Dublin Economic Monitor - Issue 33 | June 2023

in this issue

L ATEST DUBLIN ECONOMIC DATA

S&P GLOBAL DUBLIN PMI

MASTERCARD SPENDINGPULSE

INFLATION LOOSENS ITS GRIP AS DUBLIN

LABOUR MARKET TIGHTENS

Highlights

Dublin’s unemployment rate rose modestly to 5.1% (SA) in Q1 2023, while the national rate fell to 4% – the lowest level since 2001.

Business activity in the Capital soared back into expansion territory in the first quarter of 2023, with rising activity in construction and services offsetting a contraction in manufacturing.

The value of Dublin consumer retail spending continued to expand with Q1 growth of 1.6% QoQ and 5.8% YoY (SA), likely influenced by high inflation rates.

Foreign Direct Investment into Dublin expanded in Q1 with $520 million in capital investment across 20 projects, and the creation of almost 1,300 jobs (all values SA).

Residential property prices declined by 0.9% MoM in March, the sixth consecutive month in which a contraction was recorded.

The supply of hotel rooms to the Dublin market reached a new peak in April 2023 as Average Daily Rates for rooms increased to over €180 (SA).

Welcome to the June 2023 issue of the Dublin Economic Monitor

The Dublin Economic Monitor is a joint initiative on behalf of the four Dublin Local Authorities, and is designed to be of interest to those living and doing business in Dublin or considering locating here. The report is produced by Grant Thornton with inputs from S&P Global and MasterCard. There are two special feature articles this quarter. The first is from Anthony Foley, Associate Professor Emeritus at DCU, and focusses on FDI and the importance of Dublin's competitiveness. The second article is by Jonathan Wildsmith, Production Manager, fDi Markets. It covers a new dataset which is incorporated in this issue of the Monitor and sets out Dublin’s FDI performance relative to a number of other European cities.

The Monitor is divided into the following themes for Dublin:

Economy

Business Developments

Retail

Hospitality

Labour Market

International Rankings

Housing

Transport & Travel

For more data and insights see: www.dublineconomy.ie

The next edition will be published in September 2023.

document provides general information on the Dublin economy. It is not intended to be used as a basis for any particular course of action or as a substitute for financial advice. The document is produced independently by Grant Thornton and Packed.House; the views and opinions expressed are those of the relevant author, and do not necessarily reflect the views of the Dublin Local Authorities. The Dublin Local Authorities disclaim all liability in connection with any action that may be taken

Inflation loosens its grip as labour market tightens

Several key themes dominate the economic picture this quarter, all of which are contributing to a level of cautious optimism that the economy is moving into a more settled and predictable phase. Of course, this must be caveated by noting that shocks have hit at pace over the last few years and the possibility of more cannot be ruled out.

Since the last Dublin Economic Monitor in March, inflation, as measured by the Consumer Price Index, has started to fall back. The annual rate of inflation eased from 7.7% in March to 7.2% in April. Although this is now heading for a 20 month streak where inflation has exceeded 5%, 7.2% is the lowest inflation rate since April 2022 and is two percentage points off the 9.2% peak reached in October. Inflation does therefore appear to be loosening its grip.

With high rates of inflation, many Central Banks have been increasing interest rates. This is a finely balanced tactic which could restrict economic activity to the point of creating a recession. Central Banks do not yet believe they have beaten inflation but the European Central Bank’s decision to implement a 25 basis points increase rather than a fourth consecutive 50 points increase in their most recent announcement perhaps signals that we are reaching the end of this cycle of rate increases.

Other elements of the economy which are providing reasons to be cheerful include the labour market’s performance and, to a somewhat lesser extent, sentiment indicators. With Irish unemployment now below 4%, there are 15,000 fewer people unemployed than a year ago. This is an exceptional performance in the context of the economic challenges faced over the past number of years.

Consumer sentiment in positive territory yet challenges persist

Consumer sentiment has been moving into stronger positive territory. Despite a slight decline in March, (the Credit Union sentiment index declined from 55.6 to 53.9 between February and March) consumer confidence is considerably better than last autumn. It is not all good news on consumer sentiment, however. Irish consumers remain strongly of the view that their household finances will weaken further in the next twelve months, a direct link back to the inflation challenges and the fact that wages are not keeping pace.

