Economists were quick to upgrade their growth forecasts after new figures this morning showed the Irish economy expanding at an annualised rate of 6.5 per cent in GDP terms in the first quarter of the year.
The data confirms recovery is deepening, with GDP advancing 1.4 per cent in the opening three months of the year compared with the final quarter of 2014. Exports, which dominated the early phase of recovery, remain strong. But these figures are also marked by a rise in personal consumption as employment grows. After major increases in investment last year, however, the figures point to a drop in capital formation the first quarter. Still, the overall picture is a postitive one.
Revisions to annualised Central Statistics Office data show that GDP growth for 2014 came in at 5.2 per cent, 0.4 percentage points more than set out in March. This, together with the uptick in first quarter growth, has led analysts to reset their projections for 2015 growth.
Although the economic advance had been expected to moderate a little this year, economists now expect growth to exceed 5 per cent again. This is a good deal more than the current Government forecast for 4 per cent growth this year, strengthening its position ahead of the October budget.
Higher growth range
“It is quite clear from these latest figures that Ireland will easily top the eurozone growth league table for the second-year running. Before the release we were forecasting real GDP growth in the 4-5 per cent range for 2015,” said Merrion Capital economist Alan McQuaid.
“We would now say that growth is more likely to be in the 5-6 per cent range.”
There is a another element to the story. Revisions to GDP figures serve to increase the nominal size of the economy vis-à-vis the national debt and the budget deficit. The upshot is that both the debt-to-GDP ratio and the deficit-to-GDP ratio are coming down, making it easier to achieve fiscal tartgets.
“Nominal GDP is on track to grow by about €20 billion this year. This will have very significant positive implications for debt, deficit and the amount of tax revenue Government will take in,” said Ibec chief economist Fergal O’Brien.
“The improvements to the debt and deficit ratios from the data make any balance sheet issues surrounding Irish Water look fairly marginal.”
For example, some early estimates today suggest a budget deficit of 2 per cent of GDP is now withint grasp this year. This compares with a 2.3 per cent forecast in the spring statement and a 2.7 per cent target on budget day last year.
While the Irish Water ruling this week might well have moderated political demands to exceed the €1.2 billion to €1.5 billion budget package foreseen for 2016, these figures might well lead to a clamour to go beyond the range set out in the spring.
