Growth in the Irish economy has again confounded expectations, growing by 10.5 per cent year on year in the third quarter of 2017. However, analysts warned the quarterly figures are notoriously volatile and the headline figures are exaggerating the strength of the economy’s underlying performance.
The latest quarterly national accounts show gross domestic product (GDP) accelerated by 4.2 per cent in the third quarter alone amid a pick-up in personal consumption and further growth in exports. This was nearly eight times the growth rate recorded in the euro zone as a whole.
The figures also show that gross national product (GNP), which strips out the effects of multinational profit flows, jumped by 11.9 per cent in the quarter.
While the numbers reflect the current strength of the Irish economy, they also raise fresh questions about the level of statistical noise in the data and the relevancy of GDP as a measure of true economic activity.
“Today’s national accounts for Ireland are once again remarkable for their volatility,” said Goodbody analyst Dermot O’Leary.
“This volatility is caused by the presence of large multinationals in Ireland, bringing about issues such as intellectual property imports and exports, royalties and contract manufacturing,” he said.
“All are a feature of today’s data, making the identification of underlying trends quite difficult. Suffice to say, the headline GDP growth estimate of 10.5 per cent year on year is not a realistic gauge of the pace of growth in Ireland in Q3 2017.”
Intellectual property
Nonetheless, the Central Statistics Office (CSO) said large imports of intellectual property products by multinationals and aircraft related to the leasing sector, which have distorted figures in the past, were absent from the third-quarter data.
It said the growth in GDP was driven largely by a strong performance in the manufacturing sector, which expanded by 5.1 per cent, and in the information and communication sector, which accelerated by 5.8 per cent.
Personal consumption, a key component of domestic demand, rose by 1.9 per cent in the quarter, while exports of goods and services grew by 4.4 per cent.
The CSO noted that a reduction in service imports (-9.7 per cent) was driven partly by reductions in imports of royalties – coupled with increases in royalty exports. This was linked to the growing levels of intellectual property products located here, it added.
The balance of payments current account, a measure of Ireland’s economic flows with the rest of the world, recorded a surplus of €14.5 billion.
The 4.2 per cent GDP expansion in the third quarter followed a revised 2.7 per cent rise in the second quarter and a 3.4 per cent contraction in the first quarter.
The agency has launched a new measure of national income – modified gross national income or GNI* – which removes the volatility associated with multinationals.
A sub-index of that new measure – modified total domestic demand – rose by 2.9 per cent in the third quarter, which the agency highlighted as a more accurate measure of the pick-up in domestic activity.
KBC bank said even allowing for some correction in the final quarter of the year, it now seems that for 2017 as a whole, GDP growth would be in region of 6.5 per cent, significantly ahead of the Department of Finance’s projection of 5.1 per cent.
