Preliminary Q2 estimates for Irish GDP show that economic activity fell by 6.1% q/q, which is a sharp but notably smaller decline in GDP than was widely expected or seen elsewhere. For context, this quarter-on-quarter decline is about half of that in Euro Area (-11.8% q/q) and less than a third of UK's decline (-20.4% q/q). This quarterly drop translated to an annual decline of -3.0% y/y, and puts the H1 average for Irish GDP growth at 1.3% y/y. Coupled with strong high frequency data for July onwards, there may be only a limited fall in Irish GDP in 2020.
The less severe impact on GDP is largely due to the multinational sector in Ireland, which is dominated by pharmaceuticals, medical devices, and ICT firms, and which may be less susceptible to negative pandemic effects. As such, it obscures weakness in the domestic economy. In Q2, there was a strong drop in modified domestic demand (a measure which aims to strip out multinational activity) of 16.4% q/q, which reflects dramatic declines in consumer spending of nearly 20%.
The latest unemployment data for August show that the COVID-19 Adjusted Measure of Unemployment, which includes those on the Pandemic Unemployment Payment, remains elevated at 15.4%%, but declined by about 2.2 ppt from 17.6% in July. This figure has continued to decline and is about half of the peak in April (29.1%).
Residential Irish house prices increased by 0.3% m/m in July, but not enough to prevent year-on-year fall of 0.5%—the first annual drop in seven years. These data point towards continuing resilience of property prices in face of major economic shock. The feared ‘demand destruction’ has not materialized as of yet and some latent demand may have emerged. Additionally, ECB metrics suggest an undervaluation of about 10% in Irish property values prior to the pandemic, which should help cushion adverse effects.