With all the hullabaloo surrounding Ireland’s 2015 national accounts the data for the first quarter of the year received less attention than normal. To recap, Irish GDP fell by 2.1% in q1,with large falls in exports, investment, imports and inventories, offsetting increases in personal consumption and government spending. A recession is generally defined in terms of two successive quarterly contractions in GDP, and the available data raises the possibility that Irish GDP may indeed have fallen again in q2, although as we know the national accounts can throw up the strangest results so it is impossible to be definitive.
What is clear is that absent revisions the volume of retail sales fell in the second quarter and by a chunky 2.7%. Core sales rose, by 1%, so the decline was strongly affected by a fall-off in car sales ahead of the new registrations in July, but it is the total that impacts overall consumption, which in general has been weaker than indicated by the trend in retail sales.
It is also noteworthy that VAT receipts have been weaker than expected in recent months; the latest exchequer figures, to end-July, showed annual growth in VAT at 4.2%, against an end-year target of 7.7%. Relative to profile, VAT receipts are €292mn behind, or 3.5%. Income tax is exactly on target and although total receipts are still ahead of profile, the €650mn excess largely reflects a €483mn overshoot in corporation tax , which is not reflective of anything going on in the Irish economy. If one excludes corporation tax, receipts are €164mn ahead of profile, or 0.7%.
There also appears to be something unusual happening in the labour market. The Irish unemployment rate has been on a steady downward trend for the past four years, declining from over 15% to below 8%, but in the three months to July the rate was unchanged at 7.8%, with July alone seeing the actual numbers unemployed unchanged. Again, data revisions can change that picture and the labour force may be growing more rapidly than thought but on the face of it the steady fall in unemployment has stalled.
The GDP figure in the national accounts is dominated by external trade and we do not know what will emerge when the estimates are released in September. The available merchandise data shows exports weakening, with annual growth turning negative in the three months to May. The decline in imports is even more pronounced, implying that investment spending has also continued to fall. The industrial production figures available to May also point to a fall in output in q2 while the CSO’s index of services output was flat in the second quarter.
The Brexit vote is generally seen to be negative for Ireland in the short term but the above raises the possibility that the economy may have contracted in q2 anyway and is therefore already in recession.