Ireland: Economic growth picks up steam in Q3
December 15, 2017
Despite often contradictory, and highly volatile, figures, the most recent national account data published by the Central Statistics Office on 15 December confirmed that economic activity firmed up in Q3. GDP growth accelerated from a revised 2.7% quarter-on-quarter increase (previously reported: +1.4% quarter-on-quarter) in Q2 to a sharper 4.2% rise in Q3. GNP rebounded from a revised 0.8% contraction (previously reported: -4.6% qoq) in the second quarter to a 11.2% rise in the third quarter. In year-on-year terms, GDP growth reached 10.5% in the third quarter, coming in above the revised 6.3% expansion (previously reported: +5.8% year-on-year) in the second quarter. Average growth in the first three quarters as measured by annual GDP came in at 7.3%.
Modified domestic demand, the national account metric that strips out volatile components such as research and development, and aircraft leasing operations to provide a more accurate view on the economy, also pointed to a healthy quarter-on-quarter expansion (Q3: +2.4% quarter-on-quarter; Q2: -0.2% qoq). Positive data reported by all national account metrics recording strong quarter-on-quarter and year-on-year growth suggests that the economy is in good shape, and that 2017 should be another year of robust growth.
The quarter-on-quarter GDP expansion in Q3 was driven by a strong external sector, which more than offset a sharp contraction in domestic demand. Growth in exports jumped from 0.8% in Q2 to a sharp 4.4% increase in Q3. The surge in exports reflected an increase of merchandise exports. Imports, however, collapsed, swinging from a 11.1% expansion in Q2 to a steep 10.9% contraction. The decline in imports was largely driven by the financial movements of multinational corporation into the country. Correspondingly, fixed investment also nosedived.
Fixed investment plummeted 36.0% in the third quarter from the previous one, contrasting the 22.4% quarter-on-quarter expansion in the second quarter. The decline reflected a double-digit decline in spending on machinery and on intangible assets. Intangible assets comprise spending by multinational corporations, including movements of intellectual property into Ireland. Private consumption, however, picked up steam, expanding 1.9% quarter-on-quarter, a multi-year high (Q2: -0.9% qoq). The expansion was supported by a strong labor market, low inflation, higher wages and high consumer confidence throughout the third quarter. Growth in government consumption reached 0.7%, matching the print in the second quarter. Overall, domestic demand contracted a sharp 13.1% (Q2: +12.9% qoq), weighed down by falling fixed investment and inventories that subtracted from growth.
Ireland’s economic outlook remains positive despite a dramatic few weeks as crucial Brexit talks were unfolding. The breakthrough agreement reached in early December between the UK and the EU showed how the United Kingdom was committed to recognizing the terms of the 1998 Good Friday Agreement, pledging to avoid a hard border with Ireland. A lack of consensus on how to deal with the Irish border would have been a destabilizing factor generating considerable political and economic uncertainty. Border checks and customs controls with the UK, one of Ireland’s most important trading partners, would disrupt trade flows and weigh on economic growth. While the final terms of the Brexit deal have not yet been written, the outcome of the first phase of talks are encouraging and clear to a certain extent the country’s economic outlook from Brexit-related risks, although uncertainty remains.
Ireland GDP Forecast
According to its fourth Quarterly Bulletin of 2017 released in October, the Central Bank revised up its growth forecast for 2018 from 3.5% to 4.5%. 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%, which is unchanged from last month’s forecast.