Thursday, August 15 15:48:10
Ireland's double-dip recession overshadows some much more encouraging indicators, according to an analysis from Davy, who left their forecast for 1.3pc GDP growth for this year unchanged.
Irish GDP fell by 0.9pc in the year to Q1 2013. However, Irish GDP data are heavily revised, economists at the brokerage said.
"This suggests caution in overly interpreting quarterly movements. Other indicators paint a healthier picture: PMI surveys point to expanding activity; employment has increased; and consumer and business confidence has improved. Finally, the housing market continues to stabilise," it said.
"This disparity between the GDP data and other indicators is not surprising. The slowdown in Irish exports has been driven by the multinational sector, hurt by the pharmaceutical patent cliff and slowing services trade. Exports suffered their largest quarterly decline on record in Q1 2013. This sharp fall points to volatility and idiosyncratic factors, which may unwind in 2013. Monthly goods exports data point to a 2.3pc rebound in Q2 following a 4.9pc fall in Q1. Nonetheless, the pharmaceutical patent cliff could hold back export growth for a protracted period. But there will be little negative traction onto domestic demand should multinational exports perform poorly. For example, the top five ICT companies account for over 50pc of services exports but only 0.5pc of aggregate employment. Pharmaceutical exports account for almost 30pc of GDP but close to 1pc of employment. Just as strong multinational activity failed to drag the domestic economy out of recession in 2011, recent poor performance has not led to a deterioration in consumer confidence, employment or the housing market."
Irish GDP has also been pushed down by temporary factors. The 19.7pc annual decline in investment spending reflects the volatile aircraft leasing sector. Investment spending on building and construction is now expanding for the first time since the recession began, up 8pc in the year to Q1 2013. Machinery and equipment spending (excluding transport equipment) is up 4.4pc.
Of concern is the record 3pc fall in consumer spending in Q1. Some contraction was expected in H1 as the impact of Budget 2013 was felt, but the fall in Q1 was the largest decline since records began in 1997. However, the new seasonal pattern of car sales means the weakness in consumer spending has been overstated. Retail sales also point to a stronger performance. Again, there is potential for revisions.
"Hence, we have chosen not to revise our forecasts for the Irish economy until the Q2 national accounts data are published in September. Our last forecast was for 1.3pc GDP growth in 2013 and 2.1pc in 2014. Our report also points out that to the extent the double-dip recession reflects the multinational sector, it is unlikely to derail the recovering domestic economy."