      General Government Debt (% GDP) 44.7 43.7 41.5 39.5 37.8 36.7
      General Government Debt (% GNI*) 83.3 75.9 72.1 69.7 67.4 66.0
      Average interest rate on stock of GG debt 1.4 1.6 1.6 1.5 1.6 1.8

      Source: Department of Finance (SPU 2024)

  • Annual Public Finances
      • The General Government Balance (GGB) has returned to surplus after Covid-induced deficits. In 2020, GGB fell into a deficit of €18.7bn (9.2% of GNI*). By 2021 this had more than halved to €6.6bn. The strong economic growth – particularly in the multinational sectors - recorded in 2022 resulted in a general government surplus of 3.1% of GNI* (€8.5bn) for the year.
      • Despite major economic upheaval, revenues were resilient during the Covid period. Corporate tax receipts grew exponentially from 2020-2022, which is related to the success of the multinationals. Income tax resilience was due in part to the progressive tax system that Ireland has but also the nature of the Covid shock. Those who saw their employment affected by the Covid restrictions tended to be lower-paid workers who pre-pandemic were already outside the tax net. Adding to income tax strength, the number of people employed is up 14% on pre-pandemic levels (Q4 2023). As a result, Ireland’s fiscal position improved significantly over the past three years.
      • General government Revenues held up well in 2023 and came in as expected versus Budget projections. Income tax and VAT were the most noticeable drivers of tax growth in 2023, up 7.1% and 9.4% respectively. Corporation tax ended the year up 5.3%, finishing the year strongly after concerns over the summer.
      • Further large surpluses are expected in 2024-2026 (between 2.7-4.4% of GNI* each year). The figures published in the Budget point to continued strong corporate tax receipts. The Department of Finance has forecast that ‘windfall’ or excess corporation tax receipts will amount to €11.1bn in 2024. Excluding this excess tax, the underlying GGB is expected to be in a small deficit in 2024 (-€2.7bn, 0.9% GNI*) and a surplus of €2.5bn in 2025.
      • Due to this fortunate position, the Government has announced two new long-term investment funds - the Future Ireland Fund (FIF) and the Infrastructure, Climate and Nature Fund (ICNF) to ring-fence strong, but volatile corporate tax receipts. The FIF will be used to meet the Exchequer costs in the decades to come (e.g., an ageing population and the digital and climate transitions). Each year 0.8% of GDP will be transfer to the FIF (€4-€6bn). The ICNF will be capitalised with €2bn a year from 2025 until it reaches €14bn. The fund will be more counter-cyclical and will ensure future Government’s ability to continue capital spending even during an economic downturn. It will also have a climate and nature component to help achieve carbon budgets through capital projects if carbon targets are unmet. Both funds will be seeded with the €6bn which currently resides in the National Reserve Fund.
      • Ireland has more than reversed the impact Covid-19 had on the debt position. Pre-Covid debt-to-GDP was 57%. Following rapid GDP growth (amid continuing MNC distortions) the debt ratio fell to c.45% by end-2022.
      • Given the long-standing GDP distortions, Debt-to-GNI* is a more useful metric for evaluating Ireland’s debt sustainability. It has fallen from close to 170% in 2013 to 82.3% in 2022. At the same time, the weighted maturity of the debt stands above 10 years - one of the best in Europe. Ireland’s annual interest costs have fallen by c. 60% since 2013 to €3.3bn in 2022.
      • Debt metrics rose in 2020 and moderated in 2021. At the end of 2020, debt to GNI* was 108.9% before decreasing to 100.8% in 2021. This fell to 82.3% in 2022. It is expected to fall further to 76.1% in 2023 and 72.3% in 2024 (Budget 2024).
      • The NTMA issued €7bn of new MLT debt in 2023. The lower than usual issuance level is the result of modest redemptions in the year, the Exchequer’s strong cash position along with a sizeable fiscal surplus for 2022 and 2023. Issuance for 2024 is expected to be of a similar level, between €6-10bn.
      • The GDP denominator issue means that other metrics of debt serviceability are required. Debt-to-GG Revenue (178% 2023f), interest as a percentage of revenue (2.7% 2023f) and the average interest rate on Ireland’s debt (1.5% 2023f) are more apt measures for comparison with other sovereigns regarding Ireland’s debt serviceability.
      • It should be noted however that Debt-to-GNI* understates the ability of Ireland to repay debt. GNI* excludes certain activities that the Irish State could possibly tax and hence excludes some part of its ability to repay. This means that the Debt-to-GNI* ratio is likely too high. With debt-to-GDP too low, it is fair to say the reality of Ireland’s “proper” debt ratio is somewhere in between.
  • Key Annual Public Finance Figures