When these various factors are considered, there is a consensus view from forecasters that Ireland will post growth this year and next, albeit at a lower level than in the recent past. The International Monetary Fund sees

the Irish economy expanding by the fastest rate in the Eurozone over the next two years - by 5.6% this year and by 4% in 2024. Modified Domestic Demand (which is seen as a better estimate of the domestic economy as it excludes those large transactions of foreign corporations that do not have a big impact on the domestic economy) is also projected to grow in 2023, with the Irish Central Bank’s latest quarterly bulletin suggesting 3.1% growth in real terms.

Skills under the spotlight

Of particular note this quarter has been the launch of a major Organisation for Economic Co-operation and Development (OECD) study on Ireland’s skills which signalled the launch of the 2023 European Year of Skills. This report finds that while the share of young adults with a third level degree is significantly above the OECD average, many Irish adults are at risk of falling behind as they are unprepared for changes in the world of work. Further, the evidence gathered by the OECD suggests that there are significant challenges ahead with labour shortages, slowing productivity growth and the need to successfully navigate the skills implications of the green and digital transformation of our economy. This has significant implications for Ireland’s ongoing competitiveness, a point which has been recognised at Government level with Minister Harris agreeing to report back on the impacts of this OECD study, including –potentially – a new Skills Act.

As the economy continues to navigate ongoing uncertainty in the near term, the renewed focus on key competitiveness issues that will impact over the longer term is encouraging.

Retail & Renewables to the Fore in Early 2023

Labour Market Undulations Continue

The Dublin labour market continued to experience undulations in the first quarter of 2023 with mixed news across multiple sectors. While the economy remains close to or at ‘full employment’, the technology sector has suffered job losses over the past number of quarters. This continued – albeit to a lesser extent – in early 2023, with job listing website Indeed announcing 225 job losses at its Dublin office, and each of Google, Meta, Amazon and Workhuman announcing further cuts.

More encouragingly for the technology sector, ThreatLocker and Slalom announced the creation of 120 jobs and 50 jobs in the Capital respectively. Hundreds of additional jobs were also created in the wider economy in the first quarter. This includes Ryanair’s plans to develop a €40 million hangar and aircraft maintenance facility at Dublin Airport with the creation of 200 new engineering and aircraft mechanic jobs. Aldi and Ikea have also announced plans to recruit 120 and 100 new staff members respectively to accommodate further expansions in activity in the Capital.

Retail Recovery Gathers Pace

The recovery in the Capital’s retail sector continued in Q1. While Grafton Street and its environs has recovered relatively swiftly post-pandemic, activity in Dublin 1 had been slower through 2022. This changed in early 2023 with Sports Direct acquiring the 200,000sq ft former Debenhams premises on Henry Street for its new flagship store. New openings by Foot Locker (Ilac Centre), Dubray Books, HMV, Levi’s (all Henry Street), H&M and Flannels (both Clerys Quarter) will add significant impetus to the retail sector in the north inner city over the coming months.

Renewable Energy Transition Advances

Two proposed windfarm developments off the Dublin coast were successful bidders in the country's first ever auction to generate electricity from offshore wind. The Dublin Array on the Kish and Bray banks, and the North Irish Sea Array off Skerries, were allocated 824 megawatts (MW) and 500MW respectively in the May

auction – enough to power an estimated 860,000 homes. The projects will now move forward to the planning phase.

Spencer Place Leads New Commercial Developments

April marked the opening of a new 413,000sq ft campus at Spencer Place. The campus comprises three grade-A office buildings, all of which are leased to Salesforce for its EMEA headquarters for a term of 15 years, and a 204-bedroom hotel which has been let to Dalata Hotel Group on a 35-year lease. The new campus is a significant development. Large developments of this nature have contributed towards a rising commercial vacancy rate in the Capital, according to CBRE. The overall vacancy rate was 13% in Q1, with grade A vacancy marginally lower at approximately 11%. Both rates were up significantly YoY though rents, shown in the chart, remain at peak levels.

