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Strong performance from the Irish economy in 2016 but 'once offs' cloud the picture again

This morning the Central Statistics Office (CSO) released the National Accounts for Q4 2016. The key headlines were as follows

  • In Q4 2016 GDP and GNP grew by 7.2% and 10.2% respectively compared to Q4 2015 – this was a stronger than expected performance for the quarter. However, as on previous occasions, the numbers were boosted by what appear to be ‘once offs’ relating to the investment category. On this occasion investment grew by a whopping 86% in the quarter - something which is surely going to reignite the debate about ‘leprechaun economics’. See table 1 below for a full breakdown of the growth rates
  • For the full year GDP grew by 5.2% while GNP (which excludes the impact of the multi-national sector) grew by 9%. Again this was ahead of forecasts but as noted above, the performance was helped by ‘once offs’ on the investment line
  • Domestic demand growth (core growth in consumer spending, business investment etc.) has grown into the key tailwind in the Irish economy over the past couple of years. This remained the case in Q4 although again the growth (32% compared to Q3 2016) was bloated by the factors mentioned above.

Table 1: Irish National Accounts, Q4 2016

 

Personal Consumption (€Bn)

Government Expenditure (€Bn)

Capital Formation (€Bn)

GDP (€Bn)

GNP (€Bn)

Q4 2016

23.8

7.2

29.0

66.6

55.0

Q3 2016

23.6

7.1

15.6

65.0

53.3

Q4 2015

23.3

6.8

11.6

62.5

50.0

QoQ Change

0.7%

1.4%

85.7%

2.5%

3.2%

YoY Change*

1.6%

5.7%

162.4%

7.2%

10.2%

Source: Central Statistics Ofiice, September 2016, *Seasonally unadjusted Expenditure Data

                         

Even though it is proving challenging to get a clear underlying picture of Irish economic growth from recent sets of national accounts, Irish economic data for the most part remain strong. Examples include

  • Employment levels which reached their highest since Q4 2008 in the final quarter of 2016
  • Continued progress on deficit reduction in the public finances
  • Strong survey data (such as the Purchasing Managers Index readings), indicating solid growth rates

The prospect of BREXIT clearly casts a shadow over the Irish economy but so far the impact on UK growth has been negligible which is helpful from an Irish perspective. At present the median growth forecast for the Irish economy in 2017 sits at 3.3% (Bank of Ireland forecast 3.2%). The Q4 national accounts released this morning shouldn’t in our view result in significant changes to these forecasts, meaning Ireland looks set to outperform its Euro zone peers again this year.

Tom McCabe, Global Investment Strategist – March 9th 2017