Sluggish start to 2012 as growth momentum stalls

The good news is that there was a sharp upward revision in growth figures for the Irish economy in 2011, but on the downside the economy got off to sluggish start over the first three months of 2012.

According to the latest quarterly national accounts, the economy, which had originally been expected to see a 0.7% GDP growth rate last year, actually grew by 1.4%. That momentum was not carried through to this year however. The first quarter of 2012 saw a fall in GDP of 1.1% and a drop in GNP of 1.3%. The fall in GNP over the first quarter shows that the domestic economy continues to struggle.

An increase in exports in 2011 from an original estimate of 4.1% to an actual 5% was the main factor behind the upward revision in last year’s GDP.

However, Conall MacCoille, an economist with Davy Stockbrokers, says the underlying picture over the first three months of 2012 could be better than the headline figures would suggest. There was a 4.9% ramp up in exports in the first quarter.

“Exports rose by 2.6% in Q1 and at a robust annual growth rate of 6.0% show little sign of succumbing to the euro area recession.

“Similarly, investment rose by 11.6% in Q1. So perhaps higher imports reflect rising investment and exports. This suggests that the negative impact on GDP may be temporary or reflect stronger demand going forward.

“The decline in GDP in Q1 does not appear too worrying, the key point being that export growth has remained robust into Q1. Overall, yesterday’s GDP release is a positive sign for the Irish economy.”

However, if there is any further slippage over the year, it will mean a tougher budget than anticipated in December. Moreover, the revision in 2011 gives the overall debt position a slightly better complexion, according to Mr MacCoille.

“This means the government debt to GDP ratio is now 106.5%, down from the 108.2% consistent with the first release of nominal GDP for 2011. Furthermore, revisions to GDP growth in previous years mean that the recession has been less severe than previously thought. The total peak-to-trough in output is now 10.4%, smaller than the 12.4% estimated previously. The new data suggest that GDP contracted by 2.1% in 2008 and 5.5% in 2009, shallower than the 3% and 7% respectively in the old vintage of the GDP data.”