Dublin Office Rents Index (2006 = 100)

Dublin Business Activity Returns to Growth in Q1

Following a slight slowdown at the end of 2022, the Dublin private sector soared straight back into expansion territory in Q1 2023 and registered marked uplifts in all of the three areas of activity, new orders and employment. The wider upturn was buoyed by sharp growth in the services and construction sectors, though conditions were less favourable in the manufacturing economy.

The Dublin Purchasing Managers’ Index (PMI), which tracks business activity in the Capital, soared back into expansion territory in the first quarter of 2023. A PMI reading of 55.5 was recorded in the quarter, substantially exceeding the 50 mark which separates growth from contraction. The rate of expansion was the strongest since Q2 2022, and followed a minor contraction at the tail end of last year.

Growth was stronger in Dublin than the Rest of Ireland (52.6) in the quarter. The swifter pace of expansion in the Capital was driven by marked and encouraging increases in activity levels in the services (57.4) and construction sectors (57.3). This contrasted with the manufacturing sector where a reading of 46.6 signified a sharp contraction. This was the deepest contraction since pandemic-era 2021 and dampened the overall rate of growth in business activity in Q1.

New orders levels in Dublin, which are an indicator of businesses’ project pipelines, also expanded at a strong rate (55.2) in the quarter. This was the most significant expansion in a year and also followed a contraction at the end of 2022. Across the Rest of Ireland, new orders also grew but at a weaker rate (51.4) in the quarter.

In further positive news for the Capital’s labour market, employment levels expanded amongst Dublin businesses in Q1. Firms in the Capital added to their workforce numbers for a ninth consecutive quarter, resulting in a PMI reading of 55.0 which exceeded the equivalent rate for the rest of the country (52.6). Such expansion rates across the country will have contributed positively towards a labour market which is at or near ‘full employment’.

Capital’s retail spending expansion continues in early 2023

MasterCard Total Retail Sales Index (SA)

The value of retail spending by consumers in the Dublin economy continued to expand in the early stages of 2023 with Q1 growth of 1.6% QoQ and 5.8% YoY (SA). Q1 was the eighth consecutive quarter in which QoQ growth in retail spending was recorded, and underlines the post-pandemic economic recovery combined with high inflation rates for consumer products.

The QoQ expansion in spending in Q1 was driven by increases in expenditure across all segments covered in the MasterCard SpendingPulse. Spending on Necessities grew rapidly in Q1 (+3% QoQ) in what is likely a reflection of stubbornly high inflation rates for foodstuffs.

Lower, but nonetheless positive, growth rates in

spending patterns were recorded in the Entertainment (+2% QoQ) and Household Goods (+1.5% QoQ) categories. This shows the ongoing willingness of consumers in Dublin to spend on the likes of hospitality and big-ticket household items, in spite of cost of living pressures. Sales of discretionary items via department and clothing stores rose at a more modest rate of 0.5% QoQ in the first quarter of the year.

Expenditure via eCommerce was strong in the quarter, with growth of 3.9% QoQ representing an acceleration of activity via online platforms, and follows a modest slowdown in expansion in this category in previous quarters.

A macro-economic indicator, SpendingPulse™ reports on national and Dublin retail sales and is based on aggregate sales activity in the MasterCard payments network, coupled with estimates for all other payment forms, including cash and cheque. This information has been grossed up to present an estimate of the total retail sales of retail businesses in Ireland and Dublin to both residents and tourists. Data is seasonally adjusted but is not adjusted for inflation. MasterCard SpendingPulse™ does not represent MasterCard financial performance. SpendingPulse™ is provided by MasterCard Advisors, the professional services arm of MasterCard International Incorporated. See www.dublineconomy.ie for more info on methodology.

Sales

Dublin tourist spending returns to robust growth in

Retail spending by tourists in Dublin returned to robust growth rates in the first quarter of 2023, following a subdued Q4 2022.

