Ireland: Economic growth jumps in Q4 despite Brexit-related uncertainty
March 19, 2018
The latest national accounts data published by the Central Statistics Office on 19 March showed that the Irish economy remained in good shape in the final quarter of 2018, despite discrepancies in the various metrics used to measure economic growth. Quarter-on-quarter GDP growth reached 3.2% in the fourth quarter, a deceleration from the revised 4.8% increase observed in the third quarter (previously reported: +4.2% qoq). GNP expanded 6.3% in quarter-on-quarter terms in Q4, a slowdown from the 12.3% rise recorded in the previous quarter. In annual terms, GDP growth stood at 8.4% in the fourth quarter, coming in below the third quarter’s revised 10.9% rise (previously reported: +10.5% year-on-year).
Economic activity, measured by modified total domestic demand—the national account metric developed by the CSO to provide a more accurate view on the economy by stripping out volatile components such as research and development, and aircraft leasing operations—contracted 4.1% in seasonally-adjusted quarter-on-quarter terms in Q4 (Q3: +2.9% qoq). The discrepancies between national accounts metrics underscore the distortions in the highly open Irish economy and the difficulties in gauging the health of the economy using standard indicators such as GDP.
The fourth-quarter GDP expansion in quarter-on-quarter terms was driven by the external sector. Growth in exports came in at 4.4% in Q4, propelled by higher overseas demand for Irish manufactured goods and services (Q3: +4.7% qoq). Imports also recorded strong growth and expanded 5.7% (Q3: +10.4% qoq). The rise in imports was largely the result of multinational corporations’ financial movements into the country, which supported growth in fixed investment.
Fixed investment expanded 6.1% in the fourth quarter, a stark contrast from the 35.7% contraction observed in the preceding quarter, where financial outflows caused the component to decline. Higher investment in the construction sector also contributed to the quarter-on-quarter increase. In turn, private consumption decelerated sharply and expanded a soft 0.3% in the fourth quarter (Q3: +1.9 qoq). The reading is surprising considering declining average unemployment (2017: 6.7%; 2016: 8.4%), high consumer confidence throughout the year, low inflation and higher wages. The soft expansion in private consumption constrained growth in the domestic economy, which contracted 0.6% in the fourth quarter (Q3: -12.6% qoq).
With Q4’s print, annual GDP growth reached 7.8% in 2017, an acceleration from 2016’s 5.1% increase. Q4’s print was not affected by heightened political uncertainty in December, when Brexit negotiations nearly collapsed over disagreements with the Republic of Ireland’s border with Northern Ireland. Likewise, the stronger-than-expected expansion in the fourth quarter suggests that economic activity will remain on a robust growth trajectory in upcoming quarters. Different economic indicators including retail sales, unemployment and consumer confidence all pointed to solid economic momentum at the start of 2018. Similarly, optimistic growth prospects for Ireland’s main trading partners, including the United States and the Eurozone, should boost the country’s export-oriented industries. On this point, Dr. Daniel McLaughlin, Chief Economist at Dan McLaughlin Economics, comments:
“Irish GDP growth in 2017 was much stronger than expected, at 7.8%, driven by buoyant exports, which offset a fall in domestic demand, in turn reflecting a decline in capital formation. Annual growth in q4 was 8.4% and this strong carry-over effect will no doubt prompt an upward revision to the 2018 consensus, despite Ireland’s clear vulnerability to Brexit and to any trade-related shock to the global economy.”
Ireland GDP Forecast
According to its first Quarterly Bulletin of 2018, released in January, the Central Bank revised up its growth forecast for 2018 from 4.5% to 4.8%. FocusEconomics Consensus Forecast panelists expect the economy to grow 4.1% in 2018, which is up 0.2 percentage points from last month’s forecast. For 2019, the panel sees economic growth moderating to 3.1%.