GDP and GNP demonstrate signs of growth for first time since 2007

 

THE IRISH economy expanded in the third quarter of the year, with both gross domestic product (GDP) and gross national product (GNP) growing, according to the Central Statistics Office (CSO). This is the first time since 2007 that both measures of economic activity increased simultaneously

In the third quarter, GDP rose by 0.5 per cent compared to the previous quarter (all figures cited here are seasonally adjusted). This rate of growth was marginally ahead of the average for the euro zone, which stood at 0.4 per cent (see chart).

GDP was up 1.7 per cent from its recessionary low-point, registered in the final quarter of 2009.

The narrower GNP measure, which excludes repatriated multinational profits and the servicing of foreign debt, grew by 1.1 per cent, quarter on quarter.

Yesterday’s figures confirmed the continued divergence between foreign-focused economic activity and the domestic economy (see chart). The volume of goods and services exports reached an all-time high in the third quarter, growing by 3.6 on the previous quarter when adjusted for seasonal factors. This was the second consecutive record-breaking quarter.

By contrast, the domestic economy remains in recession and continues to shrink (see chart). Domestic demand comprises private and public spending on goods and services, and spending on investment and inventories.

In the third quarter, it shrank by 1.7 per cent on the previous three-month period. This was the largest decline since the end of last year.

Domestic demand has now contracted by 25 per cent since its peak at the end of 2007.

Accounting for most of this contraction has been spending on investment, which includes construction and purchases of plant and machinery.

In the July-August period, investment spending fell by a massive 18.1 per cent quarter on quarter. In part, this is explained by a large boost to investment in the second quarter as a result of purchases of aircraft which were not repeated in the third quarter, but much of the decline owes to the continued winding-down of construction activity.

Investment spending in the third quarter had contracted by 64 per cent on its peak in the first three months of 2007.

Consumer spending, which accounts for slightly more than half of total GDP, was down by 0.5 per cent quarter on quarter.

This was not unexpected. Figures published last week by the CSO on jobs and earnings in the third quarter showed that both contracted. Employment and incomes are key drivers of consumer spending.

In the third quarter, the total numbers at work in the economy declined by 1.3 per cent in just three months (the largest quarterly fall since 2009). Exacerbating the effect of economy-wide incomes was the simultaneous decline in average earnings registered in the third quarter, of between 1.2 and 1.6 per cent, depending on the measure chosen.

A decline of 1.7 per cent was recorded in Government consumption expenditure compared to the previous quarter. It was the second-largest quarterly contraction on record and reflects continued fiscal tightening.

The only component of domestic demand to grow in the third quarter was inventories. Restocking took place for the first time in eight quarters.

The figures released yesterday are disaggregated, not only by expenditure component, as reported above, but also by sector (see chart 3). On this basis, overall economic growth was mainly fuelled by industry, with the sector recording a 2.8 per cent increase in output. The now tiny agricultural sector was the only other sector to grow, expanding by over 5 per cent.

All other sectors continued to shrink, with the largest decline – of 8.2 per cent – registered in building and construction.