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Analysts puzzled over GDP shock figures

Thursday, March 13 12:32:09

Analysts and commentators this morning sought to make sense of the latest headline GDP figures showing a shock 2.3pc decline in the fourth quarter from the previous three months as imports surged and consumer spending fell.

At a headline level, GDP disappointed, decreasing by 0.3pc in 2013, while GNP rose by 3.4pc - a divergence which, according to Investec's Philip O'Sullivan, hints at the extent to which Irish national accounts data can be skewed by sector-specific issues in the large multinational sector.

"On this point, it is important to note that were it not for the drag from a fall in aircraft purchases (which we estimate shaved c. 1pc from GDP) and 'patent cliff' pressures in the pharma sector GDP would have increased last year. In Q4 2013 GDP fell 2.3pc q/q in volume terms while GNP expanded by 0.2pc q/q," he said.

The big surprise within this release is that the data show no improvement in personal consumption over 2013, with a 1.1pc decline recorded for the full year and declines of 0.6pc q/q and 1.1pc y/y recorded in Q4.

Retail sales data had pointed to an improvement (for 2013 as a whole retail sales volumes rose 0.7pc y/y and by 0.8pc y/y if the volatile motor trade component is excluded), particularly in the second half of the year, Mr O'Sullivan noted.

Ibec today said that the latest CSO data on economic growth are somewhat puzzling given the resurgence in employment, as well as business and consumer confidence.

Commenting on the latest CSO figures, Ibec's Head of Policy and Chief Economist, Fergal O'Brien said: "It is a bit of a puzzle that the GDP numbers are so disappointing at a time when economic recovery is clearly taking hold. The Q4 data doesn't fit with either the 60,000 jobs growth number last year, or the strong improvement in business and consumer confidence. The pharma patent cliff is a significant factor in the export data, but it was particularly disappointing to see that the consumer spending numbers were so weak. We know that retail had recovered in Q4 and we also know that other consumer sectors, such as hospitality, performed strongly last year, so it is surprising that overall consumer spending was so weak."

"The main positive in the latest data is the recovery in investment. Looking to 2014 we strongly believe that the recent economic resurgence will be reflected in the official data over the coming quarters and that GDP will grow by close to 3pc this year. Indeed, the weak base performance from the 2013 data could well provide an upside possibility to our 2014 forecast. The economy is clearly recovering but domestic spending needs a further shot in the arm - the best way to do that is to increase consumer spending power by cutting taxes."

Davy's analysts were equally puzzled.

"Irish national accounts data released today show a 0.3pc fall in GDP in 2013 but a 3.4pc rise in GNP. This puzzling divergence is explained by the pharmaceutical patent cliff, hurting multinational sector profits which are down 17pc. We believe the 3.4pc rise in GNP provides the best picture of the positive underlying trends in the Irish economy, evident in strong jobs growth and PMI surveys of business activity," said Conall Mac Coille of Davy Research.