15 Mar 2019 | 12.45 pm
Ulster Bank Cautious On Economic Prospects
Prepare for 'moderating trajectory'
15 Mar 2019 | 12.45 pm
Quarterly National Accounts data from the Central Statistics Office indicates headline GDP and GNP growth rates for Ireland of 6.7% and 5.9% respectively in 2018.
A simple average of the two delivers a growth figure of 6.3% for last year. However, a range of multinational related distortions means that these figures are painting a somewhat flattering picture of growth performance.
Simon Barry, chief economist with Ulster Bank, prefers his own Ulster Bank Underlying Growth Indicator (UGI). This takes an average of three alternative measures of demand and output derived from the QNAs. “In our view this does a better job of capturing the underlying pace of activity growth in the domestic economy,” says Barry. Using the UGI metric, Ireland’s economy expanded by 4.75% through 2018.
Barry adds: “The output side of the QNAs highlights the two-speed nature of growth in the economy, with sectors which are MNE-dominated recording notably faster growth in aggregate (of 7%) compared with other sectors of the economy which on our estimates grew by 4.2% in aggregate last year.
“The MNE-dominated Information and Communication Technology sector was by a distance the strongest performing individual sector of the economy last year, with recorded growth of over 30%, almost double the pace registered in 2017.”
Construction was again the strongest-performing domestic-facing sector, with growth of over 15%. “Industrial output recorded a disappointing 0.2% annual decline in value-added,” says Barry. “Interestingly the weakness here looks like (based on separately released industrial production figures) it’s actually being driven by the so-called ‘Modern’ (i.e. MNE-dominated) sectors and not the more domestic-facing sub-sectors of manufacturing, where production grew by a very healthy if unspectacular pace of c. 3.0%.”
Exports grew by 8.9% in 2018, reflecting the combination of a favourable global growth backdrop and particular strength and buoyancy in the exports of computer services, the value of which rose by 23%.
Core business spending on machinery and equipment ex-aircraft recorded an 11.5% uplift last year after a double-digit decline in 2017.
According to Barry: “Consumer spending grew at 3%, in line with the average pace of increase seen in the past five years of recovery in household spending. Given the strength of income growth – our estimate of aggregate household income from employment was up over 6% last year – it’s a little surprising that consumer spending isn’t growing at a somewhat faster clip.”
In Barry’s view, 2018 marked another year of impressive improvement for the Irish economy. However, the economic environment facing the economy is now less favourable.
“Average growth in our key trading partners has slowed markedly in recent quarters. Current estimates point to trade-weighted growth this year of 1.7% in our KTPs. That’s down from over 2.3% in 2017 and 2.1% in 2018 and would represent the weakest international growth backdrop facing the Irish economy since 2013.
“Part of the story here is that economic uncertainty globally is extremely elevated. Brexit is of course a particularly acute source of uncertainty domestically. Such uncertainty is extremely unwelcome from the point of view of the economy’s growth prospects in the near term.”
Ulster Bank has detected indications that this uncertainty is weighing on domestic confidence. Barry cautions that this represents a downside risk to the Irish economy’s performance in 2019, the risk being that weaker confidence results in a pull-back in spending.
Barry also notes that a range of indicators indicate that the economy is already on a moderating trajectory.