|Source: CSO |
Irish Economy: Exports powered growth in both GDP (gross
domestic product) and GNP (gross national product) in the third quarter of
2010. Domestic demand fell
Initial estimates for the third quarter of 2010 indicate real
growth rates of 0.5% for GDP (gross domestic product) and 1.1% for GNP
(gross national product) compared with the previous quarter. The fourth quarter
of 2007 was the last quarter to register a seasonally adjusted quarterly
increase for both measures. Compared with the third quarter of 2009, GDP at
constant prices decreased by 0.5% while constant price GNP fell by 1.6%.
Since the onset of the recession, GNP growth has lagged GDP
growth because the former is dependent on the domestic economy in
particular and excludes the profits of the multinational; sector (see separate
Industry the main contributor to growth
The Central Statistics Office reported that seasonally adjusted,
the Industry sector (including Building and Construction) grew by 1.4% at
constant prices compared with the previous quarter despite the 8.2% decline
experienced in Building and Construction. Agriculture was the only other sector
which grew on a quarterly seasonally adjusted basis . Of the remaining sectors
Distribution, Transport and Communication (-2.5%) and the Services sector
(-1.6%) experienced the greatest quarterly declines.
Net export growth outweighs decline in domestic demand
The CSO said all components of domestic demand recorded
seasonally adjusted quarterly declines at constant prices compared with the
Capital formation registered the largest decline (-18.1%)
reflecting the continued weakness of construction sector activity and low
imports of transport equipment.
Government expenditure fell by 1.7% while consumer spending
declined by 0.5%. The external Trade flows both increased at constant prices in
the quarter with Exports up 3.6% and Imports up 1.4%. The growth in net exports
outweighed the fall in domestic demand leading to the recorded quarterly
increase in GDP of 0.5%.
GDP and GNP
In most countries there is little difference
between GDP and GNP (gross national product) but in Ireland the dominance of the
multinational sector means that profits, in the GDP calculation, which are due
to overseas residents, account for total GNP being smaller than GDP by about
20%. The contrasting growth rate of the of the two indicators of course can be
greater or less than a 20% margin.
Eurostat, the EU's statistics agency said on Wednesday that while GDP per inhabitant is often used as an
indicator of countries' level of welfare, it is not necessarily a suitable
indicator for households' actual standard of living. For the latter purpose, a
better indicator may be Actual Individual Consumption (AIC) per inhabitant.
Generally, GDP and AIC per inhabitant are highly correlated,
because a country with a high level of welfare as measured by GDP will also have
a high potential for consumption. However, in some cases, this correlation is
not so obvious.
For example, while the GDP per inhabitant in the United Kingdom
was 12% above the EU average in 2009, its AIC per inhabitant was 25% above the
average, and thus the second highest in the EU. Conversely, Ireland's GDP per
inhabitant was 27%t higher than the average in
data published yesterday, while its AIC per inhabitant was
only marginally above the average EU level.
|Source: CSO |
Current account surplus of
€255m in 3rd Quarter
The CSO also reports that there was a surplus of €255m on the current account of the
Balance of Payments in the third quarter of 2010. This compares with deficits of
€1.14bn in the previous quarter and €653m in the same quarter last year. This was due to
an increase in the merchandise
grew from €8.09bn in the third quarter of 2009 to €10.06bn in the third quarter of 2010. The invisibles
deficit increased by over €1bn compared to the same period last year. Other points
of note are:
Compared to the third quarter of 2009, merchandise
€21.59bn were up €3.2bn; imports at €11,530m were up over €1.2bn.
Services exports at €18.71bn
were up €2.1bn on the same quarter last year largely due to increased computer
business services (+€846m).
Service imports increased by €2.6bn to €20.28bn due to higher
royalty payments (+€1.1bn) and
miscellaneous business services imports (+€1.1bn).
abroad at €15.19bn was up almost €2.6bn compared to one year earlier. Payments to foreign investors at €22.74bn were
Outward direct investment amounted to €2.35bn mainly
from non-IFSC (Dublin's offshore finance centre) sources.
On the inward side, equity
(€822m) and reinvested
(€6.13bn) of foreign-owned enterprises in Ireland were largely offset by
capital outflows of €5.91bn (mostly loans from IFSC enterprises to
Transactions in portfolio
at €40.22bn reflect significant investment in foreign securities by IFSC enterprises. On the
liabilities side transactions of €22.16bn included significant investment of
€40.91bn in IFSC entities (mainly investment funds), partially offset by a
disinvestment of €18.75bn in non-IFSC entities.
transactions of €27,171m on the liabilities side were almost entirely due to non-IFSC entities.
|Source: Goodbody |
Goodbody's chief economist,
Dermot O'Leary commented :
While domestic demand remains
exceptionally weak, exports are contributing strongly to Irish GDP. Today's GDP
& GNP data confirm Ireland's two-speed economy. See attached note for more
GDP & GNP grow in Q3 2010... - In Q3 2010, both GDP (0.5%) and GNP
(1.1%) increased for the first time since Q4 2007. As with most Irish statistics
though, the devil is in the detail. The Q3 National Accounts reconfirm the fact
that there is a two-speed economy in Ireland at the present time. Domestic
demand continues to contract while the export sectors contribute strongly to
...but domestic demand remained weak... - Taking domestic demand
first, all components - consumption, investment and government spending - saw a
decline on both a quarterly (seasonally-adjusted) basis and an annual basis.
