Bank of Ireland’s Quarterly Economic Outlook July 2011
Modest growth this year, but consumption weaker than expected according to
Bank of Ireland’s Quarterly Economic Outlook
- Strong growth in Q1, again driven by external trade
- Domestic demand still falling
The Irish economy grew by 5.1% in nominal terms in the first quarter of the year and by 1.3% in volume terms, taking the annual change in the latter into positive territory. Moreover, revisions to past data now show that the fall in GDP from 2008 to 2010 was somewhat less steep than previously thought and that the level of GDP last year was also higher than envisaged, at €156bn with a concomitant modest reduction in Ireland’s debt ratio, according to Bank of Ireland’s Quarterly Economic Outlook published today, 12 July 2011.
“The new figures point to real GDP having bottomed in the final quarter of 2009, but the quarterly pattern since then has been volatile, with any advance followed by a contraction. That may remain the case this year, although we still expect a modest 0.5% rise in GDP for 2011 as a whole”, commented Dr. Dan McLaughlin, Group Chief Economist, Bank of Ireland and author of the publication:
“This forecast is unchanged from our previous quarterly ‘Outlook’ but we have changed the composition of that growth in the light of the Q1 data. Consumer spending has surprised to the downside with households cutting discretionary spending in response to a rise in prices, further falls in employment and another, albeit modest decline in average earnings, and we now expect a 2.5% fall in the volume of personal consumption against our previous 2%.
Against that, spending on machinery and equipment rose in the first quarter, and as a consequence we have revised our expectation of capital spending as a whole – we still expect a decline, driven by further steep contraction in construction, but the annual fall in business spending may now be much more modest, and represents a possible upside surprise.
This overall fall in domestic spending is likely to be offset by another strong contribution from the external sector, although we have trimmed both our export and import growth figures, with the former reflecting the deceleration in global growth evident in the first half of the year. The corollary to export-led growth is that multinational outflows are likely to rise and we envisage no growth in the GNP measure.
Employment is also generally driven by domestic demand, and so employment may fall again this year, albeit at a much slower pace, although the numbers unemployed may remain in a narrow 290,000 – 300,000 range given the fall in the labour force, with the unemployment rate averaging 14%. Finally, the Exchequer deficit appears to be broadly on track, with downside risks relating to VAT perhaps compensated by lower than projected spending and higher than anticipated non-tax receipts”, concluded Dr. Dan McLaughlin.
12 July 2011
Dr. Dan McLaughlin Dermot O’Sullivan
Group Chief Economist Group Communications
Bank of Ireland Global Markets Bank of Ireland
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