Slow rate of growth continues in first quarter

The slow rate of economic growth continued in the first quarter of the year as exports weakened and construction activity remained flat. Consumption and investment activity remained strong, however, according to data released yesterday by the Central Statistics Office (CSO).

Gross Domestic Product (GDP) - a measure of the quantity of goods and services produced in the economy - grew annually by 2.4 per cent in the first quarter of the year, compared with a GDP growth of 4.5 per cent for 2004 as a whole (revised down from 4.9 per cent). The average GDP growth rate for 2004 masks the fact that annual growth has tapered off from strong rates at the start of the year, to a rate of just 2.3 per cent in the final quarter.

The Central Bank also published its latest forecasts for the economy yesterday, suggesting that GDP will grow by 5½ per cent this year, but these did not account for yesterday's CSO data. The Central Bank will produce updated forecasts in the autumn.

The government will revise its economic forecasts - which is for GDP growth of around 5 per cent - next month.

This revision will include the impact of yesterday's CSO release.

The CSO will at around the same time produce estimates of growth for the second quarter of this year.

The CSO has introduced changes to the methodology of calculation in their latest data, but has said that these changes will be unlikely to affect annual growth rates significantly.

Moderating GDP growth in the first quarter of this year reflects both the 1 per cent fall in exports and a 4 per cent growth in imports. Construction activity was also weak, growing by just 1 per cent. The tentative indications are that housing construction activity, while still strong, has slowed to 9 per cent in the first quarter, from 13 per cent in 2004. However, non-housing construction activity declined by 18 per cent in the first quarter due to a fall in public investment. Growth for other investment categories was 10 per cent overall, due to strong purchases of cars and business equipment.

Data on Gross National Product (GNP) suggests that the economy grew by 4 per cent last year and by 3.9 per cent in the first quarter of this year. This data excludes the impact of multinational activity and is more reflective of the domestic economy.

Davy Research drew attention to the lack of growth in productivity. "Annual growth in GNP was 3.9 per cent, but employment also expanded by 3.9 per cent. That implies zero growth in GNP per worker".

Davy's cite the dominance of employment growth in the labour-intensive housing construction as a possible factor behind this trend.

Goodbody Stockbrokers said that consumption growth remains impressive, but have noted the disappointing performance of the export sector.