    • Description

      European
      System of
      Accounts
      (ESA)
      Code

      2022

      2023

      2024F

      2025F

      2026F

      2027F

      €bn

      €bn

      €bn

      €bn

      €bn

      €bn

      Revenue

      Taxes on production and imports

      D.2

      31.6

      33.0

      34.7

      36.7

      38.2

      39.8

      Current taxes on income, wealth

      D.5

      56.7

      60.0

      62.6

      65.7

      67.0

      70.2

      Capital taxes

      D.91

      0.6

      0.6

      0.7

      0.7

      0.7

      0.8

      Social contributions

      D.61

      19.8

      21.6

      23.3

      25.5

      27.2

      29.0

      Property Income

      D.4

      0.6

      2.0

      2.0

      1.7

      1.7

      1.9

      Other

      6.1

      6.6

      7.0

      7.0

      7.0

      7.0

      Total revenue

      TR

      115.5

      123.7

      130.2

      137.3

      141.9

      148.7

      Expenditure

      Compensation of employees

      D.1

      28.9

      31.1

      32.9

      34.6

      36.3

      38.0

      Intermediate consumption

      P.2

      17.8

      19.0

      19.2

      19.4

      19.7

      19.9

      Social payments

      D.6

      37.1

      39.8

      42.0

      44.2

      45.8

      47.5

      Interest expenditure

      EDP_D.41

      3.3

      3.5

      3.4

      3.4

      3.6

      4.1

      Subsidies

      D.3

      3.3

      2.5

      2.6

      2.6

      2.6

      2.6

      Gross fixed capital formation

      P.51

      10.0

      11.8

      13.2

      15.0

      16.6

      17.0

      Capital transfers

      D.9

      1.9

      2.2

      2.5

      2.5

      2.5

      2.4

      Other

      5.3

      5.5

      5.8

      5.9

      6.1

      6.4

      Total expenditure

      TE

      107.5

      115.4

      121.6

      127.6

      133.2

      138.0

      General Government Balance (GGB)

      B.9=TR-TE

      8.0

      8.3

      8.6

      9.7

      8.7

      10.7

      GGB as % of GNI*

      3.0%

      2.9%

      2.8%

      3.0%

      2.6%

      3.0%

      Underlying GGB (excl. CT windfalls) €bn

      -2.8

      -2.9

      -2.7

      -1.8

      -1.2

      0.4

      Primary Balance (PB) €bn

      11.3

      11.9

      11.9

      13.1

      12.4

      14.8

      Primary Balance as % of GNI*

      4.2%

      4.1%

      3.9%

      4.1%

      3.7%

      4.2%


      Source: CSO, Department of Finance (SPU 2024)

  • National Accounts Distortions
      • From 2015 onwards, Ireland’s national accounts are distorted by the reclassification of multinational companies and their assets as being resident in Ireland. Given the presence of such large distortions, GDP, GNP and even GNI have less information content when it comes to understanding Ireland’s “true” economic activity. That is, to understand the wealth and income generating capability of the Irish people we need to look to other metrics.
      • The reclassification of multinational companies’ activity as Ireland expanded the capital stock by c. €0.7trn over the course of 2015-2022. In some cases, whole companies re-domiciled in Ireland while in other cases multinationals moved assets (mostly intangibles) to their Irish-based subsidiary. The goods and services produced by the additional capital are mainly exported. This resulted in a step change in net exports in 2015 and the large year-on-year increases in net exports since.
      • Often the goods produced using the intangible assets based in Ireland are produced through “contract manufacturing”. This is where an Irish based company contracts out manufacturing to another company (typically outside of Ireland). The result of contract manufacturing is a goods export is recorded in the Irish Balance of Payments even though it was never produced in Ireland. There is little or no employment effect in Ireland from this contract manufacturing.

