The Irish Economy

Overview: First Half, 2011

• The volume of Ireland’s GDP increased by 1.6% quarter-on-quarter (qoq) seasonally adjusted in Q2. It followed an upwardly revised 1.9% gain in Q1 (from +1.3% in the initial estimate). That marked the first consecutive rise in real GDP since 2006. The Irish economy has now pulled out of recession. On an annual basis, real GDP rose by 2.3% - the most since end 2007.
• Real GNP increased by 1.1% qoq and it too looks to have troughed: it has increased in five of the last six quarters. Compared with the same quarter a year ago, real GNP also increased by 1.1%.
• If the economy is flat in the second half of the year, real GDP will rise 2% for the full year 2011 compared with 2010.
• The nominal aggregates, which also take price changes across the economy into account, arguably matter more for debt servicing. Nominal GDP gained 0.9%, building on the 5% surge in Q1. The value of GNP increased 0.9% too, having slipped in the two previous quarters.
• Domestic demand increased sequentially in H1 2011, but there were temporary factors at play. The car scrappage scheme boosted consumer spending, while companies engaged in re-stocking. Fixed investment surprisingly expanded in Q2.
• Looking to foreign demand, H1 2011 was strong. Exports rose 1% qoq in Q2, having jumped 3.1% in Q1 in volume terms. Exports have increased for six of the last seven quarters. In the seven prior quarters, exports fell consecutively. But the outlook for exports has deteriorated again due to the intensification of the euro area crisis.
• Ireland ran a current account deficit on the Balance of Payments of 1.2% of GDP in Q2. However, there seems to be a seasonal pattern in the current account: last year a H1 current account deficit was followed by a H2 surplus, enough to deliver the first full year surplus since 1999. If Ireland is to record another full year current account surplus, much will depend on how well exports hold up in H2.