The threat of US tariffs has affected GDP both in the US and abroad this year, boosting imports in the former and exports elsewhere, as firms scrambled to front-run any levies. Pharma was particularly impacted, and that became clear from Ireland’s monthly trade data, showing an extraordinary surge in Pharma exports to the US and hence total goods exports given the importance of that sector in Irish international trade.
A very strong first quarter GDP was therefore widely expected, with the initial flash growth estimate at 3.2%, but that is now put at 9.7%, with net exports rising by €67bn and contributing 6 percentage points to quarterly GDP growth. There was also a notable run-down in inventories but that was dwarfed by a very large increase in investment, reflecting strong non-residential construction and a rise in Intangibles, although the latter was also captured in service imports, so dampening the GDP impact. Consumer spending remains limp, rising by 0.6% in the quarter, despite strong growth in real incomes, implying a rising savings ratio. Modified domestic demand, a measure of underlying domestic spending, rose by 0.8%.
Real GDP in q1 was 22% up on the same period last year, with exports 23% higher including 44% for goods, which on the face of it makes the 4% consensus forecast for GDP growth in 2025 look redundant. However, Pharma exports are likely to fall back sharply in the coming months even in the absence of tariffs, so we may see some strongly negative quarters, although a positive 2025 outcome still seems realistic, with employment growth notably buoyant in recent months. It’s also worth noting that the export boost was also accompanied by a very significant increase in profit outflows, notably in the manufacturing sector, with the result that GNP, which adjusts for net international profit and interest flows, actually fell 5% on the year, although it is very volatile on a quarterly basis.