The Republic of Ireland’s domestic economy recovered strongly in the first quarter of 2023, official data suggests.

Output, as measured by modified domestic demand (MDD), expanded by 2.7% compared to the final quarter of 2022.

It had fallen in the third and fourth quarters of last year as the impact of inflation hit the economy.

However gross domestic product (GDP), a measure which is heavily distorted in Ireland by the activities of US multinational companies, contracted by 4.6% in the first quarter.

That means that on the GDP measurement Ireland is technically considered to be in a recession.

In 2017 Ireland’s statistical agency, the CSO, acknowledged that GDP and GNP (gross national product) had become so distorted that they no longer provided a sufficient understanding of the country’s domestic economy.

They developed new measurements: MDD and modified gross national income.

CSO assistant director general Jennifer Banim said GDP had fallen because of a sharp decline in the output of the globalised industrial sector, which is dominated by pharmaceuticals.

‘Extremely volatile’

Finance Minister Michael McGrath said multinational production can be “extremely volatile on a quarterly basis, with large swings a pattern of recent years”.

He added that “given the outsized role the multinational sector plays in our economy, GDP is clearly not a useful measure of the living standards of domestic residents”.

Mr McGrath said the “strong increase” in domestic demand was broad based and that incoming data suggested momentum has continued into the second quarter of the year.

Earlier this week official figures confirmed the country’s unemployment rate was at a record low of 3.8% in May.

Mr McGrath said the economy is “now clearly at full employment” and it is important that the upcoming budget is “calibrated so as to avoid adding to inflation”.