Spending by visitors to the Capital increased by 7.3% QoQ and 15.3% YoY as the tourism sector regained momentum. The QoQ expansion in the value of expenditure was exhibited by all markets covered in the MasterCard SpendingPulse, with the notable exception of the US. A QoQ decline of 7.7% in spending by American tourists was at odds with the national level (where growth of 10.2% was recorded) and will be a concern as the summer approaches given the importance of the market as a source of inbound tourism. The April visit of President Joe Biden to Ireland has reportedly

caused a surge in bookings amongst US tourists and may be a timely fillip in terms of spending from this market.

European markets were a source of positive QoQ retail spending growth rates in Q1. This was led by an expansion of 6.9% in spending by visitors from the French market. Expenditure amongst German visitors also rose at a strong rate (+6.2%) and was closely followed by the UK where spending increased by 6% QoQ. The UK is critical for tourism in Dublin and such growth is a positive bellwether for the remainder of 2023.

The Chinese market showed the strongest signs of growth in Q1 with spending increasing by 18.2% QoQ. This most recent expansion is a signal that the recovery in global tourism is broadening in the post-pandemic era.

Erosion of Spending Power

The growth in the value of retail spending in both Dublin and nationwide comes against the backdrop of inflation eroding consumers’ spending power over the course of 2022. As shown in the chart, YoY growth in Irish average weekly wages was strong in late 2020 and 2021 but eased considerably to rates not exceeding 4.1% in each of the four quarters of 2022. Inflation in the year was considerably higher at 7.8%, and has remained at such elevated levels in early 2023. In combination with rising average income taxes, this has led to a “double blow for workers” according to the OECD – and is likely to impact the spending power of consumers.

Hotel market supply reaches new peak

Dublin Hotel Supply & Occupancy Rates (SA)

The supply of hotel rooms to the Dublin market reached a new peak in April 2023. An index reading of 130.3 (SA) represents YoY growth in supply of 7.2%, and an expansion of over 30% from the 2013 baseline. Such strengthening supply will be important for the Dublin market over the coming summer season, especially as demand for rooms remains high and migrants continue to be accommodated in hotels in the Capital. Occupancy rates also remained elevated at approximately 83% (SA) in each of the first four months of the year, while Average Daily Rates for a room increased MoM to over €180 (SA) in April.

Strong restaurant sector performance is sustained in early summer

Dublin's restaurant sector remained stable in early summer 2023 as the post-pandemic recovery was sustained. The volume of seated diners at Dublin restaurants stood 69.4% above the 2019 baseline in May. The restaurant sector in the Capital has remained buoyant since January 2022, with seated diner volumes consistently standing above 2019 levels. Nationally, seated diners at restaurants also remained up in May, but by a considerably higher proportion (+122.3%). Such trends in Dublin and across Ireland are positive indicators as diners are showing an ongoing willingness to eat-out despite the high inflation environment which is impacting disposable incomes.

Dublin sits amongst Europe’s FDI elite

Jonathan Wildsmith Production Manager, fDi Markets

At a global level, the pace of Foreign Direct Investment (FDI) in 2022 showed signs of ongoing recovery following the shock effect of the pandemic. Data from fDi Markets shows that the number of FDI projects increased by 16% YoY despite soaring energy prices, rising inflation and weak economic growth.

The number of inbound FDI projects in Dublin grew by 15% YoY in 2021 and a further 3% YoY in 2022. While Dublin’s intake of FDI in 2022 was marginally lower (-2%) than its pre-pandemic total of 147 FDI projects in 2019, it was amongst the most resilient cities for FDI attraction. The Capital is competing directly with major cities in Europe to lure foreign investors and ranks amongst the top recipients of FDI.

Dynamic Dublin

The dynamic city region has attracted more FDI than Madrid, Amsterdam and Lisbon since 2019. Based on a study of six European cities for FDI attraction by inbound greenfield FDI projects between January 2019 and March 2023, Dublin ranked behind London and Paris but ahead of Madrid, Amsterdam and Lisbon. In terms of job creation and capital investment, Dublin ranked second to London over the same time period.

fDi Markets data shows that the combined number of ‘greenfield’ projects and job-creating expansions of existing projects in Dublin totalled 573 between 2019 and 2023 (see chart); worth an estimated €18.4bn, and creating some 47,600 jobs.