Domestic demand fell by 8% yoy in Q3, relative to 6% yoy in Q2. The biggest
falls continue to be seen in investment activity, which fell 31% yoy.
...and exports powering ahead - The export sectors continue to be
the bright spot for the Irish economy. In Q3, export growth accelerated to 13%
yoy (8% yoy in Q2), with similar rates of growth for both services and goods.
Import growth also accelerated to 11% yoy (6% yoy in Q2), mainly due to
services. On an annual basis, we estimate that net exports added 4% to GDP
growth in Q3 2010.
Pressure remains on consumers - Unsurprisingly, consumer spending
remained under pressure in Q3; on a seasonally adjusted basis it fell by 0.5%
qoq versus a 0.1% qoq fall in Q2. On a annual basis, consumption fell 1.3% (1.7%
yoy in Q2) with the contraction in expenditure equally split between goods and
services. Along with hits to disposable income from higher taxes and lower
wages, persistent employment declines continue to have an impact on consumer
Slight GDP decline in prospect - From a forecast perspective, the
Q3 data are slightly disappointing, but marginally so. Where we had been
expecting a slight increase in GDP 2010 as a whole, it may now come in at a
slight negative. Restoration of growth in domestic demand depends on a return to
confidence and a fully-functioning banking sector.
Export sector is proving
that economy will recover - IBEC
Commenting on the latest Quarterly National Accounts IBEC chief economist
Fergal O'Brien said: "The export sector has performed exceptionally
strongly so far this year and the third quarter numbers provide further evidence
of this. After the second quarter economic data we cautioned that Irish economic
quarterly trends can be incredibly volatile. However, looking at the first three
quarters of 2010 together, it is clear that Ireland's competitive position has
been greatly strengthened and the 9% annual growth in exports is really
"Crucially, the net trade position so far this year has been very strong and has
made a substantial positive contribution to growth. Business remains confident
about the outlook for exports in 2011 and with other sectors of the economy
stabilising, we believe that the economy will grow by close to 2% in 2011.
"It was positive to see both GDP and GNP return to positive growth in the third
quarter, although it is clear that domestic demand still remains fairly fragile.
The third quarter contraction in personal consumption was largely consistent
with the weakness in the retail sales numbers over this period, but the early
indications for Q4 are somewhat more promising. Investment was weak again in Q3
but this was heavily influenced by the very volatile investment in airplanes.
"Overall, the picture is of a weak but stabilising domestic economy and a
buoyant export sector. On balance, the numbers will give a positive message to
the international markets on Ireland's ability to recover from the crisis,"
CSO figures confirm export-led
growth strategy is the right one
So says State agency Forfás chief
executive, Martin Shanahan. who claims Balance of Payments figures are further
confirmation that an export-led growth strategy is the right strategy to drive
recovery in the domestic economy - - more than 90% of these exports come from
“The fact that goods and services
exports have increased by 15.1% compared to the third quarter of 2009 and that
overall good and services exports have now consistently recorded strong annual
increases from 2009 indicates that an export focused approach to economic growth
is the key driver to ensure Ireland’s economic recovery. This trade performance
was the key to recording positive GDP and GNP growth in Q3 2010, the first
positive economic growth recorded since the end of 2007, as increased industrial
output and net export growth compensated for declines in domestic demand,” he
“A continued increase in export
growth will lead to sustainable direct job opportunities above those provided by
serving the domestic market, growth in revenues for firms beyond what the
domestic economy can provide and increased opportunities for locally trading
businesses, creating additional employment and enhancing tax yields for
“Supporting this export growth is
essential to Ireland’s recovery and return to prosperity. Improvements in cost
competitiveness and productivity growth are key first steps and recent
reductions in prices need to be sustained. Actions such as implementing the
sector-specific measures to assist an increase in exports from key sectors such
as business services, agri-food, ICT and tourism and transforming the Business
Expansion Scheme are important first steps to further help export growth and
improve Ireland’s attractiveness for investment.
“The enterprise agencies
are working with SMEs to assist in developing exports in new and existing
markets. In addition, we need to proactively develop Ireland’s trading
relationships with new and emerging high-growth markets and put partnership
agreements in place with such countries to facilitate trade, tourism and
investment growth” Shanahan concluded.
