Ireland’s GDP economic measure in Q2 2015 grew by 1.9% over the previous quarter, with the expansion in Q1 revised up to 2.1%. “This means that GDP is up an enormous 6.7% in the year to Q2 2015,” said Davy economist Conal Mac Coille.

“This means that the Irish economy is likely to grow by more than 6% in 2015. Even if GDP is flat in the H2 calendar year, growth will equal 5.7%.”

Exceptional

On the quarter, consumer spending grew by 0.4% – up 2.8% on the year. The broker now expects consumer spending to grow above 3% in calendar year 2015. Volatile investment spending grew by 19.2% on the quarter, up 34% on the year. The rebound in the Irish economy also reflects improved export performance, up 6.3% in Q2 and 13.6% on the year.

Mac Coille stated “These GDP growth rates are exceptionally strong. However, they are not inconsistent with the rapid growth of goods exports, industrial production, retail sales, employment and tax revenues through 2015.

“The underlying picture is that the natural bounce back in the economy has been accentuated by the weak euro stimulating exports and low oil prices and tax cuts helping real incomes."

In Association with

Remarkable

Export growth was strong across goods (+4.5% q/q) and services (+4.6% q/q) during Q2. Economist Philip O'Sullivan at Investec said Irish exporters have benefited strongly from favourable FX moves and robust growth across many key trading partners, contributing towards a remarkable fifth successive quarter of double-digit annual growth in exports.

He added that some of this run is down to the impact of so-called contract manufacturing. On the import side, the growth in goods imports (+4.1% q/q) reported in Q2 was flattered by an easy comparative (Q1 was -4.8% q/q), while services imports rose 6.0% q/q.

Incredible

Austin Hughes, economist with KBC Bank, noted that investment rose by an “incredible” 19.2 % in the second quarter compared with the previous three months. However he cautioned that the outsized scale of this gain is largely a reflection of statistical influences rather than a particular boom in the past three months.

“While construction spend grew by a very healthy 2.4% and machinery and equipment purchases by a substantial  11.6%, the major boost to investment growth came from an intellectual property purchase that likely reflects specific tax planning considerations rather than the current state of the Irish economy,” said Hughes.

“Importantly, this transaction also boosted import growth. Alongside recent revisions to the treatment of aircraft leasing, this means considerable caution must be used when interpreting estimates of investment and imports.”

Exceptional (again)

In Hughes’s view, the Q2 GDP data suggest the Irish economy is now travelling with “exceptional forward momentum”, even if the CSO data reflects an array of statistical considerations that cloud their relevance for many Irish businesses and households.

He added: “The broad picture is of an economy that is building up speed as recovery strengthens and spreads. The dramatic improvement in prospect in the fiscal position is likely to intensify political pressure for a little more largesse in the upcoming budget.

“The evolution of the GDP data makes a nonsense of measures of potential growth and the ‘structural government balance’ now being used as a basis for assessing the scale of adjustment now required. In such circumstances, the prospect of a stimulus package slightly above the €1.2-€1.5 billion previously mentioned can’t be ruled out, particularly as the pace of growth in consumer spending is still comparatively modest.”