Irish economy back to pre-recession levels
Irish GDP surpassed pre-recession levels in real terms in 2014, with GDP reaching €189bn, compared to €186bn in 2007, growth for the year was revised upwards to 5.2%. This excellent performance has continued into 2015, with year on year growth in Q1 at 6.5%. The growth was broad based with investment, government expenditure, personal consumption and net exports all contributing.
A range of indicators suggest that this excellent performance has continued into Q3. The Markit/Investec PMI’s are signaling ongoing expansion in the manufacturing and services sectors, with both domestic and export demand increasing and companies continuing to add headcount. Retail sales are continuing to tick up and car sales reached their highest level since 2008 in July. Tax revenues are continuing to climb month on month on the back of increased activity and the unemployment rate continues to fall. These excellent numbers are likely to result in a range of institutions increasing their Irish growth forecasts from around 4% to 5% plus for 2015.
Growing economy supports public finances
The upward revision in Irish GDP numbers will give additional support to our debt to GDP ratio. The debt ratio was expected to come in at 105% by the end of 2014, this expectation has been exceeded in Q1 (debt to GDP at 104.7% of GDP). Tax revenues are growing strongly on the basis of the improving economy with revenue up 9.7% in the first 7 months of 2015. Expenditure control remains tight with total expenditure down 0.7% over the same period. The improving dynamics are being reflected in interest rates, with the National Treasury Management Agency’s annual report showing that the yield on ten year government bonds came down from 3.45% at the end of 2013 to 1.24% at the end of 2014.
Unemployment down again in July
As outlined last month, employment increased by 2.2% in the year to Q1 2015, numbers employed increased in most sectors, with the largest growth recorded in construction, industry and financial, insurance & real estate activities. The labour market has continued to improve since then with unemployment at 9.7% in July.
Department of Finance Monthly Bulletins: http://bit.ly/1gTymzQ
Department of Finance Spring Statement: http://budget.gov.ie/Budgets/2015/SES.aspx
NTMA Annual Report: http://www.ntma.ie/news/ntma-2014-annual-report-and-2015-midyear-update/
Breda O'Sullivan, Economist, IDA Ireland
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