The CSO has just published the Irish National Accounts for the first quarter, incorporating data revisions and an adjustment for aircraft leasing, with gross aircraft flows now included as against a net figure. In the event the combined impact was substantial, with upward revisions to all GDP components, leaving nominal GDP in 2014 at €189bn compared with the previous estimate of €185bn. In real terms the recession in 2008-09 is now seen to have been milder, albeit a still bleak 9.8% fall in GDP over 8 consecutive quarters, with the recovery stronger; the new data shows the economy to have grown in every one of the past five years, with the 2014 initial estimate of 4.8% now put at 5.2%. As a result it now appears that all the output lost in the crash was recovered by the third quarter of 2014 and real GDP is currently 3.8% above the previous peak recorded in the final quarter of 2007.
The pattern of the recovery as previously understood remains broadly intact, with a positive impact from external trade offsetting falling domestic demand, although the latter is now seen to have grown in 2012 , driven by investment spending, before declining again in the following year. Consumer spending of late is now stronger than previously recorded , which is more consistent with retail sales , while GDP as a whole is now better aligned with the recovery in employment, which started in early 2013.
The recovery picked up strong momentum in 2014, with all the 5.2% expansion in real GDP driven by domestic demand, led by double digit growth in business spending on machinery and equipment alongside a 10% rise in construction. Consumer spending also grew , by 2%, although the reported 4.6% rise in Government spending is more difficult to fathom, and appears to be related to the productivity gains assumed to flow from the Haddington Road agreement with public sector unions
The previously published data had shown a marked slowdown in the second half of last year but that has now been revised away, with the result that the economy entered 2015 in a stronger position than initially thought. Moreover, growth in Q1 was also robust, at 1.4%, leaving the annual change in real GDP at 6.5%. Consumer spending is now rising strongly in volume terms, by an annual 3.8% , although the annual growth in investment spending slowed to 4%, albeit dampened by the volatile aircraft sector.
Net exports also made a strong contribution to the annual growth figure in q1, adding 2.1 percentage points, with the figures now reflecting aircraft leasing as well as last year’s methodological changes. Exports grew by an annual 21% in value terms ,and by 14.3% in volume terms, with the latter marginally lagging import growth of 14.7%, although such is the scale of exports that a similar growth figure in imports still generates a strong net contribution from the external sector.
The external data has also confounded the many looking for much smaller gains in 2015, and that, alongside the GDP figure itself, will likely prompt upward revisions to growth forecasts for 2015 as a whole. The nominal rise in GDP in q1 was also surprising (an annual 12%, largely reflecting a big increase in export prices) and estimates for nominal GDP growth this year may well be raised to at least 10%. The latter would mean a 2015 figure of €208bn, implying a debt ratio around 102% and a fiscal deficit under 2% of GDP. Good news then, but one final implication: the Central Bank, IFAC and the ESRI have already urged the government to reduce the size of the proposed fiscal stimulus in the 2016 Budget and the figures published today strengthen their case, it would seem, although one doubts if that will cut much ice with the governnment ahead of the election.