In Government Buildings on Thursday morning, it took three ranking figures from the Central Statistics Office the best part of an hour to explain a cascade of new figures on the Irish economy.
There was enough in the data to bamboozle even the hardiest expert, but three things seem clear enough: the recovery is deepening; it appears to have begun earlier than previously recognised; and the totality of the progress made serves to improve Ireland’s fiscal dynamics.
All of this comes at the end of a week in which Eurostat dealt a thorough blow to the Government by spurning its request to carry Irish Water’s liabilities off the State balance sheet.
On its own, that development might well have lessened the likelihood of a clamour for the Government to go beyond its preordained limit of €1.5 billion for expansionary measures in the October budget.
But the new CSO figures change the picture. Minister for Finance Michael Noonan has been insisting he will go no further than €1.5 billion on budget day. Still, the latest data reopens scope for political pressure to increase the recovery dividend.
The Minister would well to reject such entreaties but he’d have to move to the Antarctic to avoid them.
The data points to 1.4 per cent quarter-on-quarter growth in gross domestic product (GDP) in the first three months of 2015 and annualised growth in the quarter of 6.5 per cent. Furthermore, a revision of data going back five years shows that GDP grew by 5.2 per cent in 2014 instead of the previously recorded 4.8 per cent.
GDP growth is now determined to have come in at 1.4 per cent in 2013, up from the previously recorded 0.2 per cent. The CSO now believes GDP to have grown in each of the years since 2010, when the ravaged economy reached its nadir and troika types set up shop in Dublin.
Growth forecasts
As activity intensifies in both the domestic and export-oriented sectors of the economy, analysts were quick yesterday to upgrade their growth forecasts. After stellar growth last year, the assumption had been that the rate of expansion would slow down a little this year.
Growth in excess of 5 per cent in 2014 combined with a rapid expansion in the first quarter of 2015 prompted predictions that the acceleration will again eclipse 5 per cent this year.
All that assumes a continuation of benign conditions at home and beyond. But such forecasts are well ahead of the 4 per cent projection set out by the Department of Finance in the spring statement. An upgrade is likely, but not yet. Despite all the warnings issued by the Central Bank, Fiscal Council and Economic and Social Research Institute, an immediate move on that front would only invite claims for more budget goodies.
It might well be argued the rapid growth rather proves the point made this week by the Central Bank that the economy has no need for further fiscal stimulus. The Government’s political considerations suggest otherwise, of course. Still, it’s fair to say the economy is doing pretty well without the balms already promised for 2016.
There is more. Upward revisions to the GDP figures, brought about by new tax and survey data, increase the nominal size of the economy vis-à-vis the national debt and the budget deficit.
This is crucial, for the debt-to-GDP ratio and the deficit-to-GDP ratio are the measures by which Ireland’s fiscal performance is judged by financial markets and in the world of the euro zone. As GDP goes up, these come down.
Ibec chief economist Fergal O’Brien said nominal GDP was on track to grow by about €20 billion this year. “The 2014 revisions to GDP will take about 2 per cent off the debt ratio, while the impact of currency-related higher export prices saw first-quarter GDP in money terms shoot up by 12 per cent.”
Indeed, some early estimates yesterday suggested this development, together with advancing tax revenues, could mean that a budget deficit of 2 per cent of GDP is within grasp this year.
It’s far too early to tell. But this compares with a 2.3 per cent forecast in the spring statement and a 2.7 per cent target on budget day last October. Take note that the same spring statement pointed to a 0.29 percentage point deficit bonus if Irish Water went off-balance sheet.
To be continued . . .
