Productivity in Ireland 2024 - 2025

This chapter provides a KLEMS (Capital, Labour, Energy, Materials and Services) analysis of Gross Output growth in the economy for 2024. While the previous chapters have looked at the economy from a Gross Value Added (GVA) approach, this chapter additionally considers the intermediate inputs consumed in the production process. The KLEMS methodology decomposes intermediate consumption into three categories of Energy, Materials and Services to provide greater insight into the sources of growth in a given sector. The data used to categorise the intermediate consumption is taken from the Supply and Use Tables, which give a detailed breakdown of intermediate consumption of products and services by economic sector.

It should be noted that since the KLEMS approach uses Gross Output as the measure of output for a sector, the Multifactor Productivity (MFP) growth rate associated with that sector is generally minimised when compared to the MFP growth rate estimated when using GVA as the measure of output. This is due to the additional explanatory variables of Energy, Materials and Services. Gross Output in this chapter excludes inter-industry deliveries of intermediate inputs to avoid overstating the output of each sector. To avoid confusion with the MFP results seen elsewhere in the publication, the term KLEMS MFP will be used instead of MFP.

Table 9.1 shows a KLEMS decomposition of Gross Output growth for 2024 at the sector level. There were large changes in Gross Output for many sectors across the economy. Gross Output grew significantly in Electricity, Gas & Steam (16.2%), driven mainly by positive contributions from materials and service. There was strong Gross Output growth in Information & Communication (11.8%) and Financial & Insurance Activities (15%), both driven primarily by increases in the contribution from services and KLEMS MFP. Few sectors saw sizeable falls in Gross Output, apart from Agriculture, Forestry & Fishing (-13.5%), driven by negative contributions from material and services. 

Figure 9.1 illustrates a KLEMS decomposition of Gross Output growth for sectors in the economy over the period 2014-2024. Gross Output increased for all sectors shown over the period. Growth in gross output was highest for Information & Communication at 13.1%. This was driven primarily by a combination of contributions from services (7.1%) and capital (4.3%). Manufacturing also saw strong growth in gross output (9.6%), with this driven largely by the positive contributions from capital (6.7%) and services (2.9%). 

Gross Output is the sum of Gross Value Added (GVA) and Intermediate Consumption, which can be further decomposed into Labour and Capital (for GVA) and Energy, Materials and Services (for Intermediate Consumption). Figure 9.2 illustrates this decomposition for sectors in the economy in 2024, highlighting the differences in the sources of Gross Output for these sectors.

Labour accounted for the largest share of Gross Output for many domestic sectors such as Education (77.9%), Human Health & Social Work (56.2%) and Accommodation & Food Service Activities (51.9%). Capital was most significant for Real Estate Activities (68.4%), Manufacturing (57.4%), and Administrative & Support Service Activities (49.3%). Services accounted for at least 20% of Gross Output for most sectors, while Materials were generally more important for domestic sectors such as Construction (37.3%), Agriculture, Forestry and Fishing (40.4%), Human Health & Social Work Activities (20.9%). Energy generally accounted for the lowest proportion of Gross Output for most sectors, although it was extremely influential for Electricity, Gas, Steam & Air Conditioning Supply (23.2%) and Transportation & Storage (23.1%). 

Gross Output in the Construction sector fell by 3.5% in 2024, as shown by Figure 9.3. Materials (-2.3%), Services (-1.5%) and KLEMS MFP (-0.4%) drove the fall in the sector in 2024. In general, gross output growth in the Construction sector is largely explained by changes in the use of materials and services, with contributions from both of these categories negative for two years consecutively across 2023 and 2024.

Figure 9.4 shows the gross output shares for the Construction sector in 2024. Materials (37.3%) accounted for the largest share in Gross Output for the Construction sector in 2024. Services (24.3%), Labour (24.2%), and Capital (12.2%) were also important in the sector. Energy (2.0%) comprised the lowest share of gross output in the sector. The materials used as intermediate consumption in the sector were predominantly Non-Metallic Mineral Products and Metal Products. The most significant Services consumed were Rental & Leasing, Wholesale Trade and Architecture & Engineering.

Figure 9.5 shows a decomposition of gross output growth for the Accommodation & Food Service Activities for 2014 to 2024. In 2024, Accommodation & Food saw gross output grow by 2.4%. This constitutes the fourth consecutive year of growth in gross output growth for the sector, after a significant decrease of 61.5% in 2020 at the time of the COVID-19 pandemic. The contribution of labour and KLEMs MFP have generally been the most important in explaining changes in gross output for this sector. In 2024, the growth in gross output was mainly driven by Labour (3.6%).

Figure 9.6 shows that gross output in the Accommodation & Food sector in 2024 was largely attributable to Labour (51.9%), while Services (17.6%) and Capital (15.8%) were the other most significant components.

The most important materials used for intermediate consumption were food Products and beverages which accounted for most materials used by the sector. The most common services used were Financial & Insurance and Legal & Accounting.

Figure 9.7 presents the decomposition of gross output growth for Information & Communication, the sector which saw the strongest growth in gross output for the 2014-2024 period. The fastest annual growth was observed in 2021 at 30.4%. This was driven primarily by the contribution of services (20.9%). In 2024, gross output in the Information & Communication sector grew by 11.8%, driven by services (8.1%) and KLEMS MFP (8.8%), offset partially by a decline in capital (-5.7%).

The gross output shares for Information & Communication for 2014-2024 are shown in Figure 9.8. Capital and Services consistently drive gross output in this sector, with these shares standing at 34.9% and 55.8% in 2024, respectively. The share of capital rose steadily from 20.1% in 2014 to a high of 35.3% in 2021, before remaining relatively flat in the subsequent years. The share of services declined from 2015 (69.7%) to a low in 2020 (52.8%) and climbed slightly in the following years.