Irish Economy 2013: Preliminary estimates for the second quarter of 2013
indicate that GDP (gross domestic product) increased by 0.4% in volume terms on
a seasonally adjusted basis compared with the first quarter of 2013. GNP (gross
national product), on the other hand, declined by 0.4% in real terms over this
period, according to the CSO today. However, on an annual basis, GDP fell by
-1.2%, a similar outturn to Q1 (-1.0% yoy). The results have been impacted by
rising tax-related computer services exports of companies such as Google and
Microsoft. See here: Irish Innovation: EU indicator rating based on fake computer services exports
In recent years the GNP data which mainly is net of
the profits of foreign
multinationals, has been impacted by foreign companies opening headquarters in Ireland with little if any operational activity. These firms are treated as Irish companies and their
performance overseas has an impact on Irish data.
Ireland: GDP or GNP? Which is the better measure of economic performance?
Value added changes in business sectors: On the output side of the accounts
Building and construction grew by 4.2% while distribution, transport, software
and communication increased by 1.4% in volume terms between Q1 2013 and Q2 2013.
On the other hand industry (including building and construction) declined by
0.3%, public administration decreased by 1% and Other services contracted by
0.1% in volume terms on a seasonally adjusted basis between Q1 2013 and Q2 of
Personal expenditure and net exports increase: On the expenditure side of the
accounts personal expenditure increased by 0.7% while net exports rose by
€1.52bn in volume terms on a seasonally adjusted basis between Q1 2013 and Q2
2013. Capital investment declined by 3.4% while net expenditure by Government
fell by 1.3% between Q1 2013 and Q2 2013.
Comparisons with Q2 2012: On the output side of the accounts Industry (including
building and construction) declined by 7.1% in Q2 2013 compared with Q2 2012.
Public administration and defence decreased by 3.4% over this period while
agriculture, forestry and fishing contracted by 1.6% in Q2 2013 compared with Q2
2012. On the other hand distribution, transport, software and communications
grew by 5.3% in the Q2 2013 compared with Q2 2012 while the other services
sector increased by 2.8% over this period.
On the expenditure side personal expenditure fell by 1.3% and Government
expenditure declined by 1.7% compared with Q2 2012. Capital investment increased
by 1% while net exports fell by €389m in Q2 2013 compared with Q2 2012.
Factor income outflows were €455m lower in Q2 2013 compared with Q2 2012
resulting in the 1.2% fall in GDP being converted to a 0.1% decrease in GNP over
the same period.
The Balance of Payments current account surplus in the second quarter of
2013 was €2.90bn was the same as surplus in the second quarter of 2012. A
surplus of €9.79bn on merchandise was offset by a deficit of €6.890bn on
invisibles in the quarter.
Other points of note are:
Current account: Compared with the second quarter of 2012, merchandise
exports at €21.734bn were down €224m while merchandise imports at €11.95bn were
Services exports at €24.07bn, up €1.07bn mainly due to increased
computer services exports. Service imports increased by €1.09bn to €22.56bn
driven by increases in royalties/licences payments and imports of miscellaneous
Investment income earned abroad of €13.99bn fell by €899m compared with one
year earlier while investment income payable to foreign investors at €21.65bn
dropped by €1.29bn.
Financial account: Direct investment in Ireland increased by €5.89bn in
the second quarter of 2013, due largely to an increase in reinvested earnings of
Within Portfolio investment, increased investment in overseas equity of
€9.86bn was partly offset by increased investment in Irish equity of €5.20bn in
Other investment assets fell by €16.49bn in the second quarter of 2013 mainly
due to a decrease in loans, currency and deposits of €18,245m. Other investment
liabilities fell by €16.52bn in the quarter.
|Source: Goodbody |
Dermot O'Leary of
Goodbody commented: Underlying positives in Q2 numbers; "First sequential growth in four quarters
After three consecutive quarterly declines, GDP returned to modest growth in Q2,
helped by a welcome rebound in exports. On a seasonally-adjusted basis, GDP
grew by 0.4% qoq, following a 0.6% qoq contraction in Q1. However, on an annual
basis, GDP fell by -1.2%, a similar outturn to Q1 (-1.0% yoy). While the
Government is likely to be reducing its GDP growth forecast ahead of Budget
we are unlikely to be making any meaningful changes to our own 0.7% GDP
growth forecast in 2013.
