Ireland: Economic growth surges in Q1
The economy accelerated notably in the first quarter, with GDP growth in quarter-on-quarter and seasonally-adjusted terms jumping to 2.4% from the 0.3% expansion in Q4 2018. Meanwhile, in annual terms, growth climbed to 6.3% in Q1 from 3.6% in the previous quarter. Q1’s upturn was fueled by a positive contribution by the external sector and improved domestic demand. The significant presence of large multinationals in the country leads to marked volatility from one quarter to the next, thus making it difficult to gauge the true health of the Irish economy. Along with this press release, the Central Statistics Office (CSO) revised the GDP series, changing the base year from 2016 to 2017.
Overall, domestic demand was less downbeat in the quarter. Private consumption was up 0.9% in the first quarter after rising 0.3% in Q4 2018, as a continued tightening of the labor market buttressed wages and lifted households’ purchasing power. Moreover, government spending also supported growth, rising 0.5% in the quarter following a flat reading. Inventories also contributed positively to growth after dragging on Q1’s outturn. On the downside, deteriorating economic sentiment weighed on fixed investment, which contracted 24.9% in Q1, contrasting a 12.6% jump in the previous quarter. In particular, businesses cut back more severely on machinery and equipment, and the reading also reflected a swing to decline in intangible assets.
Turning to the external sector, growth of exports of goods and services decelerated to 1.0% in Q1 (Q4: +4.6% quarter-on-quarter) amid the Eurozone’s overall lackluster outturn and ongoing Brexit uncertainty. Meanwhile, imports fell 2.8% following a 5.6% rise in Q4 2018, largely reflecting a drop in capital spending. Overall, the external sector contributed positively to growth, contrasting a drag in the previous period.
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—climbed 1.6% in quarter-on-quarter, seasonally-adjusted terms, slightly up from a 1.4% expansion in the fourth quarter of last year. The upturn thus indicates firming domestic activity, consistent with the GDP headline in this case.
Looking ahead, the Irish economy is seen decelerating markedly this year, with the Eurozone’s slowdown and Brexit uncertainty driving a downturn in the external sector, while domestic demand will lose strength amid tighter fiscal measures, bleak consumer confidence and weak business sentiment. A disorderly Brexit continues to pose the biggest threat to the outlook.