CSO Data Will Give Clearer Picture of Irish Economic Recovery

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We have seen a number of upgrades to forecasts on the economy in recent times, with most now concluding that it will increase around 4% this year and next, writes Oliver Mangan Chief Economist at AIB.

However, a recent ESRI paper by Niall Conroy noted the high levels of volatility and often large revisions to data that make economic forecasting particularly challenging in Ireland.

These factors make it difficult for forecasters to present a coherent picture of the economy, the paper argues.

Last year saw the economy expand by a much stronger-than-expected 5%. At the time of the 2014 budget, the Department of Finance forecast the economy would increase 2%, broadly in line with other forecasts at the time. These proved well wide of the mark.

How are this year’s forecasts likely to fare? We are due to get GDP data for the first quarter later this month, together with revised figures for 2014. These will give a good steer for 2015 as a whole. One has to say there is little sign of the economy slowing from the 5% growth rate registered last year. Thus, at this stage, the risks look to the upside on the 4% growth forecasts for 2015.

Last week saw the publication of very strong data on retail sales for April. Excluding the motor trade, retail sales have risen by 5.7% year-on-year in the first four months of 2015, up from 3.7% in 2014.

Meanwhile, car sales are up nearly 30% in the same period, maintaining the strong growth rate seen last year. Employment growth has also accelerated this year, with the number at work climbing by 0.6% in the opening quarter, for an annual rise of 2.2%. Employment rose by 1.7% last year. The jobless rate has continued its sharp fall.

There has been particularly strong job growth in industry and construction. What has been very noticeable in recent industrial data has been the strength of output from the indigenous sector. Excluding the so-called modern, hi-tech sector, industrial output was up over 13% year-on-year in quarter one.

No surprising, then, that figures for goods exports were very strong in the opening quarter, rising by 18% in value terms, with a resulting sharp jump in the merchandise trade surplus.

On the construction side, employment was up by 19% in the first quarter on year earlier levels, suggesting that the sector is getting back on its feet. Housing completions continued to rise in quarter one and are on course to register a similar increase to last year, though while still remaining at subdued levels.

Survey-based data are also pointing to very strong growth in the economy this year. The OECD leading indicator of activity for Ireland has jumped to its highest level since 2008. Consumer confidence has risen to its best level in nine years.

The purchasing managers’ index for the services sector continues to run above 60, which is a very high level.

Meanwhile, the manufacturing index is close to its highest levels since 1999. The construction index rebounded in April after slipping back earlier in the year.

It is also noteworthy that even though the 2015 budget arithmetic is based on a GDP growth rate of 4%, tax receipts are running well ahead of schedule. Tax revenue was up 11.3% in the first four months of the year, which is 4.3% ahead of profile. This again suggests that the economy is performing better than expected.

Thus, we await the official CSO National Accounts data later this month with considerable interest. We take note of the ESRI warnings about the volatility of these data and the impact of revisions.

Nonetheless, given the trends, we would not be surprised if the figures trigger upward revisions to Irish growth forecasts for 2015.