Finfacts says exports increased
by 50% in current money terms in the period 2000-2009 but employment in the
sector was static.
|Source: Ulster Bank |
Ulster Bank chief
economist, Simon Barry, commented:
GDP and GNP both rise in
Q3, as export strength more than compensates for weak domestic demand…Today’s
third quarter national accounts data confirm that the Irish economy is beginning
to emerge from recession. Real GDP expanded by 0.5% q/q in Q3 taking its level
to 1.7% higher than the low point which was the final quarter of 2009. Real GNP
– the measure which adjusts GDP for net factor flows including multi-national
profit outlflows – was also up on the quarter. It rose by 1.1% q/q, marking a
second consecutive quarterly expansion following a small increase of 0.1% in Q2;
the cycle low on the GNP measure was the first quarter of this year.
The breakdown of the headline
numbers reveals that the return to positive economic growth is being driven by a
robust performance of the export sector. Total exports grew by 3.6% q/q,
building on the strong gains recorded earlier in the year. Exports have now
expanded solidly for each of the three quarters of this year such that the
annual rate of increase has surged to 13.2%, a dramatic turnaround from the 3.7%
annual decline posted in the same period last year. This is the strongest pace
of export growth since early 2001, a performance made possible by the
combination of gradual recovery in Ireland’s main trading partners and ongoing
improvements in competitiveness. Both the goods and services sectors are
contributing to the strength, with the annual rate of growth in each now in
double-digits, at 12.9% and 13.6% respectively.
Another bright spot within the report was the pick-up in the output of the
Agriculture, Forestry and Fishing sector. While small in the context of the
overall economy (at just over 2% of GDP), output here is over 12% higher than
year ago levels, validating anecdotal reports of buoyancy in this area of the
Elsewhere in the report, consumer spending fell again, with a 0.5% quarterly
drop marking the biggest quarterly fall since early 2009. Government spending
and investment also recorded further declines; in total, domestic demand fell by
1.7% q/q and is down 5.1% on year ago levels. About the best that can be said
about domestic demand is that the rate of decline does look to be easing off
relative to the huge declines seen during the height of the recession; the
weakest quarter for domestic demand in y/y terms was the 16.4% plunge in the
year to Q1 2009.
The strength of the traded sectors of the economy is both extremely welcome and
encouraging as it provides a platform on which the recovery process can build.
However, today’s data contain no evidence that the recovery is yet finding its
way into domestic demand. This means that while aggregates such as GDP and GNP
are now beginning to edge higher, the early stages of this recovery have no
Brian Devine, economist at NCB
Irish GNP expanded by 1.1% q/q in Q3
after an upwardly revised +0.1% q/q in Q2 (previously -0.3% q/q). GDP expanded
by 0.5% q/q after -1.0% in Q2.
Net exports were the main driver
of the performance of both GNP and GDP with exports up 3.6% q/q and imports
increasing by just 1.4% q/q.
Domestic demand continued to
remain weak with consumption down -0.5% q/q, government expenditure down
-1.7% q/q and investment -18.1% q/q.
Domestic demand is likely to
remain weak in Q4 on the back of the drop in confidence as a result of the
bailout and budget uncertainty, but the evidence from the PMIs suggest that
exports continue to perform robustly. With weak domestic demand and decent
exports this suggests that there will be a further positive contribution
from net exports in Q4.
Ireland’s ability to cut wages
may be leading to pain in the domestic part of the economy, but it is the
best option for a small open economy like Ireland. It is this flexibility
which is helping Ireland regain competitiveness. Job creation, however, is
likely to remain muted with domestic demand remaining so weak. The positive
feedback loop between domestic demand and employment is unlikely to be
meaningful until 2012, but in the meantime Ireland must rely on exports to
drive the economy and employment.
The Government’s growth forecast
for next year is GNP +1.0% and GDP +1.7%. We believe that those targets are
achievable and well within the bounds of a plausible outcome. The government
expect the domestic part of the economy to remain desperately weak and
contract next year. As such, they expect employment to contract in 2011. The
main driver of growth is the gap between exports and imports. NCB expect
domestic demand to contract by more than the Government next year but we are
also expecting a positive contribution from net exports, as such we see GNP
at 0.3% and GDP at 1.0% in 2011.
Davy Research economist Conall
Irish national accounts and
balance of payments for Q3; GDP +0.5% and GNP +1.1%
The national accounts for Q3
issued today indicate that GDP and GNP grew by 0.5% and 1.1% respectively on
the quarter in Q3. However, despite growth of 0.5% in Q3, the level of Irish
GDP was 0.5% below that in Q1, following the -1.0% growth rate for GDP in Q2
Export growth improving while
domestic demand continues to contract
Perhaps more striking than the
overall GDP and GNP numbers is the composition of growth, indicating that
export growth is improving while domestic demand continues to contract
Only agriculture and industry
expanded in Q3 (by 5.3% and 1.4% respectively) with all other sectors
continuing to contract. The expansion in industrial output came despite an
8.2% decline in the building and construction sector.
Within the expenditure
components, consumer spending, government spending and investment all
continued to decline: by 0.5%, 1.7% and 18.1% respectively on the quarter.
In contrast, exports of goods
and services grew by 3.6% and imports by 1.4%.