The Irish economy will continue to outperform its EU peers, according to the Mastercard Economics Institute, as consumer fundamentals remain strong.
It said Irish consumers have been relatively resilient despite the huge inflation shock.
A tight labour market with strong employment growth and historically low unemployment at 3.8% in June has supported the economy.
Mastercard said the economy has also been boosted by healthy balance sheets with very low household debt by Ireland’s historical standards, and by euro zone standards, and it has been flattered by excess savings from the pandemic.
“The most recent activity in June showed a broadening of spending across categories, compared to last year, even though the increases are modest,” said Natalia Lechmanova, Senior Economist at Mastercard.
“Despite inflation, Irish consumers have been remarkably resilient this year. They’ve focused their spending on experiences such as travel and entertainment, rather than things such as furniture, electronics, jewellery or apparel,” she added.
By contrast, she said spend on travel has contracted in May and especially in June “which is consistent with what we see in our Irish airline bookings data”.
Year-over-year growth in bookings originating in Ireland has been negative since April compared to the same time last year.
“This could be simply due to differences in timing in holiday bookings compared to last year (i.e people may be booking holidays earlier this year, while last year they booked at the last minute), or, judging from the relatively strong domestic spend on lodging and restaurants, people are doing more staycations this summer.”
The data from Mastercard shows the hospitality sector continues to recover in Q2, and has seen strong positive double-digit growth in cross-border spend by tourists across all categories, with the strongest growth in groceries, followed by restaurants and bars, and then beauty and cosmetics.
According to the data, the strong grocery spend is in part explained by strong growth of ‘mass’, as opposed to affluent travelers dominating Irish arrivals. Among the affluent travelers, it noted strongest spend on restaurants, bars and jewelry.
Looking ahead, Mastercard’s outlook for Irish consumers in the second half of the year is encouraging. Consumer confidence in June reached 15-month high suggesting consumers are feeling pretty good about their financial situation.
It said this is not surprising as inflation, though still high by historical standards, is dropping and reached the lowest levels since September 2021 in July, falling to 4.6% year on year from 4.8% year on year in June, and thus is their reducing financial pressures on households.
Meanwhile, wage growth is strong, at above 4% year on year, which is now almost in line with the inflation rate.
Once it catches up with it in the coming weeks, real consumer incomes will turn positive increasing consumers’ purchasing power and supporting consumer spending in H2. The few countries that commented on GDP breakdown for Q2, Mastercard saw personal consumption already starting to stabilise, such as in Germany, or even accelerate like in Spain, where inflation has been one of the lowest in the Eurozone in Q2.
It said it remains optimistic that easing inflation and Irish consumers’ strong fundamentals will support the Irish economy, and that the economy will continue to outperform its EU peers.
Ireland was once again the fastest growing economy in the eurozone in Q2-2023, expanding by 3.3% from Q1-2023. The rate of growth that was 11 times faster than that of the Eurozone as a block.
It said the economy has been the fastest growing in the EU since the pandemic. Currently it is 33% larger than it was in Q4-19. This is compared to Eurozone’s post-pandemic expansion of only 3% and also significantly above the 11% expansion by second fastest growing economy, Poland.
“Looking ahead, the outlook for the second half of the year is encouraging as wage growth catches up with inflation, increasing consumers’ purchasing power and supporting consumer spending. We remain optimistic that the economy will continue to be the outperformer in Europe,” Ms Lechmanova said.