Oliver Mangan: All signs point to an Irish economic bounce
Forecasts for strong Irish economic growth, both this year and next, don't seem overly optimistic.
A clear picture is now emerging of the performance of the Irish economy in the opening half of 2021.
There are two distinct phases, but with data surprising to the upside in both as the pace of economic activity exceeds expectations.
Much of the economy was in lockdown for all of the opening quarter of the year. Recently released national account data for the period, though, show activity held up much better than expected.
Headline GDP increased by 7.8% in the quarter, but this is a very distorted figure, bloated by flows in the multinational sector. GNP, on the other hand, which takes into account profit repatriations that negate many of these flows, contracted by 1%. This a better reflection of the economy’s performance.
Exports continued to perform strongly in the first quarter, while underlying domestic demand fell by 2.9%, led by a 5.1% fall in consumer spending. However, this was a much better performance than during the first lockdown.
Clearly, the Irish economy has become much better able to cope with pandemic life and lockdowns. Retail sales data highlight this, in particular.
Although much of the sector was shut, sales were down by just 1.3% in the first quarter on year earlier levels. The data available, so far, for this quarter point to a strong rebound taking shape as restrictions on activity are eased gradually.
Exchequer returns show a very strong pick-up in tax receipts in May.
Meanwhile, manufacturing hit a record level in April and again in May, while the services sector growth reached a five-year high in May. Construction rebounded strongly in April and May as the sector reopened. The number of jobless in receipt of PUP income supports had fallen to 285,000 by early June from a peak of 485,000 earlier in the year.
The recovery in activity can be expected to gain momentum over the second half of the year.
We can also expect to see a gradual run-down of some of the enormous rise in private sector savings since the pandemic began, which will add fuel to the recovery in household spending.
The global economy is also set for very strong growth this year, which will benefit export-orientated countries like Ireland.
The Irish GDP growth rate this year is likely to be a blow-out, but distorted, number. GNP provides a better indication of real growth.
Recent predictions that the economy could grow by about 4.5% this year and 5% in 2O22 do not, in any way, seem overly optimistic, given that activity appears to be building up quite a head of steam.
- Oliver Mangan is chief economist at AIB
