Michael Noonan: Recovery secure but more to do

Finance Minister Michael Noonan was quick to welcome the strong GDP figures claiming they confirm the recovery is now “firmly embedded”. However, he warned more needs to be done.
Michael Noonan: Recovery secure but more to do

Saying the figures confirm the increase in economic activity is broadly-based, Mr Noonan said the Government has “laid the foundations for this economic recovery, but there is more to be done”.

The CSO figures also led most economists to either immediately update their growth forecasts or suggest they would be doing so shortly.

“With average GDP growth of 7%, year-on-year, recorded in the first three quarters of the year, our previous forecast of 6.1% for 2015 is clearly too light.

"We expect to upgrade our GDP forecast by at least 100 basis points after this release,” said Investec Ireland chief economist Philip O’Sullivan.

Employers’ representative Ibec said the economy is on course to achieve its strongest annual growth rate in 15 years in 2015, boosted by stronger-than- expected consumer spending leading domestic demand to a seventh successive quarter of growth in the last three months.

As a result, the organisation is set to produce a new quarterly economic outlook in the coming days and now sees GDP growth, for 2015, amounting to 7%.

According to Ibec’s senior economist Gerard Brady: “The growth in domestic demand represents a crucial turning point for the Irish economy and will boost household living standards.

“Despite the return of strong employment growth and the spectacular export performance, many did not feel the full benefits of the recovery over recent years.

“This is now changing. Wages are rising, income tax is set to fall further and disposable income is increasing,” he said.

“Gains in the last number of years have been concentrated in particular sectors and regions, but 2015 has been a turning point.

"Growth in the domestic sectors of the economy this year will bring the benefits of recovery to many more people, right across the country,” he said.

Davy analyst David McNamara also noted the importance of the recovery in the domestic economy.

“While consumer spending of 3.6% on the year is now contributing an ever- increasing share to GDP, much of the surge in investment spending — 35% year-on-year — relates to the movement of patents onshore by multinationals.

“This re-organisation of multinational activity, this year, has helped supercharge GDP growth in 2015.

"However, the underlying domestic economy is also recovering at a solid pace, reflected in the fall in unemployment and the pick-up in wages this year, and this should sustain into 2016,” he said.

Goodbody Stockbrokers chief economist Dermot O’Leary said the strong GDP figures and ongoing strength in high-frequency indicators suggest “significant momentum for the Irish economy entering 2016.

Ireland grew more than four times the rate of the combined eurozone in the third quarter, according to the CSO”.

He said: “Although there is a significant amount of noise in the data, they are clearly spectacular in a European context.

"Moreover, as we look into 2016, the latest trends suggests that momentum is continuing. We are currently forecasting growth of 4.5% in 2016. [The latest] data do nothing to alter this very positive scenario.”

“It is quite clear from these latest figures that the Irish economy continues to go from strength to strength and will easily top the eurozone growth league table again this year.

“Based on the numbers for the first three quarters of the year and even allowing for some slowdown in the final quarter because of weaker global activity, average GDP growth for 2015, as a whole, is likely to be close on 7%, a level not seen since the Celtic Tiger era,” said Alan McQuaid, chief economist with Merrion Stockbrokers.

On that theme, KBC Bank Ireland has suggested a GDP growth rate for 2015 of 7.2% with the economy now growing at a pace not seen since those “heady” Celtic Tiger days.

However, KBC also said in its reaction to the figures that while Ireland may outrank its eurozone counterparts, it won’t actually be the fastest growing economy in the world this year.

“The latest IMF outlook suggests that honour is likely to fall to Papua New Guinea, followed by Ethiopia or perhaps Myanmar or Turkmenistan,” said chief economist Austin Hughes.

“But the Irish performance is exceptional in relation to advanced economies, with IMF estimates suggesting the next strongest performance will be Iceland.

“Within the EU, Ireland will be followed by Luxembourg.

"The euro area, as a whole, is seen growing by 1.5%, while the US and UK are both expected to post growth of around 2.5%. So, Ireland’s performance is clearly an outlier,” he said.

While he noted the recovery in consumer spending and sustained export strength as key main drivers, Mr Hughes ultimately described Ireland’s stellar growth this year as “fortuitous, fiscal and fundamental”.

“The first reflects a particularly favourable set of external circumstances encompassing comparatively healthy conditions in the UK and US that are supporting exports from and foreign direct investment into Ireland; low borrowing costs and a weak euro exchange rate stemming from the sluggish performance of the single currency zone; and finally the sharp drop in oil prices.

“Of these, the first two elements are well understood, but we think the impact of low energy costs may not attract the attention it deserves. Swings in oil prices have, in the past, been associated with significant changes in Irish economic performance,” he said.

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