Irish economy flatlines in third quarter

The Irish economy continued to flatline in the third quarter, with a marginal increase in quarterly gross domestic product and a slightly larger contraction in gross national product.

GDP is the most closely watched measure of economic activity internationally, but GNP is often considered by economists to better reflect Irish conditions as it excludes the very large profits of foreign companies’ subsidiaries.

The figures, which are adjusted to strip out seasonal fluctuations and published by the Central Statistics Office, are the single most important set of data on conditions in the economy.

Domestic demand rebounds

Yesterday’s broadly stable outturn for the third quarter, together with upward revisions to the figures for the first half of the year, suggest the Government’s forecast for full-year GDP growth in 2012 – of just under 1 per cent – is likely to be met or only narrowly missed.

Most positively, domestic demand – a measure that excludes exports and imports – rebounded from a sharp decline in the second quarter.

That domestic demand has risen in two of the past three quarters suggests that the contraction in the domestic economy, which has lasted half a decade, may be nearing an end.

Two of the three components of domestic demand – consumer spending and investment spending – recorded quarter-on-quarter growth in the July-September period.

Both have been broadly stable over the past year after declining – significantly in the case of consumer spending, massively in the case of investment spending – from early 2008 until last year.

Government spending falls

The third component of domestic demand – government spending – fell by 0.3 per cent on the quarter. Reflecting continued fiscal consolidation efforts, government consumption spending has shown no sign of bottoming out.

Less positive is the recent trend in goods and services exports, reflecting weak demand conditions in many of the most important foreign markets. While exports grew solidly in the two years from late 2009, they have been broadly flat since the beginning of this year. In the third quarter of 2012 the volume of exports expanded by just 0.3 per cent.

Those figures analyse economic activity on a spending basis.

Yesterday’s CSO data also include the same figures broken down by the sectors generating economic activity.

By far the strongest growth in the third quarter was recorded in the distribution, transport, software and communications sector, the third largest of six sectors for which the CSO produces data.

Record quarterly high

An expansion of 13 per cent in just three months brought the sector’s output to an all-time quarterly high, although most of that double-digit increase was rebound from two consecutive quarters of sharp decline.

The general services sector – the economy’s largest by far – grew by just over 1 per cent quarter on quarter and has been broadly stable since 2010.

Industry, which includes manufacturing and utilities, is the second largest sector. Bucking an upward trend since the end of 2009, the sector’s output contracted by 3.1 per cent in the three months to the third quarter.

Output in the agriculture, forestry and fishing sector shrank by a massive 12 per cent quarter on quarter in the July-September period.

Although weather factors accounted for much of the unusually large decline, the sector has contracted by almost one-third over the past half decade. It accounted for less than 2 per cent of GDP in the third quarter of this year, the lowest on record.