Irish GDP/GNP (Q2 2018)

• Real GDP up 2.5% in the quarter and 9.0% in the year in second quarter
• GDP up 9.1% on average year-on-year in first half of 2018
• Modified domestic demand up 0.4% in the second quarter
• Current account surplus of €10,162m (13.3% of GDP) in second quarter
• Overall GDP growth of 7-9% now projected for 2018; with underlying growth of 4.5-5.5%

Provisional GDP year-on-year increase of 9.0% in the second quarter

The latest figures from the Central Statistics Office (CSO) this morning show that the Irish economy continues to fire ahead strongly. GDP was up 2.5% in the quarter in Q2, the best performance within the EU. Year-on-year, it was up 9.0% in real terms, down slightly from 9.3% growth in the first quarter. Meanwhile, GNP was up 0.7% in the quarter and 11.9% in the year in the second quarter.

For the first half of 2018, GDP was up 9.0% on the same period in 2017 while GNP was up 10.5%, suggesting that most of the official forecasts for growth this year are way too low.

Value added of Information & Communication rose by 11.9% in volume terms in Q2 compared with the previous quarter. Industry (excluding Construction) recorded a 5.3% increase in real terms with Construction activities recording a 3.2% rise. Distribution, Transport, Hotels and Restaurants increased by 3.9% over the same period while Professional and Administrative Services rose by 3.7%. Meanwhile, Agriculture recorded a decline of 3.4% quarter-on-quarter with Public Administration, Education and Health recording a moderate decline of 1.1% over the period.

On the expenditure side of the accounts, exports increased by 5.9% in the second quarter compared with the January-March period. Combining the export increase with an offsetting import rise of 0.3%, overall net exports for the quarter increased by €5.2bn. Personal consumption, which accounted for 51.7% of domestic demand in the second quarter, rose by 1.5% compared with the previous quarter. Government expenditure increased by 1.3% in the second quarter compared with the opening quarter of the year while capital formation showed a decrease of 1.4% over the same period.

Total domestic demand decreased by 1.6% quarter-on-quarter in Q2. When combined with the €5.2bn increase in net exports, the result was the overall rise in real GDP of 2.5%. With factor income outflows little changed in the quarter (€15,342m), GNP exhibited an overall increase of 0.7% in the period. Modified domestic demand, an indicator of domestic demand that excludes the impact of trade in aircraft by aircraft leasing companies and trade in R&D and intellectual property, rose by 0.4% quarter-on-quarter in Q2.

Meanwhile, the Balance of Payments current account, a measure of Ireland’s economic flows with the rest of the world, showed a surplus of €10,162m (13.3% of GDP) in the second quarter of 2018. A merchandise surplus of over €29bn was partially offset by a deficit of almost €19bn on services and income. This surplus in the second quarter followed a deficit of €3,303m in the second quarter of 2017. For the first half of 2018, there was an overall current account surplus of €19,714m (12.8% of GDP) up from the surplus of just €1,753m (1.3% of GDP) in the first half of 2017. A record current account surplus of €24.9bn was posted last year and that is likely to be well beaten in 2018.

The bottom line is that there appears to be no slowing down in the Irish economic steam train. Real GDP growth last year was 7.2% and there is every chance that will be bettered in 2018. Based on the data for the half of 2018, it looks like headline GDP growth for this year as a whole will be a lot higher than most commentators had been predicting. We expect overall GDP growth of 7-9%, with underlying growth of 4.5% to 5.5%. The best indicator of how the economy is doing remains employment growth, and there has been a rapid increase in the numbers at work over the last three years, with 200,000 plus jobs created.

Alan McQuaid (13/9/18)
Economist