Q1 growth higher than expected

Growth over the first quarter of the year was much higher than expected on the back of robust exports, but domestic consumption continues to drag.

GDP grew by 2.7% over the first three months and 4.1% on a year-on-year basis, according to figures released by the Central Statistics Office. Unless there is a significant economic shock then, based on current figures, the Government should be able to meet the 3% fiscal deficit target for 2015 through a lower consolidation package than the planned €2bn.

This is the first time that the GDP figure has been calculated using the new EU Commission methodology that includes the “black economy”.

The overall effect was to increase GDP from 7% to €174.8bn from a previous €164.1bn.

Consequently, debt-to-GDP has been revised down from 123.7% to 116.1% and the budget deficit has been adjusted from 7.2% of GDP to 6.7%. Moreover, the 2013 GDP figure is now said to have grown by 0.2% rather than a 0.3% contraction originally announced.

“Assuming GDP in 2014 grows in line with Department of Finances forecasts, the debt and deficit will be 113.8% and 4.5% respectively, inside the 4.8% deficit target and not including the stronger than expected exchequer returns for the first half of 2014. When we revise our forecast for the deficit in 2014 it will probably fall below 4%,” said Davy Stockbroker economist Conall MacCoille.

However, the latest GDP figures could be subject to significant revisions. The CSO estimated that domestic consumption shrank by 0.1% over the first three months.

“The CSO estimates that personal consumption fell 0.1% quarter-on-quarter (q/q) in Q1 2014, an outcome that is at variance with the improvement in retail sales volumes seen in that period,” said Investec chief economist Philip O’Sullivan in a research note.

“The national accounts release is not something that we particularly look forward to, given its tendency to be significantly distorted by idiosyncrasies relating to the multinational sector (such as the patent cliff in the pharmaceutical industry) and subject to frequent revisions. Today’s publication does not disappoint on either front. We prefer to base our core narrative around the Irish economy on the encouraging signals emanating from high frequency data on the domestic side (as reflected in positive labour market, retail sales, industrial production and residential property price data) and the improving prospects for Ireland’s key trading partners, both of which are not subject to the same level of ‘noise’ that the overall national accounts suffer from,” added Mr O’Sullivan.


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