Irish Economic Recovery: Following the rush for superlatives in September when second quarter growth results showed the economy expanded year-on-year by 7.7%, flat growth in the third quarter has Ibec, the business lobby, still declaring growth is "spectacular" with no recognition of distortions that a non-vested interest body such as the Irish Fiscal Advisory Council highlights - see box below for some reality.
The Central Statistics Office reported Thursday that Irish gross domestic product (GDP) was effectively flat in the third quarter, growing by just 0.1% while gross national product (GNP), which mainly strips out the profits of foreign multinational companies, grew by 0.5%.
Annual growth rate in the third quarter slowed to 3.5%, in contrast with a blistering rate of 7.7% in the second quarter and 5.5% in the first half of 2014.
Ibec today acknowledged growth figures for Q3, were a little disappointing in terms of momentum, the economy continues to experience a strong recovery. Despite downward revisions to growth figures for the first half of the year and weaker than expected Q3 figures, GDP growth for the first nine months of the year is still substantial at 4.9%."Taken in a European context this growth remains spectacular" -
Reacting to the latest CSO figures, Fergal O'Brien, Ibec head of policy and chief economist, said: "The Q3 numbers are weaker than most had expected given strong leading indicators, with the flat-lining of domestic consumption a particular surprise. Although this was driven by non-retail items, such as utilities and insurance, it does seem at odds with continuing improvement in consumer fundamentals.
Michael Noonan, finance minister, said: “Budget 2015 is built upon GDP growth of 4.7% in 2014 and 3.9% in 2015. Today’s figures from the CSO show that the Irish economy has grown by 0.1% in Q3 and 3.5% over the year. As the CSO has pointed out GDP rose by 4.9% in the first 9 months of the year and therefore we are on target to meet our 2015 Budget forecasts.
Conall Mac Coille, chief economist of Davy, commented: "Today's GDP data show just a marginal 0.1% expansion in Q3, with GDP up 3.6% on the year. This is slower than the downwardly revised 7.3% annual growth in Q2. Despite a downward revision to growth in Q2, Ireland still looks set to be the fastest-growing economy in Europe this year. We expect to revise our forecasts to slightly below 5% in 2014 and towards 4% in 2015. GNP, which excludes multinational sector profits, should grow by around 4.25% in 2014. The flat growth in Q3 should not be taken as a signal that the Irish recovery is faltering as it almost certainly reflects volatility. Ireland's PMI surveys have remained close to 60, and the unemployment rate has continued to decline to 10.7% in November.
Although broadly in line with our expectations, today’s data may disappoint some commentators expecting GDP growth in excess of 6% in 2014 – placing too much weight on the Q2 figures. The exceptional 7.3% annual growth in Q2 was always likely to have reflected volatility in the data. Similarly, the flat growth in Q3 2014 is not too concerning. Exports continued to perform well but were offset by a 3.5% rise in imports, so that net trade detracted from growth. There was also a 0.8% fall in extremely volatile investment spending, but that follows an 8.0% rise in Q2.
The bigger picture is that Ireland's trade performance has improved markedly in 2014. Exports rose by 2.7% in Q3, up 15.5% on the year. We know part of this exceptional growth reflects volatile factors relating to the pharmaceutical sector. Nonetheless, Ireland's exposure to the UK is probably protecting exporters from weak euro area demand. Services exports dominated by the IT sector continue to perform well – up 12.5% in the year to Q3. Given the healthy flow of FDI in the IT services sector, there is little reason not to expect services exports to perform well again in 2015.
The rebound in Irish GDP growth has also reflected domestic demand. Investment spending is up 7.8% in the year to Q3. Puzzlingly, the Irish national accounts suggest that consumer spending remains weak – down 0.2% in Q2, flat in Q3 both on the quarter and on the year and in contrast to buoyant retail sales and VAT receipts. We are concerned that the CSO's measurement of consumption of services may be artificially weak. At face value, the national accounts data suggest that consumer spending will grow by only 0.5% in 2014. Part of the recovery in Irish GDP also reflects hard-hit, domestic facing sectors bouncing back from a low base. Construction sector output was up 7.3% in the year to Q3 and other services by 3.7%."
Dermot O'Leary, chief economist of Goodbody, commented: "Away from the noise in the Irish growth data, the underlying trends contained in today’s GDP data remain impressive in a European context. See note attached.
Investment continues to lead the recovery in domestic demand. Investment grew by 8% yoy (19% yoy in Q2). Consumer spending growth continues to disappoint relative to the developments seen in the labour market over the past eight quarters. Consumer spending stagnated on an annual basis in Q3, with services spending down and goods spending up. Government spending fell by 1.4%, dragging on growth in Q3.
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