Service economy powers Dublin

The Irish capital’s strength lies in its technology and services economy. Between 2019 and 2023, Dublin ranked third behind only London and Paris by inbound FDI projects in the software and IT services and business

services sectors. Combined, the software and IT services and business services sectors accounted for more than half (57%) of FDI projects in Dublin. Close to 22,000 tech jobs were created, indicating that one in every four tech jobs created across the sample group was based in Dublin.

Dublin also ranked first by capital invested in the software and IT services sector (estimated at €94bn). Its strong performance is also reflected in a top ranking in the biotechnology and pharmaceutical sectors. The city region ranked joint top with Paris in the biotechnology sector by FDI project numbers. Dublin was the largest recipient of jobs and capital investment in the biotech sector thanks in large part to Pfizer’s €1.2bn investment at its Grange Castle facility, creating hundreds of new jobs.

Looking ahead, Dublin looks set to remain a strong performer for FDI in 2023. The city has attracted 20 FDI projects in Q1 alone, totalling $524m (both values SA). As shown in a new indicator on page 11 of this issue.

Number of FDI Projects by City (SA), 2019 - 2022

Dublin unemployment remains at low level

Dublin's unemployment rate ticked upwards in Q1 2023, yet remained at or close to 'full employment'. The 5.1% rate (SA) in Q1 was up by 0.4 percentage points (pp) QoQ but down by 0.7pp YoY - underlining the broad progress which has been made since the lifting of most remaining Covid-19 restrictions in Q1 2022. The national unemployment rate declined for an eighth consecutive quarter to stand at 4% in Q1 2023, the lowest rate recorded since 2001. Both rates indicate the currently 'tight' labour market across the country where demand for labour largely outstrips supply. Both rates underline the currently 'tight' labour market across the country where demand for labour largely outstrips supply, though the recent uptick in Dublin’s unemployment may indicate a modest reversal in Q1.

Services drive dublin employment growth

Employment levels amongst Dublin residents continued to climb at the start of 2023. Over 781,400 Dublin residents (SA) were in employment in Q1, representing growth of 1.2% QoQ (+9,600 jobs) and 3% YoY (+22,800 jobs). In a surprising development, employment in the construction sector contracted by 5.6% YoY (2,100 jobs) in the quarter. This was compounded by a reduction in industrial employment of 4% YoY (2,500 jobs). Private services and public sector employment were the sole drivers of the overall YoY employment growth in Q1, with expansion rates of 5.2% and 1.9% respectively. Despite recent sectoral issues, employment in ICT continued to rise YoY in Q1 (+2.5%, 2,200 jobs).

Job vacancies record modest decline

Dublin job postings on the Indeed website in May 2023 remained above the February 2020 baseline (+14.5 percentage points) but continued on a broadly downward trajectory. Job postings for the Capital have exceeded the baseline in each month since July 2021 yet declining vacancies suggest employers in the Capital are either filling positions or tailoring recruitment plans given the tight labour market conditions. Job postings across the rest of Ireland continued on a contrasting and upward trajectory in May (+124.5 percentage points versus 2020), suggesting that differing market dynamics exist outside Dublin - potentially related to the availability of labour.

Dublin inward fdi grows but at slowing pace

Foreign Direct Investment (FDI) in Dublin continued to grow in Q1 2023, according to a new dataset from fDi Markets. There was over $520 million in capital investment across 20 projects in the Capital in the quarter, with the creation of almost 1,300 jobs (all values SA). Despite this growth, FDI was down by $307 million (37%) YoY. Investments in the Capital in Q1 compared favourably to other European cities, ranking 2nd to Amsterdam for both FDI per capita ($655, SA) and average project value ($26.2 million, SA). Madrid recorded the highest level of new FDI employment, with 2,420 jobs (SA) created in the quarter. FDI activity levels were down YoY in Q1 across all cities analysed, likely related to global economic uncertainty.

International Rankings Highlight Dublin’s International Standing

Internationally published benchmarks are a useful means of measuring a city’s performance relative to its peers, and recent indicators for Dublin confirm the city’s strong showing across a range of dimensions (see table opposite).

