Slight home pick-up helps growth

New figures show that the Irish economy - measured by gross domestic product - grew by 1.6% in the second quarter.

Signs that domestic spending is stabilising

Official figures show that the Irish economy - measured by gross domestic product - grew by 1.6% in the second quarter of this year.

Using gross national product, which strips out the contribution of foreign multi-nationals, the economy grew by 1.1%. GNP had dropped 3% in the first quarter.

The Central Statistics Office figures indicate a stabilisation of domestic demand as well as continuing export growth in the period from April to June.

On a seasonally adjusted basis, consumer spending increased by 0.3% compared with the first three months of this year, while investment rose by 6.4%. Exports were up 1%, while imports fell 0.6%. Government spending dropped by 0.8%.

The CSO figures show that GDP grew at an annual rate of 2.3% in the second quarter, the strongest growth since the last quarter of 2007, while GNP rose by 1.1%.

The main contributor to annual growth was a strong export performance, with net exports - exports minus imports - jumping by almost 24% over the year. Domestic demand fell by 2.2% over the same period, with personal spending falling 2.4%.

Bloxham economist Alan McQuaid called the figures "very positive", saying they should encourage both the Government and international investors that Ireland is slowly but surely on the road to recovery.

Though he warned that exports growth would not be as strong in the second half, the economist said GDP growth should be back in positive territory for the whole of 2011.

Goodbody economist Dermot O'Leary said the figures were better than expected, but he warned against reading too much into the figures, pointing out that overall domestic demand continued to shrink over the previous 12 months. He also said stagnation in imports also had a big role to play in the large net export contribution.

Davy's Conall Mac Coille said substantial rises in consumer spending and investment were always likely as the "extraordinarily sharp" declines experienced in recent quarters were likely to be partially reversed. He added the data could be revised, as there was a risk that exports may fall back in the second half of 2011.

Ulster Bank economist John Fahey said the figures offered some encouragement, but added that there were two important caveats to be considered when analysing the performance for domestic demand.

He said spending on services declined in the second quarter. while the increase in goods spending came from the motor sector, helped by the scrappage scheme. Mr Fahey also said that domestic demand fell by 0.2% when stock building activity was excluded.

Balance of payments deficit little changed

Separate CSO figures show that the balance of payments current account deficit in the second quarter of this year was €488m, almost unchanged compared with the second quarter of 2010.

The balance of payments measures flows of income into and out of the economy. The merchandise surplus of more than €9.2 billion in the first quarter was boosted by strong exports. Services exports grew strongly compared with a year earlier, mainly due to increased exports of computer services.

For the first six months of this year, there was a balance of payments deficit of €1.5 billion, compared with a deficit of almost €2 billion in the same period last year.

Go futher in Budget, Sutherland urges Government

Former EU Commissioner Peter Sutherland has called on the Government to raise more money than planned in the upcoming Budget.

He said Ireland's deficit was the highest in the EU. "We must deliver a budget deficit reduction of €3.6 billion at the very least and preferably more," he told the Institute of International and European Affairs.

Mr Sutherland also described the linkage by France of the interest rate on Ireland's bail-out to the country's corporation tax as "unhelpful".

He said Ireland must repay senior bonds in Anglo Irish Bank and Irish Nationwide. "I do not think we have the authority not to," he said.

He added that it was now clear that the Maastricht Treaty failed to protect the single European currency because it did not go far 
enough. It did not keep public deficits under surveillance, he said

source
rte.ie