Analysts welcomed the positive economic data published today, but said upcoming exchequer returns and the Governt’s revised forecasts due out in the coming weeks would have a bigger impact on Budget 2014 decisions.
Merrion Stockbrokers’ Alan McQuaid noted the positive movement in exports, which showed goods and services were up 4.3 per cent in the quarter and 1.0 per cent in the year. However, he said overall growth in the economy for the year - if there was any - was likely to be very small and well below Government projections of 1.3 per cent.
“However, assuming the global economy continues to regain momentum over the next 12 months and Budget 2014 doesn’t impact too negatively on household disposable income, then growth next year should pick up into the 1.5-2.0 per cent range, but with exports (particularly services) the main driver. Domestic demand is expected to remain fairly subdued though stronger than in recent years.”
Davy Stockbrokers said the worst was “probably over” for the export sector. Glas Securities said the GDP data would come as “somewhat of a relief”, but noted it was still behind expectations.
Investec said a rebound in economic activity had been expected, though the size of the rebound was “slightly disappointing”.
“Government expenditure and investment continued to weigh on growth, posting quarterly declines of 1.3 per cent and 3.4 per cent respectively,” analysts wrote in a note.
Investec chief economist Philip O’Sullivan said the morning’s data were marginally disappointing, with quarterly growth of 0.4 per cent below expectations,” he said. “Momentum has clearly picked up over the subsequent summer months, with both domestic demand (due to continued growth in employment) and exports (due to strengthening activity in key trading partners) set to improve in H2 2013.”
He said much would depend on the Government’s revised forecasts for GDP growth this year and next. Weaker-than-expected GDP data could weigh on the government’s economic growth forecasts, and may also lower the possibility that the government significantly alters its fiscal consolidation plan, he said.
“September’s Exchequer Returns will also play an important role in that regard.”
Meanwhile, business group Ibec said Budget 2014 represented an important opportunity for the Government to support the fragile recovery.
Senior economist Reetta Suonperä said there had been a disappointing start to the year, but the economy showed renewed signs of life in the second quarter.
“Budget 2014 is an opportunity for Government to take some pressure off consumers and the best way to do this is by not increasing taxes. The Irish economy is taxed enough and piling on more taxes on businesses or consumers would only serve to weaken growth and further delay the return of a robust recovery.”
