Falling profits at pharma firms blamed for drop in last year's GDP figures

Thursday 13 March 2014 21.45
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2013's GDP figures show contraction of 0.3%, but GNP grew by 3.4%
2013's GDP figures show contraction of 0.3%, but GNP grew by 3.4%
Declining profits by pharmaceutical firms based here blamed for drop in GDP
Declining profits by pharmaceutical firms based here blamed for drop in GDP

Declining profits by major pharmaceutical companies based in Ireland have been blamed for a drop in Ireland's economic growth - as measured by GDP - for last year. 

The latest Quarterly National Account figures from the Central Statistics Office show that Gross Domestic Product fell by 0.3% in 2013.

However, figures for the domestic economy, as measured by Gross National Product, show it grew by 3.4%, which is in line with recent growth in employment. 

Professor John FitzGerald of the ESRI said that today's figures show circumstances for ordinary Irish people are improving and were better than expected. 

The CSO stressed that today's figures were preliminary and will be revised. 

Parts of the economy that did expand last year included the construction industry, which grew by 10%, while the agriculture sector expanded by 7%. 

Today's figures also reveal that the economy contracted by a worse than expected 2.3% in the fourth quarter from the previous three months as imports surged and consumer spending fell.

Economists polled by Reuters had expected growth of 0.4% in the fourth quarter from the previous quarter and full-year growth of 0.3%. They see the economy growing by 2.1% next year, similar to the Government's forecast.

The CSO said that personal consumption fell by 0.6% in the final quarter of 2013 compared to the previous three months, while exports rose 2.1% and imports climbed 5.8%.

The country's usually robust export sector also struggled earlier in the year due to the mixed picture in Europe and the expiry of patents among the large cluster of drugs companies located here.

Today's GDP figures followed recent data that showed unemployment had fallen below the euro zone average to 11.9%, house prices were rising and consumer sentiment was near a seven-year high. 

The CSO also said today that growth in the third quarter of the year was revised up to 2.1%.

Analysts not reading too much into GDP figures

Merrion economist Alan McQuaid said that he would not "read too much" into today's GDP data.

"In our view they are understating the true health of the economy at this juncture given the huge improvement we've seen in employment in the past year, with GNP a better barometer," Mr McQuaid added.

He said he continues to believe that Ireland is better placed than most to benefit from the upturn in the world economy and assuming no major external shocks this year, there is every chance that the Government's official 2% growth target will be met. 

"Exports and domestic demand should both be stronger. Indeed, if anything the risks to growth appear tilted to the upside at this early stage of the year," the economist added.

Also commenting on the figures, KBC Bank economist Austin Hughes said that today's GDP data for the final quarter of 2013 are difficult to explain and almost impossible to square with most other indicators of current conditions in the Irish economy.

He said he believes that underlying conditions in the Irish economy are notably healthier than these data suggest, adding that he thinks an upward revision is likely in time as well as the possibility of some rebound in preliminary numbers for early 2014. 

Mr Hughes blamed the drop in GDP in the final three months on an "outsized" 5.8% rise in imports. He also said that the drop in consumer spending was unexpected. 

"We think 2013 is best regarded as a year of uneven improvement in the Irish economy. The unevenness of the recovery as well as the outsized impact various developments in the multinational sector have on Irish economc statistics makes it very difficult to assess the true condition of the Irish economy. It certainly means one number summaries, such as GDP, need to carry a significant health warning," the economist added.

Investec economist Philip O'Sullivan said that the "optics" around today's figures are not great. The stockbrokers had assumed that GDP would increase by 0.7% last year.

But Mr O'Sullivan said it was important to note the impact caused by sector-specific issues in the export-oriented part of the economy, which have limited bearing on the domestic backdrop.

"In any event, the momentum behind the domestic economy, allied to recovery across Ireland's key trading partners and a likely easing of the patent cliff pressures as the year goes on, points to a positive out-turn for 2014," he added.