Irish Economy 2011: Initial estimates for the first quarter of 2011 show an increase, on a seasonally adjusted basis, of 1.3% in GDP (gross domestic product) and a decline of 4.3% in GNP (gross national product) compared with the previous quarter. In comparison with the corresponding quarter of 2010, GDP at constant prices was marginally up (+0.1%) while GNP was 0.9% lower.
GDP includes the profits made by foreign multinationals in Ireland. The foreign-owned sector is more significant in Ireland than in any other developed economy. For an explanation of the difference between GDP and GNP click here.
Strong net exports: The Central Statistics Office reports that net exports (exports minus imports) grew by €1.56bn (20.6%) at constant 2009 prices between the first quarter of 2010 and the first quarter of 2011. Domestic demand, on the other hand, declined by €990m (-3.1%) over the same period with personal consumption down by 2.9%.
On the output side of the accounts Agriculture, Forestry and Fishing (+3.9%) and Industry excluding Building and Construction (+1.1%) were the only sectors to record annual growth. However, the Other Services sector, which accounted for almost a half of GDP at factor cost in Q1 2011, declined at a more moderate rate than in previous quarters.
Seasonally adjusted series: Personal consumption and Government expenditure both fell by 1.9% on a constant price seasonally adjusted basis between the final quarter of 2010 and the first quarter of 2011. Capital formation (+1.1%) and Exports (+3.8%) were both up while Imports fell by 0.3%.
On the Output side of the accounts there were seasonally adjusted increases in Distribution (+1.3%) and Other services (+0.7%) with all other sectors recording declines.
Net factor outflows increased by close on €2 billion seasonally adjusted between Q4 2010 and Q1 2011. Increased profit outflows from Ireland and a decline in the overseas profits earned by foreign Public Limited Companies headquartered in Ireland were the major contributors to this
Latest 2010 data shows GNP rose in 2010:
The CSO also said today that detailed annual national accounts show that GDP fell by 0.4 per cent in constant prices between 2009 and 2010. This confirms the trend in the previously published quarterly estimates of GDP. Meanwhile GNP, on the other hand increased by 0.3 per cent between 2009 and 2010 compared with a previously signaled 2.1 per cent decline.
Industry the main contributor to growth in 2010: Industry (excluding Building and Construction) grew by 11.2 per cent between 2009 and 2010 while Agriculture, Forestry and Fishing increased marginally by 0.7 per cent. However, these increases were not sufficient to counteract the declines which took place in the remaining sectors of the economy. Building and Construction activity (-30.1%) continued to decline in 2010. Public Administration and Defence (-2.7%), Other Services (-2.3%) and Distribution, Transport and Communication (-2.0%) all recorded volume declines between 2009 and 2010.
Strong export growth: On the expenditure side of the accounts exports performed strongly in 2010. However, the growth in net exports of €5.9 billion at constant prices (23.8%) was outweighed by a decline of €6.7 billion (-4.9%) in the combined total of the components of domestic demand. Personal consumption, which accounts for nearly two thirds of domestic demand, fell by 0.8 per cent while Government expenditure was 3.8 per cent down on 2009. Capital formation (-24.9%) registered the largest percentage decline, reflecting the continued weakness of the construction sector.
Current account deficit of over €1 billion in Q1 2011
The CSO reported that the Balance of Payments current account deficit for Q1 2011 was €1.03bn - - down from a deficit of €1.47bn in Q1 2010. The first quarter merchandise surplus of €9.12bn was almost unchanged on the same quarter of 2010.
Compared with the results for the first quarter of 2010 the services deficit (€1.44bn) decreased by over €300m while the income deficit (€8.03bn) was broadly similar.
Total service exports at €18.28bn increased by €1.6bn largely due to computer services (+€900m) and business services (+€400m). Total service imports at €19,722m were up almost €1.3bn with increases for business services (+€1.2bn) and royalties/licences (+€200m) and a decrease for tourism and travel (-€160m).
