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Economists encouraged by Irish GDP data

Thursday, March 21 17:10:17

Today's batch of data from the CSO - in particular the GDP figures - show that Ireland's economy is remarkably resilient and is at least heading in the right direction, according to economists and analysts.

GDP data released this morning shows the Irish economy grew by 0.9pc on an annual basis in 2012, the second consecutive year of growth after three years of recession.

On the more volatile quarterly basis, seasonally adjusted GDP was flat but Austin Hughes of KBC Bank Ireland points out that this flat fourth quarter is slightly better than expected and contrasts with 0.6pc drop in Euro area GDP.

On a relative basis Irish GDP growth in Q4 compares favourably with the -0.6pc qoq preliminary estimate for the euro-area as a whole.

Juliet Tennent Economist Capital Markets analyst at Goodbody's pointed out that despite facing the headwinds of weak global growth in the final quarter of 2012 Irish export growth continued to grow at an annual rate of 2pc, a similar pace to the previous two quarters.

"This is due to the strong performance of services exports which increased by 7.5pc yoy (year on year) offsetting a 3.8pc yoy contraction in Goods exports. While the current account surplus fell marginally in the quarter (from E3bn to E2.9bn) on a four quarterly basis it rose to 4.9pc of GDP from 4.3pc highlighting the turnaround in the Irish economy," she said.

Simon Barry, chief economist at Ulster Bank points out that a key upside surprise in the quarterly numbers came from export performance.

"Previously-released GDP reports from some of Ireland's key trading partners had shown very weak import trends in the final quarter of last year. Imports fell by around 1pc q/q in each of the euro zone, UK and US, implying it would be very difficult for Irish exports to avoid a corresponding decline. But in the event, export volumes managed a 0.5pc quarterly rise. In keeping with recent trends, goods exports volumes continue to decline (by close to 4pc y/y) but the weakness here - partly due to declines linked to the expiry of patents within the pharma sector - continues to be more than offset by the strength in services exports, where annual volume growth of around 7.5pc was maintained from Q3 to Q4."

Austin Hughes points out that Irish GDP growth was notably stronger than the Euro area average in 2012 and continuing outperformance is likely this year.

There are several other positive aspects to these numbers, he said.

"First of all, an upward revision to the money value of GDP of about E0.5bn, together with stronger than expected end year Budget data, means Ireland's General Government deficit for 2012 is now estimated at 7.6pc of GDP compared to an original target of 8.6pc of GDP. Indeed, last year's outturn means the 2013 target has been reached a year ahead of schedule-although it will be very hard to repeat this sort of outperformance. Separate balance of payments data released today show a current account surplus of some 5pc of GDP in 2012, up from 1.1pc of GDP in 2011. This is an exceptional number and suggests a capacity to generate external earnings that will make the resolution of domestic imbalances within the Irish economy notably less difficult than would otherwise be the case. In these respects, today's data emphasise the gap between Ireland and the performance of the other 'troubled' Eurozone economies. As a result, they should help underpin the improvement in financial market sentiment towards the Irish economy."