Analysis: Recovery broadening across economy after last year’s 4.8% growth

New data from the CSO broadens the picture of Ireland’s advancing recovery.

GDP growth came came in at 4.8 per cent for 2014, not unexpected after a string of upgrades. Although the Government expects the economy to expand by 3.9 per cent this year, analysts believe it could yet do better. “It now looks like growth will be 4 per cent-plus again this year,” said Merrion Stockbrokers economist Alan McQuaid.

That is a question of degrees, however. More important than differences in the recorded rate of growth is the diversity of forces and momentum behind it.

Strong net exports, which grew 10.5 per cent in 2014, saw Ireland through the very worst of the crash. But 2014 was the year in which the bedraggled domestic economy came back to life. Total domestic demand rose 3.5 per cent last year.

After six years in the doldrums, the CSO national accounts show that value-added “for all principal economic sectors” rose in 2014.

Activity broadened appreciably in key areas. Among them, crucially, was domestic industry, which was decimated in the crash. “In the traditional sector, measured in our multi-industrial production for 2014 over 2013, we see an increase of 6.8 per cent, which is quite a strong performance, said Michael Connolly of the CSO.

“These are the traditional Irish companies rather than the multinationals.”

Multinationals

For multinational industry, 2014 was a year of impressive growth. “The figure for the multinationals is enormous, it’s up 30.2 per cent,” said Connolly. Still, he said this figure on its own did not provide a meaningful measure of the real boost to the economy.

At the same time, external agencies have been arguing for months that Ireland’s growth figures are flattered by contract manufacturing carried out abroad for multinationals based in the State. In a tecnical note, however, the CSO said the phenomenon was “not particularly signficant” in explaining GDP growth for the year.

Investment rose 11.3 per cent and personal consumption of goods and services advanced by 1.1 per cent. Consumption of goods was up 5.1 per cent, reflected in retail sales, but consumption of services such as public transport eased by 2.2 per cent. “For goods, private cars are up significantly, but also things like fuel: petrol and diesel are well up,” said Connolly.

Still, Fergal O’Brien of business lobby Ibec said the consumption figures presented something of a puzzle in the light of “much stronger leading indicators such as retail sales, domestic services and housing transactions.”

Building investment rose 7.2 per cent, with capital expenditure on new dwellings rising 26 per cent as the property market regained momentum. Investment in machinery and equipment rose 31 per cent, a figure which was not distorted by investment in aircraft by the leasing sector.