Third Level Education Specialisms

Two of Dublin’s universities, UCD and Trinity College Dublin, have had subject departments ranked within the top 50 globally by QS. According to the 2023 World University Rankings by Subject, UCD is Ireland’s strongest third level institution with 42 subjects achieving global rankings, including 13 in the world’s top 100. TCD’s English and literature department was placed at 22nd globally in the rankings which were primarily headed by US institutions. Overall the report stated that Ireland’s third level sector’s “continued improvement in QS’s subject rankings is a testament to its resilience, having overcome more severe budget restrictions over the past decade than most of its peers in Europe and the UK”. Improvements in science and technology programmes in the country were said to be particularly notable.

Comparatively Favourable Air Quality

Dublin is among the best EU cities for air quality, according to analysis from the European Environment Agency. The Capital ranked in joint 25th position of 365 cities alongside Cork but air quality in both cities was only rated as ‘fair’. Faro in Portugal was found to have the best air quality in Europe. The analysis pointed to traffic congestion as a major contributor towards poor air quality across the continent, and one of the main

motivations for the pedestrianisation of cities, as 90% of city dwellers in the EU are said to be exposed to harmful levels of pollution.

A Literary Haven

Dublin has ranked in the top 5 cities in Europe for booklovers to travel to, based on the number of toprated libraries, bookshops and publishers in the city. The Capital was placed in 4th position in the ranking which was compiled by Holidu and Spain-Holiday. The ranking cited the Long Room and Book of Kells in Trinity College Dublin as key attractions, along with Marsh’s Library, the Winding Stair Bookshop, Hodges Figgis, and Ulysses Rare Books. The ranking was topped by Stuttgart and also placed Belfast within the European top 10 (9th position).

Public Transport Issues

Dublin’s public transport system has been rated by Greenpeace as the worst of 30 European capital cities. The rankings – which were topped jointly by Tallinn, Luxembourg and Valletta – was based on affordability and simplicity for users in purchasing tickets. According to Greenpeace, Dublin’s poor performance is partly due to it being “the only city analysed which does not have a fixed-price long-term ticket for all means of transport and available for all passengers”. While an electronic ticketing system and VAT exemption are positives for Dublin, the regular price of public transport in the Capital was the second-highest out of all cities analysed, standing at €3.16 per day.

DUBLIN'S INTERNATIONAL RANKINGS

DUBLIN'S LATEST INTERNATIONAL RANKINGS

Housing market activity recovers from january trough

Dublin Residential Property Transactions (SA)

Activity levels in the Dublin residential property market bounced back in March 2023, following a weak start to the year. Over 2,100 property transactions (SA) took place in March as the market regained momentum (+31.4% MoM). This followed a trough in January - the deepest since the pandemic - where just 1,266 transactions (SA) were recorded. A similar trend was seen nationally where low activity levels in January and February were followed by a recovery in March. The outlook for the market remains uncertain with falling house prices counterbalanced by rising interest rates which are hampering prospective buyers' affordability.

Dublin residential prices fall for sixth consecutive month

Residential property prices in Dublin fell for a sixth consecutive month in March 2023. Prices declined by 0.9% MoM in March but remained up by 1.7% YoY. This is likely a result of tightening credit conditions hampering buyers' purchasing power. Prices outside Dublin have followed a similar trend, falling by 0.4% MoM but remaining up by 5.7% YoY. Research from the CSO suggests that first time buyers accounted for more activity nationally in March when compared to the same month last year, indicating that demand in this segment of the market remains robust - despite the ECB's recent interest rate hikes.

Average residential rents rise further in Q3 2022

Average residential rents in Dublin reached a new peak of over €1,880 per month in Q3 2022 (latest data available). Growth of 1.3% QoQ (+€24) and 1.1% YoY (+€21) was recorded in the quarter as limited housing availability placed further upward pressure on rents. Across the Greater Dublin Area (GDA), which represents the Capital's broad commuting belt, rents declined QoQ (-0.4%) but rose YoY (+3%) to stand at an average of €1,362 per month. Upward rent movements were also recorded outside the GDA with 1% QoQ growth driving rents to a new peak of €923 per month. Such rent pressures align with a Daft.ie report of a one-quarter YoY decline in available rental properties nationwide in Q3 2022.

