Irish Economy 2014: Preliminary estimates for the second quarter of 2014 indicate that GDP increased by 1.5% in volume terms on a seasonally adjusted basis compared with the first quarter of 2014 while GNP increased by 0.6% over the same period. In the 12 month period, the CSO reported a 7.7% rise in GDP and 9% in GNP -- the highest growth rates since 2007.
There were significant increases in investment and a recovery in merchandise exports as a result of an easing of the impact of the so-called drugs patent cliff but despite a rise in employment personal spending remained somewhat weak up 0.5% in the quarter and 1.8% in 12 months (chain-linked).
It's important to acknowledge that both GDP and GNP are artificially boosted by tax avoidance strategies:
- GDP includes the inflated profits of the foreign multinational exporting sector
- Double Dutch Sandwich schemes results in booking of fake services exports and output. The net after charges and royalties boosts net exports
- GNP by large mainly American companies that have become "Irish" for tax purposes (known as "tax inversions") which means their group profits and dividend patterns that have nothing to do with Ireland have to be included in Irish data.
SEE here: The idiot/ eejit's guide to distorted Irish national economic data
On the output side of the accounts, Industry (including Building and construction) increased by 4.7% in volume terms between Q1 2014 and Q2 2014. Distribution, transport, software and communication increased by 2.9%% in volume terms on a seasonally adjusted basis over the same period while Other Services declined by 0.8% and Public administration and defence decreased by 0.5%.
On the expenditure side of the accounts, Capital Investment increased by 9.1% while Net exports made a positive contribution of €723m (a 7.2% increase) in volume terms on a seasonally adjusted basis between Q1 2014 and Q2 2014. Government expenditure increased by 3.8% quarter on quarter while Personal expenditure increased by 0.3%.
Comparisons with Q2 2013: On the output side of the accounts gross value added in Agriculture, forestry and fishing increased by 13.9 percent while Distribution, transport, software and communication increased by 11.3% in Q2 2014 compared with the same quarter of 2013. Industry (including Building and construction) increased by 6.5% over this period, while Other services expanded by 2.7% in Q2 2014.
On the expenditure side, Capital investment rose by 18.5%. Government expenditure increased by 7.9% and Personal expenditure by 1.8% compared with Q2 2013. Net exports were €1,740m higher in the second quarter of 2014 compared with the corresponding quarter of 2013.
Factor income outflows were €152m higher in Q2 2014 compared with Q2 2013 resulting in the 7.7% increase in GDP becoming a 9.0% increase in GNP over the same period.
Michael Noonan, finance minister, said: “The data show that the Irish Economy grew by 7.7% in GDP terms and by 9% in GNP terms year on year. This is the strongest growth rate recorded since the early 2000’s and shows that the strong and stable recovery in the Irish economy is well under way and is starting to be felt across all sectors of the economy. Most encouragingly the figures are showing the domestic economy growing with consumer spending up 1.8% year on year.
The turnaround that we are seeing in the Irish economy is a direct consequence of the policies pursued by this Government and the sacrifices made by the Irish people. Consolidation of close to 20% of GDP has been introduced along with major structural reforms designed to boost the competitiveness of the Irish economy. The specific measures introduced over the past three years to repair and grow key sectors of our Economy have also made a significant contribution.
These figures show that the Irish economy is in a very strong position for the remainder of 2014 and as we enter 2015. The Government remains committed to building upon and sustaining this recovery and we will do nothing that will put it at risk. Creating jobs and supporting work remains this Governments top priority and strengthening and deepening the economic recovery is the best way to deliver on this."
The Balance of Payments current account surplus in the second quarter of 2014 was €2.94bn – an increase from the €1.33bn surplus in the second quarter of 2013. A surplus of €12.18bn on merchandise was offset by a deficit of €9.24bn on invisibles in the quarter.
Conall Mac Coille, Davy chief economist, commented - - "Today’s Irish GDP data show that the economy is growing sharply. GDP expanded by 1.5% in Q2 2014 following an upwardly revised 2.8% expansion in Q1. This means that the level of GDP is up an enormous 7.7% in the year to Q2. The pick-up in GDP growth reflects a rebound in hard-hit, domestic-facing sectors such as construction and retail and a better performance from the export sector after a poor 2013. It is now possible that Irish GDP could expand by around 5% in 2014.
The rebound in the Irish economy that has been apparent for some time in survey indicators such as the PMIs, employment and tax revenue growth is now finally becoming evident in the official GDP data. Statistical problems and distortionary effects from the pharmaceutical sector are no longer artificially pushing down on measured GDP growth. Even if GDP is flat in the second half of the year, calendar year GDP growth in 2014 will be 5.1%. It is worth bearing in mind, however, that Irish GDP figures are volatile and prone to large revision. Nonetheless, we will have to revise up our forecasts for calendar year GDP growth in 2014 significantly above 4% (from 3.5% currently). GNP growth is also strong. GNP rose by 0.6% in Q2, up 9.0% on the year. If GNP is flat in H2, calendar year growth will be 4% in 2014. The level of GDP is now 3.5% below its pre-recession peak in 2007 and GNP 5.4%.
The bounce back has been broad-based. This gives us confidence that the pick-up in GDP growth in H1 2014 does not reflect volatility and is not a statistical mirage. The consumer is now joining in the recovery with spending up 0.3% in Q2 and up 1.8% on the year. Investment spending remains strong, up 18.5% on the year. After a very poor performance in 2013, the export sector is rebounding with volumes up 6.4% in Q2 and 13% on the year. Exports of goods are up 15.9% yoy and services exports (dominated by ICT companies and business services) are up by 9.9%.
Output across all sectors of the economy is expanding. Industrial production is up 6.3% on the year and construction activity 9.1%. The CSO noted that output in both the traditional industrial and multinational-dominated sectors is expanding. The domestic-facing services sectors are also recovering. Distribution, transport and communications output is up by 11.3% and other services by 2.7% on the year. Agricultural output is up 13.9% on the year."