Economy grew by slower than expected 0.4% in second quarter

Thursday 19 September 2013 17.57
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GDP growth of 0.4% recorded in three months from April to June
GDP growth of 0.4% recorded in three months from April to June
Personal spending rises in the second quarter of the year
Personal spending rises in the second quarter of the year

New figures from the Central Statistics Office show that the economy emerged from recession in the second quarter.

The CSO figures show that the economy - as measured by GDP - grew by a preliminary 0.4% in the three months from April to June compared to the previous three months.

The value of GDP in the second quarter was €40.5 billion compared with €40.3 billion in the first quarter, the CSO said.

Service exports and a rise in personal consumer spending at home were the main drivers of the growth in GDP in the second quarter.

But GNP - which excludes the earnings of multinationals - declined by 0.4% in the three month period due to an increase in the outflow of profits to foreign multinationals.

This was a reversal of the trends seen in the first quarter.

Today's figures were weaker than had been expected by analysts.

The CSO said that personal spending rose by 0.7% in the second quarter of the year from the first, while net exports increased by €1.5 billion on a seasonally adjusted basis.

On an annual basis, personal spending fell by 1.7% in the second quarter of 2013 compared to the same time last year, while net exports declined by €389m.

Commenting on today's CSO figures, Finance Minister Michael Noonan said that they show the Irish economy returned to growth in the second quarter of 2013.

Mr Noonan said the figures show that exports reached an all-time high both in terms of value and volume terms in the second quarter. Although the patent cliff is impacting production, services exports are growing strongly, he noted.

The Minister also said that it was important to state that the figures related to the second quarter of this year and did not reflect the ''strengthening high-frequency data'' that were evident later in the summer.

''Most importantly, monthly Live Register showed falls in unemployment in August. In addition, there were increases in national property prices and in core retail sales over the summer,'' Mr Noonan said.

Q2 growth figures weaker than Government had expected

But the Taoiseach today admitted that the latest figures for growth in the economy are slower than the Government had predicted.

Speaking in Carlow today, the Taoiseach declined to say if these figures would have an effect on how the budget is framed.

He said the GDP figures were encouraging but that the country had a long way to travel.

Separate CSO figures today showed that the country's current account surplus came in at €2.9 billion in the second quarter.

Davy chief economist Conall MacCoille said today's figures does not mean that much for the overall size of the budgetary adjustment.

"On balance it's good news, but growth this year might be a little weaker than previously thought. We will be downgrading our 2013 GDP forecast, but we still expect the economy to expand by around 2% in 2014,'' he added.

Alan McQuaid, from Merrion, said it was hard to know how these latest figures will influence Government thinking on the forthcoming Budget because they are ''yesterday’s news''.

''However, a likely pickup in growth in the second half of 2013 should lead to a positive carryover into next year. Still, we think the Exchequer Returns up to the end of September will be far more relevant and important as regards formulating the Budget for 2014,'' he added.

While the aggregate number was disappointing, many of the key components of today’s release showed a somewhat stronger performance in the second quarter than might have been expected, commented KCB Bank Ireland's chief econonist Austin Hughes.

He said the fact that consumer spending posted an increase of 0.7% was somewhat surprising given the small decline in retail sales, while the decrease in unvestment was probably due to weaker imports of aircraft.

He noted that ''encouragingly'' construction output recorded a strong 4.2% increase. Exports of goods and services also posted an extremely strong 4.3% quarterly increase - the fastest pace since the first quarter of 2007.

''These elements of the second quarter release argue that a somewhat stronger momentum can develop in the second half of the year,'' the economist stated.