New Housing Commencements Rise In Q1

New residential supply to the Dublin market rose YoY in Q1 2023. Over 2,700 new units were started in the quarter, representing a 12.8% (+312 unit) QoQ increase. A stronger YoY growth rate of 48.1% (+892 units) was recorded, and likely arose due to the lingering effects of Covid-19 on market confidence and activity twelve months previous. Housing completions in Dublin stood at 2,638 (SA) in Q1 2023, falling by 8.9% QoQ from a peak in late 2022, yet remaining significantly higher than Q1 2022 (+27.6%, +571 units). Increases in supply of this nature are considered essential for easing the rent and price affordability issues which currently affect the Capital's housing market.

& TRAVEL

Dublin Public Transport Usage Normalises Post-Pandemic

Public Transport Million Trips (SA)

Public transport usage in Dublin remained at high levels in Q1 2023, aligned with pre-pandemic norms. Almost 60 million passenger journeys (SA) were recorded on the Capital's public transport system in the quarter, representing a minor QoQ reduction (-0.4%) but a large YoY increase of over 34%. Dublin Bus was critical to this YoY growth with 7.7 million additional passenger journeys (SA, +25.1%) occurring in Q1 2023. The Luas also recorded substantial YoY growth of 4.4 million journeys (SA, +58.1%), along with Irish Rail (+2.6 million, +53.7%) and Bus Eireann (+600,000, +40.1%). Such upward trends are likely an indication of the normalisation of travel patterns post-pandemic, and the effects of public transport fare reductions.

Dublin road traffic volumes decline versus 2022

Dublin Average Daily Traffic Count '000s (SA)

Traffic volumes on the Dublin road network declined YoY in May 2023, in what may be a signal of the positive effects of both reduced public transport fares and employees continuing to work from home beyond the Covid-19 pandemic. An average daily traffic count of over 698,000 journeys (SA) was recorded on eight main thoroughfares in the Capital at the end of the month. This represented a YoY decline of 6.2% or 46,000 daily journeys. Both peak morning and evening traffic volumes were down YoY, declining by 9% and 7.7% respectively. If sustained, reducing traffic volumes will have multiple positive impacts on the environment and the overall competitiveness of Dublin.

Dublin airport now Europe’s 5th largest transatlantic hub

Dublin Airport Passengers '000s (SA)

Dublin Airport passenger numbers returned to growth in Q1 2023, following an unexpected decline in the final quarter of 2022. Over 8 million passengers (SA) passed through the airport in Q1, representing increases both QoQ (+14.6%) and YoY (+88.8%). The YoY growth is particularly notable as 3.8 million more passengers travelled via Dublin in Q1 2023, underlining the burgeoning ongoing recovery in the airline industry. Dublin has now been ranked as Europe’s 5th largest transatlantic hub. Expanding airport capacity and the return of big events, such as the Saint Patrick's Festival, are likely significant contributors.

Imports drive increased port activity in Q1

Dublin Port Tonnage Million Tonnes (SA)

Activity levels at Dublin Port increased in Q1 2023, driven by greater volumes of imports. A total volume of 9 million tonnes of throughput (SA) was handled in the first quarter, representing modest growth of 0.7% QoQ. This expansion was solely attributable to a QoQ increase in imports (+1.1%) as exports (-1.0%) declined for a third consecutive quarter. Port activity remained down by 2% YoY due to contractions in both import (-2.3%) and export (-1.6%) levels, with total throughput standing 1.1 million tonnes (-11%) below its Q4 2020 peak. This is likely related to a combination of factors including global inflationary pressures.