In the current account the direct investment income abroad of Irish-resident businesses increased to €3.2bn while the corresponding outflows of foreign-owned enterprises in Ireland were largely unchanged between Q1 2010 and Q1 2011. Portfolio investment income outflows increased by €651m to €7.16bn.
In the financial account, direct investment in Ireland increased by €15.9bn while direct investment abroad increased by €5.4bn. Portfolio investment assets decreased by €1.3bn while liabilities increased by €3bn. Other investment assets decreased by €24bn and liabilities decreased by €33bn.
The CSO says the current account balance for 2010 has changed from a deficit of €1.11bn to a credit of €761m while the change in the 2009 deficit has been less pronounced.
Dermot O'Leary, Goodbody's chief economist, says due to the volatility of Irish data there is something for everything in today’s GNP/GDP release. However, the key takeaway for us is that the economy has effectively been stable over recent quarters after the heavy declines of 2008 and 2009:
measured by either GDP or GNP, is flatlining, with strong exports offsetting the
continued contraction in domestic demand. On first glance, the data today do
little to alter our forecasts for a flat outturn for the full-year in 2011,
before growth returns in 2012.
Austin Hughes, KBC Ireland chief economist, said:
"Irish economic growth data for the first quarter of
2011 show that the Irish economy remains weak but perhaps not quite as weak as
feared. For a variety of reasons, Irish macroeconomic data are quite volatile.
So, it would be unwise to over-interpret the precise numbers. That said, today’s
figures point in a broadly encouraging direction. The outturn for the full year
2010 was revised up from a drop in GDP of 1% to a fall of 0.4% and GDP figures
for the first three months of 2011 show increases both on the comparable quarter
of 2010 (+0.1%) and on the preceding three months (+1.3%). The quarterly rise in
the first three months in 2011 was notably faster than the Eurozone average
(+0.8%) and only Estonia managed a faster pace of growth in early 2011.
Today’s data should inform forecasts for the remainder of 2011 even if the volatility of the data argues against taking definitive views. It is notable that the first quarter data for GDP are some 0.3% above the average for 2010. This implies that even in the absence of growth in the remainder of 2011, growth would be marginally positive for this year. In turn, this suggests that the somewhat higher GDP forecasts of the Dept of Finance and Central Bank than those of the EU/IMF may be close to the eventual outturn. While it would not be difficult to extrapolate from today’s numbers to GDP growth forecasts somewhat above 1% for 2011, precedent might suggest a more cautious approach. In view of recent signs of some softening in global growth of late we will stick to our forecasts of a 0.6% rise in GDP for 2011 for the moment. On the same basis, it might be premature to extrapolate the weakness in GNP through the remainder of the year. So, we hold to a forecast of -0.5% for this measure."
Patrick Koucheravy, Property Economist at CB Richard Ellis said: “Yet again this quarter we see a large divergence between quarterly GDP and GNP figures as net profit outflows surged back following a surprising dip at the end of 2010. While the upward revisions to the 2010 figures are very welcome, the general story remains largely the same in 2011 with regards to the domestic economy. Personal consumption of goods and services fell by 2.9% in Q1 2011, the largest year-on-year decline since 2009. Additionally, gross fixed capital formation continues to shrink, albeit at the slowest rate (9.1%) since 2008 and at more than half the rate of decline seen in 2010. We can expect little change to this picture over the course of 2011, as the continued fiscal tightening is pursued by Government and ongoing problems in financial markets do not bode well for a strong domestic recovery in the near future.”
Commenting on the first quarter national accounts, published today, IBEC chief
economist Fergal O'Brien said:
"The Irish economy performed a little stronger in the first quarter of the year
than was generally expected. The export performance has remained incredibly
strong and it is very encouraging to see companies are increasing their
investment in machinery and equipment again. This investment by firms was 5%
higher in the first quarter compared to same period last year and is real
indication of the confidence which Irish business has in the prospects for the
Conall Mac Coille, Davy's chief economist, comments: GDP bounces back sharply in the first quarter:
Net trade continues to drive Irish economic growth
Bounce back in nominal GDP pushes down on the government debt/GDP ratio
Today's data something of a relief for investors
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