The Irish economy grew by 0.7% in the second quarter, following an upwardly revised 2.7% in q1 (from 2.4%) . The figures left the annual change in q2 at 5.8% from 7.4%, indicating average growth of 6.6% in the first half of the year. Absent revisions, this implies that GDP would have to contract over the final two quarters to achieve the current 4.4% consensus for full year growth.
As is often the case with the National Accounts the globalised nature of Irish GDP threw up another weird and wonderful figure for investment in intellectual property, with the import of business services ( which captures that component) rising by over €36bn in the quarter and by €38bn over the previous year, As a consequence total imports jumped by 43% in q2, bringing the annual increase to 61%. This surge is neutral for GDP however, in that imports are either consumed or invested and in this case contributed to a 182% increase in capital formation in the quarter, no doubt largely due to spending on Intangibles. In fact the CSO did not give a figure for spending on that component for ‘confidentiality reasons’ implying one or two large firms were responsible.
We do know that spending on building and construction rose by 5.6% in annual terms in q2 and that the pace of expansion there is slowing- indeed spending was broadly flat in the quarter itself when adjusted for the normal seasonal upswing. Spending by domestic firms on machinery and equipment has also slowed but picked up some momentum in q2, rising by 3.6% in the quarter.
Robust government spending has been a feature of the economy of late and that is evident in 2019, with annual growth in government consumption averaging 4.1% over the first half of the year. This is outpacing consumer spending of 2.8%, and the latter is also lagging household income growth, implying a rising savings ratio; the past year has seen a remarkable increase in household deposits, despite virtually zero rates of return.
A large run down in inventories was also a feature of the q2 data, and the main driver of overall GDP growth was again the export sector, witha 2.8% increase in the quarter bringing the annual rise to over 10%. This includes offshore contract manufacturing and the latter has been on a softer trend over the past year, perhaps indicating that trade tensions are having an impact. None the less the aggregate figure is still remarkably strong.
The high frequency data has pointed to some slowing in the pace of activity of late; unemployment has risen in recent months, retail sales have fallen, credit growth has eased and confidence surveys have plumged. This is likely to be largely Brexit related and as such a prolongation of the uncertainty regarding the outcome is a main negative for the outlook, at least in terms of domestic demand. However domestic spending is now small in relation to GDP ( consumer spending accounts for less than a third for example) , albeit important for employment, so it will be the export picture that will determine what happens to the overall growth rate.