Growth came from a rise in net exports and a strong increase in inventories
7th July 2014
The Irish economy bounces back in the first quarter, thereby finally reaching pre-crisis levels.
Real seasonally adjusted GDP increased by 2.7% quarter-on-quarter, far above the consensus of 1.2%. GDP expanded by 4.1% compared with the first quarter of last year. Even if the economy would not grow anymore in the next quarters, yearly GDP would still grow by 4.7% this year.
Moreover, the report of the statistics office revised upward the GDP of the fourth quarter from -2.3% to -0.1%. What was an unexpected sharp contraction at the first reading, now seems to have been a stabilization.
The large contraction in the fourth quarter of 2013 had been puzzling, since it did not chime with hard and soft high-frequency data. But GDP still does not seem to fully align with other indicators. All categories of final domestic demand fell, shaving 1.7 percentage points off growth.
Despite months of increases in consumer confidence and retail sales, and the sustained fall in the unemployment rate, consumption still fell by 0.1% quarter-on-quarter.
Although industrial production performed well in the first quarter, investment still declined by 8.1%. Government expenditure was 2.1% less than in the fourth quarter. So growth came from the rise in net exports (exports rising faster than imports) and a strong increase in inventories.
The strong increase in GDP shows that the disappointing fourth quarter was no reason to fear the end of the recovery. Nevertheless, domestic demand is still not performing as well as other indicators would predict. This shows that the deleveraging process has still not been completed and that Ireland is still far from a self-sustained recovery. But strong growth, driven by external demand, should speed up this process in the coming quarters. By next year, domestic demand should decisively pick up.
Source: ING