Economy flat but still ahead of 2002 levels

The economy was relatively flat in the third quarter of last year, though activity continued to run ahead of 2002 levels, according to new figures from the Central Statistics Office (CSO).

Overall, the figures suggest that a sustained recovery in growth had not taken place by last autumn, although economists remain optimistic that an upturn in international growth will lead to a pick-up this year.

The latest quarterly national accounts, published yesterday, show that gross national product (GNP) in the third quarter was 0.4 per cent down on the previous three months, after seasonal adjustment. While the CSO warns that too much emphasis should not be put on quarterly trends, the performance contrasted with a 2.6 per cent rise in the second quarter.

Examination of the main components of the economy shows no sign of a major upturn in the third quarter, with the output of most sectors little changed. There is some suggestion of a recovery in investment levels, with gross domestic fixed capital formation - boosted by strong house-building - running 5.8 per cent ahead of the previous quarter.

While investment in the third quarter was 2 per cent down on the same period in 2002, the CSO says that it would be slightly up when the impact of some major aircraft purchases in 2002 was factored out. Housebuilding was running 20 per cent ahead of 2002 levels, it estimates, leading to an overall rise in building despite a fall-off in construction spending in other areas.

There was a quarterly 3.4 per cent pick-up in imports, seen by some analysts as a sign of a recovery in demand and a signal that industry may be gearing up to meet future demand by restocking on inputs.

While the quarterly figures are fairly flat, GNP in the first nine months of last year was running 2.8 per cent up on the same period last year. Growth in gross domestic product (GDP) over the same period was 1.1 per cent, reversing the usual pattern of recent years when GDP has strongly outstripped GNP.

One of the main differences between the two figures is that GNP excludes profit repatriations from the multinational sector. A fall in profitability in this sector is the main reason why GDP is now registering lower growth than GNP.

Taking the third quarter of last year on its own, the contrast is even greater, with GDP growth actually 0.4 per cent down on the same period in 2002, but GNP up by 3.6 per cent.

Once-off factors can affect both figures, the CSO points out. A better measure of the underlying performance of the economy over the year may be provided by the 1.8 per cent increase in personal consumption spending on goods and services between the third quarter of 2002 and the same period in 2003.

Commenting on the figures, Mr Austin Hughes, chief economist at IIB Bank, said his judgment was that "in terms of the underlying trend, Irish economic growth was fairly modest in the third quarter of last year".

However, he sees signs of improving momentum in imports and exports, resulting from the US pick-up, while a modest recovery is underway in consumer spending, IIB is now forecasting GNP growth of 2.8 per cent last year and 3 per cent this year and expects a bigger recovery in GDP - driven by a pick-up in the multinational sector - with growth by this measure up from 1.5 per cent last year to 4 per cent this year.