      National Account – Current Prices (€ bn)

      2015

      2016

      2017

      2018

      2019

      2020

      2021

      2022

      Gross Domestic Product (GDP)

      263.5

      269.7

      298.5

      327.4

      356.4

      375.2

      434.1

      506.3

      minus Net Factor Income

      -61.8

      -50.8

      -62.0

      -74.5

      -80.8

      -92.3

      -110.8

      -143.4

      = Gross National Product (GNP)

      201.7

      218.9

      236.5

      253.0

      275.6

      282.9

      323.3

      362.9

      add EU subsidies minus EU taxes

      1.2

      1.0

      1.1

      1.1

      1.1

      1.1

      0.8

      0.7

      = Gross National Income (GNI)

      203.0

      219.9

      237.6

      254.1

      276.7

      284.0

      324.1

      363.6

      minus factor income of re-domiciled companies

      -4.7

      -5.8

      -4.5

      -4.9

      -4.9

      -4.3

      -10.3

      -5.0

      minus depreciation on foreign owned IP assets

      -31.3

      -37.5

      -44.2

      -47.9

      -52.8

      -66.8

      -70.0

      -74.8

      minus depreciation on aircraft leasing

      -4.6

      -4.9

      -5.2

      -6.5

      -8.6

      -10.1

      -10.5

      -10.7

      = Nominal GNI*

      163.4

      171.6

      183.7

      194.8

      210.4

      202.9

      233.3

      273.1

      GNI* (y-o-y growth)

      6.4

      6.2

      6

      8

      -3.6

      15

      17.1

      Real GNI*

      181.1

      188.9

      198.6

      207.3

      212.6

      204.9

      233.3

      248.9

      Real GNI* (y-o-y growth)

      4.3

      5.1

      4.4

      2.8

      -4.6

      15.4

      6.7

      • Contract manufacturing (CM) has occurred in Ireland prior to 2015 but did not have a significant net impact on GDP since the company engaged in CM would send royalties back to its parent as a royalty import. However now that the parent/intangible asset is here, there is no royalty import and Ireland’s GDP is artificially inflated. This scale of contract manufacturing is unprecedented.
      • But not all intangible assets in Ireland are utilised like this. On the services side, large amounts of intellectual property are now based in Ireland, mostly relating to companies in the ICT sector. Accordingly, we have seen Computer Services exports increase dramatically. Theses exports are booked as Irish as are the resulting profits. Such profits are repatriated in time and should not be considered income for Irish households.
      • Complicating matters further, there are subsidiary companies who exports computer services out of Ireland but also pay royalties back to parent companies (a royalty import). These flows will offset mostly but will push up both imports and exports in Ireland balance of payments.
      • Lastly, the presence of aircraft leasing companies and redomiciled PLCs in Ireland can skew the national account figures to a smaller but still significant amount. In adjusting for globalisation effects, these distortions need to be considered.
      • The upshot of all of this is that Ireland’s investment, exports and imports are heavily skewed by multinational companies’ activity. However, there is clearly real activity occurring in Ireland. Employment in multinational sectors has increased dramatically and make up 12% of employment, and 19% of the country’s wage bill. Lastly, the corporate tax paid in Ireland from these companies has grown exceptionally strongly.
      • In response to the distortions, the CSO have worked to provide indicators and detailed datasets that give a better understanding of Ireland’s highly globalised economy. New supplementary indicators include one closely related to Gross National Income (known as GNI*) and another is a modified version of domestic demand (MDD).
      • For GNI*, Gross National Income is stripped of the profits of redomiciled companies, depreciation on R&D/ IP assets and depreciation on aircraft leasing. On a nominal basis, GNI* amounted to €273bn in 2022 compared with €506bn for Gross Domestic Product (GDP). This figure suggests the Irish economy is approximately half the size of what GDP would indicate.
      • Of note, GNI* rose by an incredible 15.3% in nominal terms in 2021. This growth was much larger than expected, even growing faster than GDP. Adjusting for prices, GNI* grew by 15.4%. The GNI* figure for 2021 likely overstates the growth of the Irish economy. The unexpected jump highlights how volatile the Irish National Accounts can be and how there is a need for a suite of indicators to best capture trends.
      • Modified final domestic demand (MDD for short) is proving to be a useful metric but one with its own limitations. This measure is domestically focused and is constructed to be less affected by the activities of multinational companies. The measure includes private consumption, government consumption and a modified metric for investment. Importantly, MDD ignores the net exports channel altogether where much of the distortions occur. The downside here is that domestic net exports is ignored too. A plus point for MDD is that it is released quarterly (versus the annual GNI* release). It can thus give us a more-timely gauge of the real economy.
      • MDD (which excludes inventories) fell in real terms -5.9% y-o-y in 2020 but rebounded by 7.3% in 2021 and a further 9.5% in 2022 and 0.5% in 2023. Growth in 2024 is expected to be more modest, c.2%.
  • National Accounts Distortions - Data Table

