Irish economy may be growing at 6.7%: O'Leary

Bizworld:

A top economist says the economy may be doing even better than official figures suggest.

Dermot O'Leary of Goodbody Stockbrokers was commenting on new figures from the CSO this morning showing Q1 growth of GNP at 3.9pc year on year and growth of 2.4pc in GDP.

"A less volatile gauge of economic activity in Ireland is domestic demand , which is the sum of consumption, investment and government spending, as it excludes the volatile trade and factor income flow estimates." says O'Leary.

"We estimate that this measure of activity grew by 6.7pc year on year in Q1."

He adds: "Within the growth components for the first quarter, real consumption growth reached an impressive 5.8pc year on year, its highest rate of growth since Q4 2001, supporting the conjecture that consumers have rid themselves of the spending restraint witnessed over the past three years.

"While retail sales in the first two months of Q2 have seen some slowdown, we are convinced that a healthy spending appetite will be maintained over the course of the year.

"Investment also made a strong contribution to growth in Q1, increasing by 10.0 pc year on year.

"While residential building is only expected to make a modest contribution to growth in 2005, +1.0 pc year on year in Q1 on tentative early estimates according to the CSO, other areas of investment are expected to take over the slack.

"The Q1 estimates bode well for this, with machinery and transport equipment purchases ahead by 23.0pc year on year.

"A disappointing performance from the export sector contributed to the subtraction from growth in the first quarter. Exports fell by 1.0pc year on year, while imports increased by 4.2pc year on year."

This morning's figures from the CSO are its National Accounts data for Q1 2005, coupled with revisions to the series stretching back to 1997, taking account of the introduction of a "chain-linked methodology" for Ireland.

"With regard to the revisions to previous years," says O'Leary, "the data suggest that Ireland's transition from its hyper growth period to more sustainable levels of expansion was even more impressive than originally suspected.

"As a result of changes in the estimates for net factor flows in the respective years, GDP is estimated to have grown by 4.4pc in 2003, relative to an original estimate of 3.7pc.

"Furthermore, GNP growth for the same year was significantly revised from 2.8pc to 5.1pc. As a result, estimates for last year's growth rates were revised downwards.

"Within the growth components for the first quarter, real consumption growth reached an impressive 5.8pc year on year, its highest rate of growth since Q4 2001, supporting the conjecture that consumers have rid themselves of the spending restraint witnessed over the past three years.

"While retail sales in the first two months of Q2 have seen some slowdown, we are convinced that a healthy spending appetite will be maintained over the course of the year.

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