Irish GDP grows at average annual 5.5% in H1.

The available labour data shows that Irish employment continued to grow very strongly in the first quarter of the year (by an annual 3.5%) and the decline in the unemployment rate since implies that  pattern is still intact. One would expect GDP growth to be stronger, given normal productivity growth, and although the Irish quarterly GDP figures are extremely volatile, the picture from the National Accounts  is  broadly consistent with the employment data; annual GDP growth in q2 was 5.8%, following a 5.2% rise in q1, to give an average for the first half of the year of 5.5%.The figure for the full year is likely to be lower, given the surge in reported GDP in the latter part of 2016, and we expect around 4%.

On a quarterly basis GDP expanded by 1.4% following a revised 3.5% contraction in q1. The latter reflected a plunge in investment spending, mainly related to mulinational R&D , and that reversed in q2, duly accounting for most of the rise in GDP. Consumer spending actually fell, by 1.1%, and on the published national accounts consumer spending is now only 34% of GDP and only marginally ahead of capital spending- in most developed economies the former is well above 50%.

The CSO now publishes a separate figure , Modified Domestic Demand, to give a better picture of underlying spending and output in the Irish economy, as it strips out multinational flows into R&D and aircraft leasing . On that metric real demand grew by an annual 4.2% in q2 following a 5.8% rise in q1, so the average increase over H1 is  still a very healthy 5.2%, indicating that the underlying economic performance remains strong. One puzzle is  limp  consumer spending, averaging growth of  just 1.8%, which is modest given the strength of employment growth alongside 2% growth in pay. and zero inflation. Domestic investment spending is expanding at a robust pace, in contrast, with annual growth averaging 15% over the first half of the year, albeit hiding a mixed performance, with buoyant construction offsetting a  fall in domestic spending on machinery and equipment.

Overall, it would seem that the Irish economy continues to expand at a robust pace, if one discounts the extraordinary short-term volatility and adjusts for the distortions caused by the sheer scale of the multinational flows.

Irish Q2 GDP; Deflation re-emerges.

Irish real  GDP contracted in the first quarter, by 2.1%, and the latest CSO data shows a modest  0.6% recovery in q2. Nominal GDP fell however, by 1.0%, which followed a 5.6% decline in the first quarter. Consequently, the consensus forecast for nominal GDP in 2016 is probably too high as indeed are forecasts for real growth of 4.9% and the coming weeks are likely to see some downward revisions.

Consumer spending was weak in the second quarter, declining by 0.5% in volume terms, and  business spending on machinery and equipment also fell, by over 10%. Exports, too, declined, albeit marginally. This broad weakness was offset by a 5% rise in construction and a surge in spending on R&D ( including patents and licences) which is classed under ‘intangibles’ . The latter component is extraordinarily volatile and actually more than doubled in the quarter alone ( +113%) , and as such  was the main factor behind the 39% rise in total investment spending. These intangibles are largely multinational and often purchased from parent companies abroad, so imports also rose strongly in the quarter, by 12%. There was also a postive stock build, adding 1.3% to GDP, although the sum of the components imply that real GDP actually fell, with a large statistical adjustment accounting for the positive growth figure.

On an annual basis real growth in q2 emerged at 4%, and the first quarter figure was revised up to 3.9% so giving an average for the half year also around 4%. Real GDP rose by 5.5% in the final two quarters of 2015 and that  base effect implies that annual growth may slow substantially in the second half of 2016, with the average for the year likely to be well below the 4.9% assumed by the Government.

Similarly, the nominal level of GDP in 2016 is also likely to be lower than anticipated, largely because export prices are falling . Consequently, nominal GDP only grew by an annual 0.5% in q2 , which followed a 1.5% rise in q1. On that basis nominal GDP may be largely unchanged in 2016 or indeed may even decline, with implications for the debt and deficit ratios.

Overall, a mixed bag. The real economy avoided recession , which was a risk given falls in retail sales and industrial production in q2, but deflation has re-emerged, via export prices.