Irish GDP increased by 6.7% year-on-year in Q2 2015
On a seasonally adjusted basis, initial estimates indicate that Irish GDP (gross domestic product) in volume terms increased by 1.9% for the second quarter of 2015 according to the CSO today. Growth in GNP (gross national product) also increased by 1.9% in this quarter. GDP rose by 6.7% year-on-year and this follows from an annual growth rate of 7.2% in the first quarter of the year.
While the recovery is strong with investment mainly in commercial property rising over 34% year-on-year, there are no caveats on the impact of distortions.
This year Medtronic, the US medical devices firm, became Irish having taken over another US firm that had previously become Irish for tax purposes. Actavis, an American drugs firm that had also become Irish in recent years completed the acquisition of Allergan, another US firm. The net additional value is about $110bn — the impact is on GNP and the Balance of Payments. Together with the other so-called tax inversion firms, there is no estimate provided on the impact.
Value added increases for all principal economic sectors
On the output side of the accounts teh CSO said value added increased in the quarter for all sectors. There was an overall increase of 4.2% in the industry sector in volume terms between Q2 2015 and Q1 2015, including building and construction where a 2.4% increase was recorded. The distribution, transport, software and communications sector increased by 2.9% in real terms over the same period while agriculture, forestry and fishing grew by 2.8%. Public administration and defence recorded a quarterly increase of 0.5% while the other services sector registered growth of 0.2%.
Domestic Demand increase
On the expenditure side of the accounts Capital formation increased by 19.2% compared to the previous quarter. Personal consumption, the largest component of domestic demand, rose by 0.4% in the quarter, while government expenditure fell by 0.7% over the same period.
Export growth during the quarter of 5.4% was outpaced by import growth of 6.3%. Overall net exports for the quarter were broadly unchanged (+€30m), while total domestic demand rose by 3.5% in Q2 compared to Q1 resulting in an overall increase in real GDP in Q2 2015 of 1.9%. Net Factor Income outflows were €282m higher than the previous quarter leading to an overall increase in GNP of 1.9%.
Comparisons with Q2 2014
On the output side of the accounts, gross value added in distribution, transport, software and communication increased by 11.4%. The Industry sector (including building and construction) and other services both increased by 4.4%. Agriculture, forestry and fishing decreased by 1.2% compared with the same quarter of 2014, while Public administration and defence fell by 4.1% in Q2 2015.
On the expenditure side, Capital investment rose by 34.2%. Personal expenditure increased by 2.8% while Government expenditure increased by 1.7% compared to Q2 2014. Net exports were €177m lower in the second quarter of 2015 compared with the corresponding quarter of 2014.
The factor income outflows recorded in Q2 2015 were €1,026m higher compared with Q2 2014 resulting in the 6.7% increase in GDP becoming a 5.3% increase in GNP over the same period.
Balance of Payments
The Balance of Payments current account, a measure of Ireland’s financial flows with the rest of the world, had a surplus in the second quarter of 2015 of €2,704m. This is an increase from the €1,879m surplus in the second quarter of 2014.The surplus of €17,104m on merchandise was offset by a deficit of €14,400m on invisibles in the quarter.
Compared with the second quarter of 2014, merchandise exports at €36,486m were up €7,951m while merchandise imports at €19,382m were up €2,095m.
Services exports at €29,603m were up €3,677m mainly due to increased computer services exports. Service imports increased by €7,033m to €34,798m driven by increases in both royalties/licences payments and research and development payments.
Conall Mac Coille, chief economist at Davy, commented: "Today's data from the CSO show Irish GDP up by 1.9% in Q2 2015, with the expansion in Q1 revised up to 2.1%. This means that GDP is up an enormous 6.7% in the year to Q2 2015.
Overall, this means that the Irish economy is likely to grow by more than 6% in 2015. Even if GDP is flat in the H2 calendar year, growth will equal 5.7%.
On the quarter, consumer spending grew by 0.4% – up 2.8% on the year. Given strong retail sales through Q3, we still expect consumer spending to grow above 3% in calendar year 2015. Volatile investment spending grew by 19.2% on the quarter, up 34% on the year. The rebound in the Irish economy also reflects improved export performance, up 6.3% in Q2 and 13.6% on the year.
These GDP growth rates are exceptionally strong. However, they are not inconsistent with the rapid growth of goods exports, industrial production, retail sales, employment and tax revenues through 2015. The underlying picture is that the natural bounce back in the economy has been accentuated by the weak euro stimulating exports and low oil prices and tax cuts helping real incomes."