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From Accountingnet.ie Recession
Quarterly National Accounts
Looking at where the economy was in the second quarter relative to where it was a year earlier, the broadest measures of growth continue to show sharp contraction. Real GNP fell by 11.6% y/y in Q2 while GDP was down 7.4%, as the gap between the two remained unusually wide, reflecting significant profit outflows of Irish-based multinationals. Not only is this the second most severe decline on record in Ireland (second only to Q1), but such a performance represents considerable underperformance compared to other advanced economies. US GDP contracted by 3.9% over the same period, while the corresponding estimates for the euro zone and UK stand at 4.7% and 5.5% respectively. Ireland’s downturn has been twice as deep as the average seen in our main trading partners In total in the current cycle, the level of economic output (measured by GDP) in Ireland has now fallen by 10.5% from its peak in Q1 ’07. For comparison, the total drop in US output has been 3.9% while that in the euro area is down 4.9% with the UK experiencing a 5.7% total decline. Thus, the recession which has hit the Irish economy has so far been more than twice as severe as the average experience of our main trading partners. Indeed, the drop in GNP terms (arguably a better measure of national income in Ireland as it strips out the profits earned here by multi-nationals) has been even more brutal. Activity on this measure is now down some 13.6% from peak. Domestic demand still a major weak point, as housing investment contracts at a record pace As has been clear for some time now, weakness in domestic demand lies at the heart of the overall weakness in the Irish economy at present. The enormous correction in home-building continues apace, with housing investment falling at a new record pace of 42% in the year to Q2. Consumer expenditure is another area of notable decline, with spending down 6.8% y/y. The latest numbers show that government cut backs are also weighing on the overall growth aggregates. Government spending has now also turned negative, with the estimated pull-back in expenditure at -0.9% in the year to the second quarter – the first such decline since quarterly records began in 1997. But there are indications that the economy has entered a stabilisation phase… As deep as the economic downturn has been over the past year, today’s numbers do, however, indicate that the pace of contraction is easing somewhat. This theme emerges in a couple of ways with the data released today by the CSO. Firstly, as sharp as the annual decrease in activity was in the second quarter, the rates of decline are not quite as severe as they were in Q1. So the 7.4% y/y fall in GDP in Q2 wasn’t as bad as the 9.3% drop in Q1, while the 11.6% fall in GNP was less pronounced than the 13.1% plunge in the year to the first quarter. A similar pattern is evident across most categories of spending, including consumer spending and overall investment (which was boosted by a large increase in spending on new aircraft) both of which have seen some modest retreat from the horrendous outcomes posted in the first quarter. The ongoing resilience of the export sector warrants special mention. At -3% y/y, total export growth was much better than expected in Q1 and the rate of decline eased further in the June quarter, to -2.5%. These numbers mask a wide range of experiences across the sector, with the multi-national dominated areas such as chemicals and pharma holding up, while firms in more traditional sectors such as food and drink continuing to struggle. Nonetheless, the aggregate picture is showing striking buoyancy in a relative sense. The 2.5% fall over the past year compares with declines of between 13% and 17% over the same period across the US, UK and euro zone. Ireland’s significant presence in less cyclically-sensitive sectors like chemicals and pharma, along with our comparatively small exposure to other sectors such as cars and capital goods which have been extremely weak globally, have contributed to Ireland’s outperformance. …y/y growth rates have become less negative, while the level of GDP actually managed to avoid a decline in q/q terms in Q2 Second, the CSO also publishes national accounts data on a seasonally-adjusted basis. These numbers are notoriously volatile, so it is not wise to overplay the significance of a single quarter’s data. However, they do provide a basis for assessing the economy’s very recent performance, i.e. on a quarter-to-quarter basis rather than looking at the situation relative to a year earlier. Today’s numbers actually show that GDP was unchanged in Q2 relative to the Q1 level. Coming from a situation where the previous two quarterly readings had been -2.3% and -5.6%, this certainly represents a move in the right direction. In GNP terms, there was a 0.5 % decline recorded in Q2, but this was extremely modest by the standards of what had gone before, with the first quarter registering a staggering 5.6% fall, and the three quarters before that again all showing quarterly declines in excess of 2%. Tentative signs of recovery emerged in consumption, investment and exports, all of which posted quarterly gains in Q2, though a fall in government spending and a pick-up in imports (which detracts from growth) worked in the opposite direction. Our overall take on the economy at present is that it is still weak, but stabilising; the outlook continues to become less negative While the Irish economy remained in an extremely weak position in the second quarter of this year, today’s release has provided us with further conviction in our view that Q1 of this year represented the low-point for the economy. This is in line with the signals from other indicators, including the PMI and Live Register data. In y/y terms, we expect an ongoing moderation in the pace of decline in economic growth in coming quarters. Indeed, based on signs of resilience in the latest numbers it looks like the economy may return to positive y/y growth in the second half of next year, with the growing possibility of a positive q/q reading along the way. Our latest set of forecasts included a modest upward revision to growth next year, to -2.8% on a GDP basis and -3.2% on GNP. The further signs of stabilisation in the Q2 national accounts data validate our revisions and suggest that we may well need to make further adjustments in this direction in the period ahead. Simon Barry Chief Economist Republic of Ireland, Ulster Bank Tel: 00 353 1 643 1553 Tel: 00 353 1 643 1565 Group Economics Ulster Bank Capital Markets| 3rd Floor | Ulster Bank Group Centre | George's Quay | Dublin 2 | Ireland This document is intended for clients of Ulster Bank Ireland Limited who are market professionals or business investors and is not intended for use by any other persons. Opinions constitute our judgement at time of issue and are subject to change. This document is not intended as an offer or solicitation to buy or sell securities in which Ulster Bank may trade and/or have a position. Pricing quoted is indicative only and subject to change in line with market movements © Copyright 2005 by Accountingnet.ie |
