Irish GDP on course for over 15% growth in 2021

The Irish economy grew by 0.9% in the third quarter and the annual change in GDP slowing sharply to 11.4% from 21% in q2, with the surge in growth as the economy re-opened in the the third quarter of last year dropping out of the annual comparison. Barring a dramatic fall in the final quarter and any significant data revisions, GDP growth looks on course to average just over 15% for 2021 as a whole.

Consumer spending had risen sharply in the second quarter, by 14.5%, but slowed in q3, increasing by just 0.5%, with building and construction also slowing, growing by 2% after a 19% rise in q2. Exports all lost momentum increasing by 1.3% in the quarter, with merchandise exports actually falling modestly, a rare occurrence.

Looking at the annual changes in q3, it is clearer that exports are the GDP driver, rising by 18%, with off-shore manufacturing a significant factor. Consumer spending is up by 7.7%, while the growth in Government consumption has slowed to 3.4%. Building and Construction is down 5.7%, with overall capital formation also lower, at 4.6%. Net outflows of profit and interest was down somewhat compared to the previous year, and as a result GNP, which adjusts for such flows, rose by an annual 20%.

The Irish authorities tend to downplay GDP as the most appropriate indicator of Irish economy activity but other indicators all point to very strong growth this year, despite the pandemic effects; tax receipts in November were 21.8% ahead of the same period last year, employment grew by an annual 220,000 in the third quarter, unemployment is back down to 5.2% while the vacancy rate is at a record high of 1.5%. One blot is the spike in inflation, which may hit 5.5% for November, albeit peaking there.

The performance of the economy has also transformed the fiscal situation, prompting the Government to revise down the expected deficit this year on a number of occasions, the most recent being in early October, with a revised borrowing requirement of €12.1bn. However, the figure to end-November was below €1.5bn so the full-year out turn may well be €4-€5bn. That would imply a similar increase in the national debt but in the event the NTMA have massively over-funded, by €18bn year to date, raising the debt figure substantially.