Ireland: Economy loses pace in Q4 2019
The economy grew 1.8% in quarter-on-quarter and seasonally adjusted terms in the fourth quarter, down from an upwardly revised 2.1% expansion in the third quarter (previously reported: +1.7% quarter-on-quarter, seasonally adjusted). Meanwhile, in annual terms, economic growth accelerated to 6.2% in Q4 from a revised 4.5% in Q3 (previously reported: +5.0% year-on-year). The significant presence of large multinationals which use Ireland as their base of operations leads to volatility from one quarter to the next, thus making it difficult to gauge the true health of the Irish economy. Taking the year as a whole, GDP grew 5.5% in 2019, down from 2018’s 8.2% expansion yet still coming in as the Eurozone’s fastest growing economy.
A negative contribution by net exports drove the downturn. Export growth ticked down to 2.0% in Q4 from Q3’s 2.1% rise, while imports rebounded to 34.0% after contracting 21.6% in Q3, largely driven by rising imports of intellectual property products.
In contrast, a significant jump in fixed investment was behind the rebound in domestic demand (Q4: +33.5% qoq s.a.; Q3:-21.8% qoq s.a.). Fixed investment rose 122.9% over the previous quarter in Q4 (Q3: -54.1% qoq s.a.), chiefly owing to higher levels of intellectual property investment compared to Q3. Meanwhile, private consumption recorded zero growth in Q4 (Q3: +0.7% qoq s.a.) amid downbeat consumer sentiment, while public expenditure lost pace, slowing to 0.8% in Q4 (Q3: +1.4% qoq s.a.).
Modified domestic demand growth—the national account metric developed by the CSO that strips out the more volatile components such as research and development, and aircraft leasing operations—decelerated to 3.5% in quarter-on-quarter, seasonally-adjusted terms in Q4 from the upwardly revised 5.2% expansion logged in Q3 (previously reported: +3.6% qoq s.a.) Thus, in this case, modified demand diverges markedly from unadjusted demand, revealing how the presence of large multinationals within the country can dramatically skew the metrics.
Looking ahead, growth is expected to slow sharply this year, restrained by the fallout from the Covid-19 pandemic. Meanwhile, political uncertainty has also increased following February’s election, which thus far has failed to produce a government.
Commenting on the outlook, Daniel McLaughlin, former chief economist at the Bank of Ireland and director of Dan McLaughlin Economics, stated:
“There is as yet little hard data available for Ireland for the first few months of the year and nothing covering the latest month, which saw the rapid spread of the virus. Consequently, any forecast for GDP is more tentative than usual although the path of exports will largely decide the final outcome as they account for 133% of GDP. Merchandise exports are dominated by multinational sales of pharmaceuticals which may hold up better than others but an additional unknown is the impact on contract merchandise exports, largely produced for Irish domiciled companies but made in China. The economy ended the year on a firm footing (annual growth of 6.2% in q4) which will also be supportive but a big fall in consumer spending looks inevitable.”