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News : Irish Economy Last Updated: Mar 22, 2012 - 1:09 PM


Irish Economy 2012: GDP grew 0.7% in 2011 but Ireland was technically in a recession in the second half
By Finfacts Team
Mar 22, 2012 - 1:04 PM

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Source: CSO

Irish Economy 2012:  Preliminary estimates indicate that GDP (gross domestic product) in volume terms increased by 0.7% for the year 2011. This follows three successive annual decreases in GDP during the years 2008 to 2010. GNP  (gross national product), on the other hand, declined by 2.5% in 2011. However, contractions in the two final quarters of the year meant that Ireland was technically back into recession.

On a seasonally adjusted basis, constant price GDP for the fourth quarter of 2011 decreased by 0.2% compared with the previous quarter while GNPdeclined by 2.2% over the same period.

Industry and Agriculture the main contributors to growth in 2011 Industry (excluding Building and Construction) grew by 4.5% while Agriculture, Forestry and Fishing increased by 2.0% between 2010 and 2011.

However, the remaining sectors of the economy registered declines during 2011. The greatest declines were experienced by Building and Construction (-13.5%) and Public Administration and Defence (-3.3%). Other Services (-2.1%) and Distribution, Transport and Communications (-1.6%) also registered annual declines between 2010 and 2011.

Strong export growth: On the expenditure side of the accounts exports performed strongly in 2011, while Imports declined slightly. The combined effect resulted in overall growth of €7,245m in net exports. This growth more than offset the declines which took place in the final domestic demand components of expenditure.

Personal consumption, which accounts for approximately two thirds of domestic demand, fell by 2.7% while Government expenditure was 3.7% down on 2010. Capital formation registered the largest percentage annual decline in 2011 (-10.6%) although this is on a smaller scale than for the previous two years (-24.9% and -28.7% respectively).

Quarterly decreases in GDP and GNP in Q4 2011: Initial estimates for the fourth quarter of 2011 indicate seasonally adjusted declines of 0.2% in GDP at constant prices and of 2.2% in GNP compared with Q3 2011. On the output side Industry (incl. Building and Construction) increased by 1.4% while Distribution, Transport and Communication increased by 0.6%. There were quarterly seasonally adjusted declines in Public Administration and Defence and Other Services.

On the Expenditure side there was a small decline in net exports and a decline in Government expenditure compared with the third quarter. Stock levels also fell. Personal expenditure and Capital investment, on the other hand registered increases on the previous quarter.

Factor income outflows were 9% higher than in the previous quarter leading to an overall decline in GNP of 2.2% in Q4 2011 compared to Q3 2011.

Ireland: GDP or GNP? Which is the better measure of economic performance?

Balance of Payments: Quarter 4 2011 current account surplus of €796m

The 4th Quarter 2011 Balance of Payments current account surplus was €796m giving a slight surplus of just €127m for the year as a whole. The annual balance was €634m lower than in 2010. While the annual merchandise surplus decreased by €100m the invisibles deficit increased by over €500m. Within this the services deficit decreased by €3.9bn while the income deficit increased by €4.7bn.

Other points of note in Quarter 4 are: Current account;

Merchandise exports (€20,487m) increased by €848m while imports (€12,293m) increased by €141m compared to the same quarter of 2010.

Services exports at €21,220m were up €1.4bn largely due to increased computer services and business services exports. Service imports (€21,806m) were almost unchanged.

Investment income earned abroad (€14,128m) decreased by €830m compared with one year earlier. Income payable to foreign investors (€21,601m) increased by €2.1bn. However direct investment income outflows were very low in the fourth quarter of 2010.

Financial account

Direct investment abroad showed a disinvestment of almost €12bn in the 4th quarter due mainly to a decrease in other capital (€11,345m). Inward FDI showed a disinvestment of over €19bn.

Net portfolio investment in foreign assets decreased by almost €4bn in the quarter. Net portfolio investment in Irish entities increased by over €11bn due to increased investment in funds based in the IFSC.

Other investment assets decreased by €2.9bn in the quarter while the corresponding liabilities decreased by €11.7bn.

Source: CSO

Dermot O'Leary, chief economist of Goodbody, commented:

Q4 GDP numbers for Ireland were a mixed bag and confirmed that while the economy grew for the full year, it contracted in the second half of the year. 
 
A mixed bag of data... - There are positives and negatives to be taken from this morning’s Q4 GDP release. On a positive note, it was confirmed that GDP grew for the full year in 2011 (+0.7%) for the first time since 2007. This was in line with our forecasts of a 0.8% increase. However, it was a year of two halves for the Irish economy. Two consecutive quarters of GDP growth in the first six months of the year were followed by two consecutive quarters of contraction in the second six months. In the final quarter, GDP declined by a modest 0.2% qoq. 
  
...with domestic demand continuing to fall... - Within the details of the quarterly numbers, we tend to focus on annual changes due to the volatility. On this basis, consumption fell, albeit at a slower pace, in Q4 (-2.2% yoy), government spending fell sharply (-7.0% yoy), while investment fell at its slowest annual pace since Q2 2007. An increase in investment in planes contributed to the slowing pace of decline in investment (-1.3% yoy), but there was also a pick up in other areas. For example, non-plane investment increased by 4.9% yoy, while residential improvements increased by 6.1% yoy in Q4.   
  
...and export growth continuing - The slowdown in export growth in the second half of the year (+2.8% in H2 versus 5.5% in H1) can be partly attributable to the wider Eurozone concerns. Despite this, exports from Ireland had a buoyant year. This was largely due to the continued impressive increases in service exports, particularly in computer services. Ireland still had a services trade surplus of €3.2bn in 2011, but this is the smallest since 2007. The goods trade surplus of €36.4bn remains close to a record high. As a result of these trends, Ireland ran a small current account surplus in 2011. 

Material 2012 forecast changes unlikely - It is still very much a tale of two economies in Ireland, a trend that has been in place since 2008. In Q4, the decline in domestic demand did slow, but still fell by 3.1% yoy (-5.5% yoy in Q3). There continues to be a sizeable contribution from exports. We are unlikely to be making major changes to our GDP forecasts for 2012 following today’s numbers (Goodbody forecast of 0.7% GDP), but Irish Government forecasts are likely to be reduced. 

Commenting on the latest economic growth figures from the CSO, IBEC chief economist Fergal O'Brien said: "2011 was a year of two halves - with solid growth in the first half, a particularly weak third quarter and further marginal decline in Q4. The Eurozone crisis resulted in weaker demand for Irish exports towards the end of last year but the final quarter figures were largely as expected. Consumer spending and investment by firms in machinery and equipment improved in the quarter but not enough to offset the drop in exports. 

"Encouragingly the weaker dollar helped boost the nominal value of exports in the final quarter and this contributed to the money value of GDP also rising last year for first time since 2007. Nominal GDP last year at €156.4 bn was some €1.2 bn greater than Government had expected in December's Budget. This is of crucial importance in terms of the deficit target and meeting the terms of the troika agreement. The positive carry-over on nominal GDP into 2012 coupled with the more benign outlook for the euro-dollar rate will ease the pressure somewhat on reaching this year's budget deficit target of 8.6%. 

"The Eurozone and global economies have clearly improved in the first quarter of this year and Irish exporters are now much more positive about their sales forecasts than they were at the end of last year. Ireland will record another record year of export sales in 2012, resulting in economic growth of about 1%. However the domestic economy remains very fragile. Until we see a return to more normal spending and saving patterns growth will remain muted and unemployment high. Government must find innovative ways through which to unlock some spending and stimulate domestic activity. IBEC has submitted a range of proposals to achieve this." 

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