    • National Account – Current Prices

      (Euro, y-o-y growth rates)

      2015

      2016

      2017

      2018

      2019

      2020

      Gross Domestic Product (GDP)

      262.8bn

      (34.8%)

      270.8bn

      (2.8%)

      296.9.4bn

      (9.9%)

      326bn

      (9.8%)

      356.5bn

      (9.3%)

      372.9bn

      (4.6%)

      minus Net Factor Income

      62bn

      51.1bn

      62.3bn

      74.7bn

      80.9bn

      90.2bn

      = Gross National Product (GNP)

      200.8bn

      (22.8%)

      219bn

      (9.1%)

      234.7bn

      (7.2%)

      251.4bn

      (7.1%)

      275.6bn

      (9.6%)

      282.6bn

      (2.6%)

      add EU subsidies minus EU taxes

      1.2bn

      1.0bn

      1.1bn

      1.1bn

      1.1bn

      1.1bn

      = Gross National Income (GNI)

      202.0bn

      (22.7%)

      220bn

      (8.9%)

      235.7bn

      (7.2%)

      252.5bn

      (7.1%)

      276.8bn

      (9.6%)

      283.7bn

      (2.5%)

      minus retained earnings of re-domiciled firms

      -4.7bn

      -5.8bn

      -4.5bn

      -5.0bn

      -4.9bn

      -4.5bn

      minus depreciation on foreign owned IP assets

      -30.1bn

      -34.5bn

      -40.9bn

      -43.2bn

      -47.6bn

      -61.3bn

      minus depreciation on aircraft leasing

      -4.6bn

      -4.9bn

      -5.2n

      6.6bn

      -8.7bn

      -9.8bn

      = GNI*

      162.6bn

      (9.2%)

      174.7bn

      (7.5%)

      185.1bn

      (5.9%)

      198bn

      (6.9%)

      215.6bn

      (9%)

      208.2bn

      (-3.4%)
      • Contract manufacturing (CM) has occurred in Ireland in the past but did not have a significant net impact on GDP since the company engaged in CM would send royalties back to its parent as a royalty import. However now that the parent/intangible asset is here, there is no royalty import and Ireland’s GDP is artificially inflated. This scale of contract manufacturing is unprecedented.
      • Further to these distortions, the continued import of intellectual property by firms in Ireland gives a misleading picture on the drivers within Irish growth. When a firm moves IP into Ireland it is recorded as an import and also as investment. These two net out so overall GDP is not affected however the net exports and investment figures are distorted. Adjusting for this provides a better picture of the drivers of Irish growth.
      • Lastly, with large amounts of intellectual property now based in Ireland, we have seen Computer Services exports increase dramatically. Theses exports are booked as Irish as are the resulting profits. Such profits will be repatriated in time and should not be considered income for Irish households.
      • In response to the distortions, the CSO convened the Economic Statistics Review Group (ESRG) to identify indicators that would provide a better understanding of Ireland’s highly globalised economy. In February 2017, the ESRG released its recommendations. The CSO has agreed to implement these recommendations.
      • Among the main proposals were the publication of two new supplementary indicators, one closely related to Gross National Income (known as GNI*) and another is a modified version of domestic demand.
      • For GNI*, Gross National Income is stripped of the profits of redomiciled companies, depreciation on R&D/ IP assets and depreciation on aircraft leasing. On a nominal basis, GNI* amounted to €208.2bn in 2020 compared with €367bn for Gross Domestic Product (GDP). GNI* fell by 3.4% in nominal terms in 2020.
      • GNI* is released on an annual basis. Modified final domestic demand can give us a more-timely gauge of the real economy in the quarters ahead. Modified final domestic demand (which excludes inventories) fell in real terms 4.9% y-o-y in 2020 but could rebound c. 5% in 2021. This measure is domestically focussed and is constructed to be largely unaffected by the activities of multinational companies. The measure includes private consumption, government consumption and elements of investment.