Ireland: Economic growth soars in the second quarter on rising exports
Quarterly national accounts data published by the Central Statistics Office on 13 September showed that the Irish economy accelerated over the previous quarter in Q2, although lost some ground in annual terms. Despite uncertainties stemming from Brexit and the intensifying trade war weighing on prospects, quarter-on-quarter GDP rebounded from a revised 0.4% contraction in Q1 (previously reported: -0.6% quarter-on-quarter) to grow 2.5% in the second quarter. In annual terms, GDP grew 9.0% in the Q2, slightly down from the first quarter’s revised 9.3% year-on-year growth (previously reported: +9.1% year-on-year). The latest data underlines the sensitivity of the highly open Irish economy to even small changes in business, with growth skewed by the heavy presence of global companies in the country.
A breakdown of the headline quarter-on-quarter growth figure shows improvement across most components. Domestic demand contracted overall, owing to a drop in fixed investment which fell 1.4% over the previous quarter in Q2 (Q1: -3.1% quarter-on-quarter). Building and construction improvements drove the upturn from the previous quarter. However, contractions in machinery and equipment, as well as intangible assets, kept the overall figure in negative territory. On the plus side, private consumption grew 1.5% in Q2 after coming in flat in Q1, as wages climbed higher and unemployment remained low. Government spending also accelerated, rising 1.3% in Q2 following a 0.4% expansion in Q1.
On the external side of the economy, both exports and imports rebounded. Despite heightened tensions surrounding Brexit, exports remained buoyant, climbing 5.9% over the previous quarter in Q2, contrasting a 5.5% quarter-on-quarter drop in Q1. Meanwhile, imports rose a meager 0.3% quarter-on-quarter in Q2, following a 3.6% decline over the previous quarter in Q1.
Statistical distortions created by multinational corporations make it difficult to gauge the true health of the Irish economy using standard indicators such as GDP. Modified domestic demand, the national account metric developed by the CSO that strips out the more volatile components such as research and development, and aircraft leasing operations, rose 0.4% over the previous period in the second quarter. The result was above the first quarter’s 0.2% drop and suggests firmer activity, consistent with the GDP headline in this case.
Looking forward, the most acute risk to the economic outlook stems from Brexit; the IMF warned that a “no-deal” Brexit would hit Ireland the hardest among all the countries in the Eurozone, due to the highly integrated nature of the Irish and UK economies. The future of the Irish border remains one of the thorniest issues in the ongoing negotiations. Escalating trade war tensions also pose a threat to the economy’s prospects.