- GDP 2.2% above cycle low
- 1% growth seen this year
The recovery in Irish economic activity is now seen to be stronger than initially reported, following the latest round of data revisions; real GDP is over 2% above the low recorded in the final quarter of 2009, and last year’s growth is now put at 1.4%, double the first estimate. The recovery remains slow and uneven, however, and driven solely by the external sector, which may explain why few people consider that the recession has actually ended; consumer spending is some 10% below its pre-recession level, capital spending is down an extraordinary 50% while exports have risen by 8%, according to Bank of Ireland’s Quarterly Economic Outlook published today, 2 August 2012.
According to Dr. Dan McLaughlin, Group Chief Economist, Bank of Ireland and author of the publication: “That trend of falling domestic demand and rising net exports reversed in the first quarter of 2012, however, albeit largely due to a surge in imports, in turn reflecting a second consecutive quarterly increase in business spending on machinery and equipment. Consequently, we now expect a rise in the latter over the year as a whole, and for that to offset another fall in construction spending, to give the first increase in total capital spending in the economy for five years.
“Consumer spending fell again in the first quarter, and we expect a 1.5% decline over the year, although nominal household income may stabilise, given the prospect of unchanged employment and a small rise in average earnings albeit offset by lower transfers and a rise in the tax burden. As a consequence we still expect total domestic demand to fall in 2012, by 1.7%, before a modest pick up in 2013.
“Exports had their best performance in the first quarter for fifteen months and grew by over 6% on an annual basis, supported by double digit growth in service exports. The global economy has slowed and Europe is in recession so the risks to the external sector are plain to see, but Irish competitiveness has improved substantially and the fall in the euro may also provide support, particularly the decline against sterling.
“Overall, we now expect GDP to rise by 1% this year, an upward revision from our previous 0.6%, despite the 1.1% decline in the first quarter. The recent data revisions have also extended to the unemployment rate, which is now put at a new cycle high of 14.8% in recent months, and we forecast an average of 14.7% for 2012. Ireland looks on target to match or beat this year’s fiscal targets, and the prospect of some reduction in the sovereign’s debt burden has helped to push Irish bond yields down to pre-bailout levels, although we feel that there is a risk of disappointment as to the level of debt savings.
“The economy is also now paying its way in the world and running a balance of payments surplus, unlike many of the other peripheral European economies, which means that the public sector deficit is now been offset by strong surpluses in both the household and corporate sectors,” concluded Dr. Dan McLaughlin.
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