Brexit concerns persist even as GDP leaps 4%

GDP numbers suggesting the economy leaped in the latest quarter again overstate the strength of the economy, analysts have said, as a wary eye is kept on the potential Brexit fallout in the coming months.

The CSO figures showed the economy advanced 4% in the three months to the end of September from the previous three months placing Ireland again in territory as the outlier in the growth stakes in Europe. 

Our nearest rival was Croatia where GDP grew 1.7% in the quarter, and compares with the 0.3% expansion posted in the eurozone.

The latest quarter was largely free of the distortions of intellectual property transfers by multinationals which had led to the jibe last summer by Nobel Prize- winning economist Paul Krugman of “Leprechaun economics”.

However, other activity by multinationals such as aircraft firms again played a huge part in confusing what is going in the economy. 

The “data are consistent with other indicators that suggest the Irish economy is posting solid growth. 

However, the recorded 4% quarter-on-quarter increase in GDP which would translate to an annualised jump of 17% dramatically overstates the current momentum of the Irish economy as experienced by most households and businesses,” said Austin Hughes, chief economist at KBC Bank Ireland.

He said that the latest quarterly GDP numbers probably reflected some of the weakness of sterling against the euro in the months before the UK’s Brexit referendum in June. Sterling dropped again following the June 23 vote.

He said surveys such as its own consumer confidence index showed potential weakness among some consumers in recent weeks. 

Concerns will persist about Brexit, but for the time being jobs growth and the exchequer returns indicate an economy expanding at 4% this year, but not at over 26% as was supposedly the case in 2015, amid the huge distortions caused by intellectual property transfers, he said.

“It seems fairly clear that it was Apple,” said Mr Hughes, referring to the identity of the multinational which drove the huge transfers in intellectual property. 

Conall MacCoille, chief economist at Davy Stockbrokers, said he did not know the identity of the company that transferred its intellectual property into Ireland that led to the huge distortions in the State’s accounts last year, but it was likely to have been a multinational like Apple.

The transfers, though an accounting exercise, did likely lead to the State collecting much more than it had anticipated in revenues last year. 

Mr MacCoille said indicators suggested the economy was growing by up to 5%. 

Economist Jim Power said most people accepted that Apple was the company which transferred its intellectual property last year.

Simon Barry, chief economist at Ulster Bank in the Republic, said “the key message” is from the CSO numbers was that underlying was “healthy but has lost momentum in recent quarters”.

Finance Minister Michael Noonan said the “the exporting sector is holding up well”. 

“The [the CSO figures] show that the immediate impact from Brexit has been more benign than initially anticipated. However, we cannot be complacent.

The best way to deal with such risks is through competitiveness-oriented policies and prudent management of the public finances,” he said.

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