Attracting foreign direct investment: we need to be excellent

Anthony Foley Emeritus Associate Professor of Economics, DCU Business School

Foreign direct investment (FDI) has a range of names in Ireland such as IDA- supported industry, overseas industry, multinationals and foreign industry. These do not mean exactly the same but are generally used interchangeably. The focus here is on IDA-type foreign industry (both manufacturing and international services). These are projects which choose Ireland as a production base for mainly export activities or as global and regional headquarters. Such projects are attracted to Ireland by various locational advantages and characteristics and by the work of IDA Ireland. Other FDI projects operate here to serve the local market e.g. ALDI or Tesco.

Under-appreciated Economic Contribution

While there is reasonable public awareness that this section of FDI (IDA-type projects) generates a very

substantial economic contribution, the full scale of its enormous or dominant impact, which is briefly outlined below, is under-appreciated.

The issue is not whether FDI will continue to come in the future but will it continue, in both new projects and development of existing projects, at the very high level required to maintain the size of its current contribution? This is by no means certain in the changed and changing national and international economic and business environment. We will have to be at the very top of our attractiveness.

Exports are a critical element of Ireland’s overall growth performance. In 2021, development agency* enterprises had total exports of €345.8 billion; the multinational/foreign sector provided €318.5 billion or 92.1%, with the Irish/indigenous sector accounting for the remaining €27.3 billion or 7.9%.

The export performance is hence dominated by multinationals. This overstates the real contribution of the multinationals because of various measurement and interpretation issues, such as the selling value of exports which may be distorted by accounting practices and the lower domestic content of exports through repatriated

*Enterprise Ireland, IDA Ireland, and Údarás na Gaeltachta.

profits, imported materials and services. However, the concept of direct expenditure in the Irish economy (which measures wages and salaries and Irish–sourced goods and services inputs) allows us to correct for some of these measurement issues. The Irish direct expenditure in multinational exports was €32.17 billion and the equivalent in indigenous exports was €27.3 billion in 2021. Of the net foreign exchange earnings from overall export performance, indigenous enterprises account for 33% and multinationals account for 67%, further underlining the latter’s dominance.

In the modern industrial sector – comprised of chemicals, pharmaceuticals, information technology and other engineering – multinationals supply 98% of exports.

FDI-Supported Employment

While multinationals directly account for 12% of total Irish employment, their 316,000 jobs (2022 figures) account for a much larger share (61%) in the strategically important industrial and international services sectors. The multinational share of industrial employment is 50% and the international services share is 72%. In chemicals, the multinational share of employment is over 90%.

Multinational jobs are highly paid. In 2021, the average annual payroll cost per person in IDA Irelandsupported industry and international services was €83,000 compared to €54,000 in Irish-owned enterprises in the same sectors. For the economy as a whole, the average payroll cost per employee was €49,000. The multinational sector hence paid 69% more than the average economy-wide earnings level.

Rising competition for mobile investment

The Irish economy’s modern sector production, employment and export presence is very much due to FDI. This is because we, and IDA Ireland, have been very successful in attracting large flows of FDI and large numbers of the top global companies.

Can we continue that high level of success? Can we continue to be highly competitive in attracting FDI?

Can we continue to generate substantial additional economic activity and investment from FDI companies which are already located here? The competition for mobile investment projects continues to increase. The attractiveness of our tax package in the future is uncertain. Globalisation will be reversed somewhat because of geopolitical tensions with an increased emphasis on onshoring and near-shoring in supply chains for certain products. In that context, we will have to work very hard to maintain and enhance our attractiveness for FDI. We can say with confidence that we cannot take for granted that our very high level of success will continue.

Attractiveness Challenges

The national economy and Dublin have many attractiveness problems. Housing is expensive and in short supply, physical infrastructure has capacity problems, electricity supply is problematic and public transport is inadequate. We have yet to come to terms adequately with environmental issues. One comfort is that there are few cities in Europe which do not share some of the litany of negatives. The housing issue is less of a problem for employees of the more recent FDI arrivals because their income levels are well above the average. The issue will have its main impact indirectly in that many lower paid activities which contribute to the quality of life will be unable to attract staff. Nonetheless, the 2022 EY Attractiveness Survey on FDI reported that housing affordability was an issue while 67% cited the Irish education system as the top attractiveness factor.

We need to continue to be excellent at attracting FDI, “good” is not enough.

The competition for mobile investment projects continues to increase.