We have noted on other occasions that the Irish economy, as measured by GDP, behaves more like a secular growth stock than the cyclical entity forecasters generally assume, reflecting the strength and composition of the multinational export sector , driven as it is by ICT, Pharma and medical devices. The widely expected external trade downturn never materialised, which also raises questions about the forecast impact of Brexit on the export sector and hence the broader economy.
Exports rose by 5.7% in volume terms in the third quarter, which alone would have boosted GDP by 7.4%. Growth wa stronger still, however, as domestic spending benefitted from the re-opening of the service sector over the summer months. Consumer spending had fallen by 19% in q2 but jumped by 21% in q3, adding over 5 percentage points to overall GDP, while building and construction also soared, by 40%, although Government consumption was flat after rising by over 9% during the Lockdown in q2.
Spending on machinery and equipment also rebounded strongly in the quarter although multinational investment in R&D, by far the largest component of investment, rose only modestly, so reducing the growth in total capital formation to 4%. That also dampened imports, which rose by 1.5%.
The reported decline in GDP in the second quarter was revised to -3.2% from -6.1%, and the blow-out q3 figures left the annual change in GDP at 8.1%, despite the fact that investment and consumer spending are still down on last year. That’s plus 8.1%, with the average annual growth over the three quarters of 2020 at 3.6%, so absent an enormous fall in the final quarter growth is likely to be positive for the year as a whole. A better gauge of the income of Irish residents is GNP, which adjusts for net profit outflows, and the average annual change over the first three quarters is only marginally positive, albeit still a much better performance that the EU norm.