Economy set for ‘exceptional’ growth with GDP to rise by 15%, says Davy

Ireland is set for an "exceptional rise" in economic activity this year on the back of its multinational sector, prompting Davy to revise up its projection for gross domestic product (GDP) by "at least" another 50 per cent on Friday.

It was the second time in under a month that Davy has significantly revised up its projections. Just over three weeks ago, it forecast GDP growth of 10 per cent in 2021, which was up from a previous forecast of 4.8 per cent.

On Friday, Davy said it was revising its forecast up by 50 per cent to 15 per cent on the back of GDP data released by the Central Statistics Office (CSO) yesterday which showed a 6.3 per cent expansion in the second quarter.

“We will have to revise up our forecast for GDP growth in 2021 to at least 15 per cent,” it said, although cautioned that domestic economic activity was still below pre-pandemic levels.

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“The key message was a very gradual recovery in domestic activity,” it said. “Indigenous sector output rose by only 2 per cent in the second quarter, still 6.4 per cent below pre-pandemic levels.

“Hopefully more of the rebound from the third lockdown restrictions will become apparent in the third quarter GDP data.”

Thursday’s data from the CSO showed that Irish GDP rose by 6.3 per cent in the second quarter following 8.7 per cent growth in the first. “This is well ahead of our expectations,” Davy said. “GDP was up an enormous 22 per cent on the year.”

Mulitnational effect

Once again, the volatile multinational sector was at play, expanding by 3.7 per cent in the second quarter after the “enormous” 14.1 per cent growth in the first quarter.

“This is being felt in buoyant exports, particularly in the computer services and pharmaceuticals/med-tech sector,” said Davy. “Aggregate exports were up by 6.4 per cent in the second quarter and by 27 per cent on the year.”

The data for Ireland’s indigenous economy painted “a more sedate picture” as sector output rebounded by 2 per cent in the second quarter after the third lockdown had depressed activity early in the year but was still 6.4 per cent below pre-pandemic levels.

Consumer spending, which fell 5.7 per cent in the first quarter, rose 12.6 per cent in the second quarter to just 3.4 per cent below pre-pandemic levels.

Construction sector output rose 23 per cent but was still 15 per cent below pre-pandemic levels, a slower pace than Davy expected. Output in distribution, transport, hotels and restaurants was still down 18 per cent.

If GDP were flat in the second half of the year, it would still imply calendar year growth of 14 per cent in 2021, Davy said.

Indigenous sector forecast

"Hence our forecast for 10 per cent GDP growth in 2021 will have to be revised upwards towards 15 per cent or above – as will the Central Bank (8.3 per cent) and Department of Finance (8.8 per cent) projections.

“We will have to revise down slightly our forecast for indigenous sector output to grow by 5.2 per cent in 2021 following the 8.7 per cent contraction in 2020.

“This is because the key message from yesterday’s national accounts was that a greater portion of the rebound from the third lockdown will become apparent in the third quarter data.”

The latest Exchequer returns from the Department of Finance on Thursday showed a surprise €800 million surge in corporation tax receipts last month has placed the Government in a stronger position financially ahead of the upcoming budget.

The figures from the Department of Finance show the business tax-generated €1.04 billion in August, 323 per cent, or €797 million, more than expected. August is typically a quiet month for corporation tax.