Ireland: Economy gains traction in Q3
December 13, 2019
The economy grew 1.7% in quarter-on-quarter and seasonally-adjusted terms in the third quarter, rebounding from a revised 0.1% contraction in the second quarter (previously reported: +0.7% quarter-on-quarter, seasonally adjusted). Meanwhile, in annual terms, economic activity growth ticked up to 5.0% in Q3 from a revised 4.9% in Q2 (previously reported: +5.8 year-on-year). The substantial presence of large multinationals using the country as their base leads to marked volatility from one quarter to the next, thus making it difficult to gauge the true health of the Irish economy.
A positive contribution by net exports drove the upturn. Export growth was stable at 2.4% in Q3, while imports almost halved from the 41.6% expansion logged in Q2 to a 22.5% contraction in Q3 amid falling imports of intellectual property products.
On the domestic side, a marked decline in fixed investment was behind the contraction in domestic demand. Fixed investment shrank 55.3% over the previous quarter in Q3 (Q2: +164.8% qoq s.a.), largely owing to lower levels of intellectual property investment compared to Q2. Meanwhile, private consumption rose at a faster clip in Q3 compared to Q2 (Q3: +0.9% qoq s.a. Q2: +0.7% qoq s.a.), albeit remained relatively muted overall amid downbeat consumer sentiment. Moreover, government spending picked up pace from the previous quarter, growing 1.2% in Q3 (Q2: +1.1% qoq s.a.).
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 3.6% in quarter-on-quarter, seasonally-adjusted terms in Q3, contrasting the revised 4.2% contraction logged in the second quarter (previously reported: +2.2% qoq s.a.). Thus, in this case, modified demand differs significantly from unadjusted demand, revealing how the presence of large multinationals within the country can dramatically tilt and skew the metrics.
Looking ahead, economic activity is expected to ease next year amid slowing domestic demand and a weak external sector. Household consumption is seen easing while fixed investment growth is expected fall. Downside risks to the outlook stem mainly from Brexit and potential overheating amid a tight labor market and declining spare capacity.
Author: Hanna Andersson, Economist