Stable domestic demand trends continue…Our preferred indicator continues to
be domestic demand. While this can also have
its drawbacks, it gives a truer picture of underlying domestic activity, in our
In Q2, domestic demand declined by -1.1%, relative to -4.3% yoy in Q1. However,
planes continued to have a large impact on this outturn. While investment in
planes has no net impact on GDP, as the planes are imported, they do lead to
significant volatility in domestic demand numbers. Excluding planes, domestic
demand is estimated to have grown by 0.2%. As the chart shows, underlying
domestic demand growth has been stable for four quarters.
…but investment continues to improve: On the domestic front, the most
positive element of today’s numbers is the
continuing improvement in core investment trends. In Q2, while total investment
grew by 1% yoy, core investment (i.e. excluding planes) grew by 12% yoy, its
fastest rate of growth since Q1 2006. Within this, construction activity
by 10% yoy, while core machinery and equipment investment grew by 13% yoy.
These trends confirm our view that investment growth will be an important
contributor to the return to growth in domestic demand over the coming years.
Weak consumer in Q2, but Q3 is likely to be better
Among the other components of domestic demand, consumption continued to
contract on an annual basis, falling by 1.3% yoy (-1.1% yoy in Q1). Given the
better retail sales numbers for July, Q3 may see an improvement in consumption
overall. Unsurprisingly, government current spending continued to decline at a
similar pace, falling by 1.7% yoy (-1.8% yoy).
Bounce back in services trade is welcomed: Given the weakness in Q1, the
return of export growth in the second quarter is to
be welcomed. While goods exports (-1.7% yoy) continue to be impacted by the
“patent cliff”, services exports recovered in Q2 (+3.6% yoy versus +1.3% yoy in
Q1), helping exports overall to grow by 1%. Given the improving trends in
developed economies recently, we would anticipate a further improvement in this
trend in H2."
|Source: Goodbody |
Conall Mac Coille,
chief economist at Davy, commented
-- "Today’s Irish GDP data show a welcome 0.4% rise in Q2 2013 following
the 0.6% contraction in Q1 2013. GDP is still down 1.2% on the year. The rebound
in Q2 was driven by consumer spending up 0.7% and exports up 4.5%. Investment
spending fell by 3.4% in Q2 2013 following a 6.4% contraction in Q1. However,
excluding the volatile aircraft leasing sector, investment spending is up by
11.8%, with building and construction rising by 11.3%. Although we will
probably revise our forecasts for calendar year GDP growth in 2013 below 1%, we
still believe that activity will rebound in H2. Hence, we are unlikely to
substantially revise our forecast 2.1% GDP growth in 2014.
Irish GDP rebounds in Q2 2013
Irish GDP rose 0.4% quarter-on-quarter (qoq) in Q2 2013 after a 0.6%
decline in Q1 2013. GDP is down 1.2% year-on-year (yoy). But the rebound in Q2
2013 is welcome, indicating that the economy has emerged from its ‘double-dip’
recession through H2 2012 and Q1 2013. We believe this rebound will continue
into H2 2013 as volatile factors and statistical measurement issues artificially
pushed down on the GDP data in H1.
These factors include the pattern of car sales, helping to push up retail
sales by 6% in July, and the erratic aircraft leasing sector which has depressed
investment spending temporarily. In contrast, building and construction spending
is now up 11.3% on the year, and machinery and equipment excluding planes by
11.8%. The underlying trends are clearly improving.
Today’s data also showed that the worst is probably over for the export
sector. Exports rebounded sharply in Q2, up 4.3% after a 3.5% contraction in Q1.
Services export growth accelerated in Q2, and goods exports rebounded after an
especially poor performance at the start of the year. The firming global economy
will help demand for Irish exports going forward.
So the recovery evident in Q2 2013 will probably continue into the second
half of 2013. Hence, although we may revise down our forecast for calendar year
GDP growth in 2013 – to reflect the weak H1 out-turn, we are unlikely to
substantially revise our forecast for 2.1% GDP growth in 2014.
Despite the weak H1 GDP performance, the exchequer returns to August
suggest that Ireland will beat its 7.4% deficit target in 2014. However, this
over-performance largely reflects surprisingly buoyant corporate taxes and
conservative assumptions on non-tax revenues. The weakness of VAT receipts and
excise duties urges caution, suggesting that the government has little room to
deviate from its planned €3.1bn budgetary adjustment for next year."
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