7.8% increase in Irish GDP shatters consensus forecasts

Another big surprise in the Irish national accounts, with GDP expanding by 7.8% in the first quarter of 2021. The more timely data on retail sales , credit card spend and construction implied a sharp fall in domestic spending in q1 but industrial production had grown strongly, pointing to robust export growth. In the event the latter proved the more significant, at 5.8%, so dwarfing falls in the domestic spending components. The quarterly surge allied to a positive base effect (GDP fell 3.9% in the first quarter of 2020) propelled annual GDP growth to 11.8%, not only shattering estimates for the quarter but also rendering redundant consensus estimates for the full year.

The export surge (the annual increase was 18%) owed much to an 68% rise in contract manufacturing, which are goods manufactured offshore but owned by Irish based firms. Most of that production is presumed to be in China so the strong re-opening of that economy may be reflected in these numbers.

Consumer spending did fall, by 5.1%, taking the annual decline to some 12%, although a rebound to a positive figure is likely in q2, while Government spending is still supportive, rising an annual 13.4%, albeit only 1% in the quarter.Building and Construction fell an annual 19% with big declines in investment in machinery and Intangibles resulting in a 63% plunge in overall spending on capital formation.

Most of the spending on Intangibles is also captured as a service import, and that duly fell ,as did the import of goods, given the fall in consumption- imports in total declined an annual 25%. The export performance also led to unusually large profit outflows, so reducing the annual growth in GNP, which adjust for international profit and interest flows, to 2.9%.

Domestic demand overall fell by an annual 39%, but the CSO estimates that the decline in modified domestic demand was 5.8% This adjusts for the impact of aircraft leasing on investment in machinery and equipment as well as removing the impact of multinational spending on Intangibles, although of course also ignoring all exports from whatever the source.

These GDP figures again illustrate the dual nature of the Irish economy, with exports dominating domestic demand in total economic production. Moreover exports do not conform to the cyclical pattern used in most economic models., and are more akin to the performance one sees in secular growth stocks.