Economy continuing to expand strongly - ESRI

A new examination of data by the Economic & Social Research Institute suggests the economy continued to expand strongly in the third quarter of the year after rapid second quarter growth.

ESRI researcher David Byrne said an assessment of data using “nowcasting” methodology suggests gross national product (GNP) grew by 2.4 per cent in the third quarter compared with the second quarter.

This is markedly ahead of the second quarter GNP growth rate in official Central Statistics Office figures, which recorded 0.6 per cent quarter-on-quarter growth.

The same “nowcasting” approach suggests gross domestic product (GDP) grew by 2.3 per cent in the third quarter compared with the second.

This, too, would be well ahead of second quarter GDP growth in the most recent CSO figures, which said quarter-on-quarter growth was 1.5 per cent. However, the “nowcasting” examination of second quarter data pointed to a higher quarter-on-quarter GDP growth rate of 2.1 per cent.

Citing the 90-day timelag in the formal publication of growth figures in quarterly national accounts, Mr Byrne said the approach a can deliver an accurate and timely early indicator of growth for policy-makers and officials.

Mr Byrne, co-author of a research note with Kieran McQuinn and Ciara Morley, said such estimations can be made months in advance of CSO figures by examining a large panel of high-frequency macroeconomic indicators such as industrial production, retail sales and trade.

The research follows surprise among economic commentators at the strong rates of economic growth in second quarter when the CSO published its official figures in mid-September.

“Today’s note shows that using the nowcasting approach could have provided evidence that significant growth was emerging in the second quarter of 2014, months in advance of the release of the official figures from the CSO,” Mr Byrne said.

“The estimate for quarter three implies that growth has continued during this quarter.”

He went on to say Irish quarterly GDP figures tend to be very volatile and open to significant revisions with implications for forecasters and policy-makers.

“The value of the nowcasting approach is that it can provide evidence of significant changes in economic activity in advance of official estimates and therefore, can be an important tool in assessing the performance of the Irish economy,” he said.

“Given the importance of GNP in an Irish context, the nowcasting methodology has also been expanded to include this indicator with a nowcast of 2.4 per cent quarter-on-quarter growth in GNP for the third quarter of 2014.”

The paper said the most recent available GDP record in the first two months in any given quarter is for the second last quarter because formal data is released only at the end of the third month in each quarter.

“This significant release delay means that conjunctural assessment of the Irish economy would benefit from an early indicator of quarterly growth of sufficient accuracy and timeliness,” said the paper.