Thursday, 19 September, 2019

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‘Flattering’ GDP figures show economy still growing

Ireland’s economy continued to grow in the second quarter of the year, albeit with progress characterised by a continuing large contribution from multinational companies and moderating growth in the domestic economy.

One economist called the latest growth figures “flattering”.

The economy – in GDP terms – grew by 0.7% when measured against the preceding three months, and was up by 5.8% on the same quarter last year, according to CSO figures. GNP – which excludes multinational contributions – was up 0.3% year-on-year.

“We question the value of these two indicators [the 5.8% and 0.3% annualised growth rates] as a measure of Irish economic growth due to ongoing issues relating to the large presence of multinationals and their impact on the national accounts,” said Goodbody chief economist Dermot O’Leary.

“The impact of multinationals is once again a major feature of the national accounts, highlighting the importance of focusing on alternative indicators of the Irish economy,” he said.

“The volatility in this quarter stems from a very large import of intellectual property. According to the international accounts data, this came in the business services sector. This contributes to a 61% year-on-year increase in imports and a negative drag from net trade despite an 11% year-on-year increase in exports,” Mr O’Leary said.

He said the cleanest expenditure component of the accounts was consumption, with consumer spending up by 3.1%, year-on-year, in the second quarter.

“In the context of real disposable income growth of around 5%, this suggests that consumers are spending but within their means and with a relatively high savings ratio, possibly reflective of wider economic concerns,” Mr O’Leary said.

In broad agreement, Ulster Bank chief economist Simon Barry said he continues to think “the headline growth figures are painting an overly flattering picture” of the economy.

“Overall, the figures confirm that the Irish economy is continuing to experience solid growth, albeit not quite at the pace suggested by the standard headline growth aggregates. It looks to us as if the economy is growing at an underlying pace of something in the ball park of 3% so far this year,” Mr Barry said.

Finance Minister Paschal Donohoe said early indications suggest continued solid growth in the current quarter.

However, he said careful management of the economy – and of the public finances – is needed “now more than ever”.

Furthermore, the Central Bank has warned that Ireland remains vulnerable to a negative global shock.

“Ireland offers an example of a small economy that benefitted greatly from openness. However, economic openness exposes the country to many vulnerabilities beyond our control. These vulnerabilities can be cyclical, such as a global growth slowdown with knock-on effects for Irish exports, or structural in the form of substantial changes to the status quo such as Brexit, trade wars, or the evolving global taxation landscape,” said deputy governor Sharon Donnery.

She said that compared to the UK, US and overall eurozone, Ireland is the most affected by, or the most elastic to, a negative global shock.

Ms Donnery said the Central Bank is continuing to put in place measures to build the resilience of households and banks to shocks.

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