Ireland’s recovering economy took a dose of smelling salts in summer and early autumn. After exceptionally rapid growth in the second quarter of the year, third-quarter growth eased back to more moderate rhythm. The figures are seen as a disappointment, although Minister for Finance Michael Noonan has made the point that his will still meet budget targets this year.
Data released today by the Central Statistics Office is seen through the prism of near 8 per cent annualised GDP growth in the second quarter of the year, an outturn comparable with the headiest days of the boom. Yet in the following three months the rate of annualised growth came in at 3.5 per cent, a healthy clip still but down markedly from the stratospheric levels in the prior period.
“The economy failed in the third quarter to repeat the dramatic heroics of the April-June period, with annual growth effectively halving. Nevertheless, growth was still well above that of the rest of the euro zone,” said Alan McQuaid, economist at Merrion Stockbrokers.
Stellar growth
In September, confirmation of Ireland’s stellar growth in pre-summer had prompted Mr Noonan to upgrade his growth forecast for the second time in days. With his 2015 budget predicated on 4.7 per cent GDP growth in 2014 and 3.9 per cent growth next year, Mr Noonan said in a statement today that his plan was still on course. “As the CSO has pointed out GDP rose by 4.9 per cent in the first 9 months of the year and therefore we are on target to meet our 2015 budget forecasts,” the Minister said.
After the extraordinary second-quarter spike, the latest figures are still underwhelming. This remains the case even if Ireland is still the fast-growing economy in Europe. After all, other data point to a steady rise in employment , retail sales and industrial production. And tax revenues are well ahead of target.
So what lies behind the growth slowdown? The main driver appears to be the tapering off the net rate of personal consumption, which neither increased nor declined compared with the same period in 2013.
Motor sales
Although motor sales helped nudge spending on goods forward by 3.9 per cent, lower spending on gas, electricity and insurance featured in the 3.2 per cent decline in the consumption of servcies. At a briefing this morning, CSO statistician Michael Connolly said lower energy expenditure might be attributed to fine summer weather and added that the reduction in insurance spending might be the result of people dropping health insurance altogether.
“The [third quarter] numbers are weaker than most had expected given strong leading indicators, with the flat-lining of domestic consumption a particular surprise. Although this was driven by non-retail items, such as utilities and insurance, it does seem at odds with continuing improvement in consumer fundamentals,” said Fergal O’Brien, chief economist at business lobby Ibec.
At the same time, output in the distribution, transport, software and communications sectors rose 6.4 per cent year-on-year. Industrial output advanced by 2 per cent. This figure includes building and construction activity, which rose by 7.3 per cent.
Residential property
The return of confidence in the residential property sector was also reflected in 7.8 per cent annualised rise in investment expenditure, or capital formation. This figure includes a 42.7 per cent increase in investment in new housing, very large indeed but coming off a low base. A 2.8 per cent rise in investment in other buidling and construction projects was also recorded.
A day after the latest water protest, Mr Noonan is still keen to highlight the benefit of income tax cuts to come in January and other meaures to boost growth. “The economy continued to grow in quarter two, albeit at a slower rate than the exceptional growth rates seen in quarter three, and most importantly this growth is translating into jobs,” the Minister said.
“The strong income tax and the VAT figures seen in the exchequer returns, coupled with the positive high frequency data, highlight the ongoing recovery in the Irish economy. However, the recovery should not be taken for granted and there are risks.”
No-one really said Ireland was home and hosed after the second quarter figures, but they did spur confidence that the turnaround was broadening. The growth rate is less spectacular now but it’s still impressive. That’s the key point.
