Strong growth in first quarter following large upward revision to 2018 GDP

The Irish economy, as measued by real GDP, is now deemed to have grown by 8.2% in 2018, as against the initial 6.7% estimate. Growth in 2017 was also revised up, by around 1% to 8.1%, according to the latest National Accounts. The most interesting change came in the personal consumption component, which had seemed puzzlingly soft given the buoyancy of household income. It now transpires that consumption last year was  €107bn, or €3bn higher than the initial estimate, and real  consumption growth over the past three  years is now put at 12% instead of 8.8%, Government consumption growth, in contrast, was revised down and is now 2% lower than initially recorded over the past three years, albeit still at a robust 11.9%.

GDP in 2018 is now put at €324bn, some €6bn higher than the initial estimate, which means that the General Government debt ratio is now about one percentage point lower at 63.6%. The CSO also produced the first estimate of modified national incomein 2018, which some prefer to use as the debt denominator, and this came in at €197bn giving a ratio of  104.4%, down from 109.5% in 2017.

Turning to 2019, recent higher frequency data , notably employment and industrial production,  had implied strong GDP growth in the first quarter  and that duly emerged, at 2.4%. Exports and personal consumption both grew by around 1%, with government consumption expanding by 0.5%. A strong stock build was also evident but these positives were offset by a 25% plunge in  capital formation,  reflecting similar falls in both spending on machinery and equipment and Intangibles. The latter is largely due to multinational activity and is also captured in the national accounts as a service import, so is GDP neutral (imports fell by 2.8%) but of more significance was the underlying decline in machinery and equipment spending when adjusted for aircraft leasing, meaning that modifed capital formation ( designed to better capture domestic investment) actually fell by 2.4%.

The first quarter advance  boosted the annual growth rate  of GDP to  6.3% and the  consensus for the full year is under 4% (our own estimate is 5%). However, analysts may in general hold fire on any material changes to forecasts given the evident weakness  over recent months in the UK and EA economies, alongside softer growth in the US. Brexit remains the biggest specific risk, of course, and the fall in domestic business investment may well reflect the uncertainty about  the shape  and timing of an eventual resolution.