The slowing economy may be heading for a slightly softer landing than anticipated, according to new economic data. Figures released yesterday show that the economy was continuing to grow in the second quarter, suggesting that the slowdown which started in the second half of the year may not be as dramatic as some commentators have warned. The Quarterly National Accounts show that Gross Domestic Product grew by 9.2 per cent in the second quarter compared to the same period last year. GDP is the value in monetary terms of the goods and services produced in the country. It is considered a more accurate indicator of quarterly growth than Gross National Product, which is GDP less outflows from the economy such as profits repatriated by foreign-owned multinationals.
GNP is a more reliable indicator of long-term growth in the Irish economy, but can sometimes give a confusing picture on a quarterly basis. This was the case in the second quarter, according to the Central Statistics Office (CSO), when GNP grew by only 1.6 per cent year on year. Economists attributed the surprisingly low figure to a technical difference in the timing of profit repatriation between this year and last year. GNP growth in the second quarter of 2000 was extraordinarily high because multinationals did not remit money to their parents. The opposite appears to have happened in the second quarter of this year resulting in the anomalous figure released yesterday by the CSO and heavily qualified by the statistics office.
Commentators chose to focus on the relatively healthy GDP figure as indicating the economy still had considerable momentum going into the second half of the year. Even allowing for the exceptionally low figure in the second quarter, GNP still grew by 6.1 per cent in the first six months of the year, according to Mr Eunan King, economist with NCB Stockbrokers. Mr King expects the figure for the nine months to the end of September to be 7 per cent and the full year out turn to be near that level. "We will be revising our full-year forecast up from 6.8 per cent," he said. Mr King is one of the more bullish industry commentators and believes many of his peers have over-reacted in their forecasting of the fall-off in income tax receipts.
Mr King argues that the fall-off in income tax is not surprising given the generous income tax reductions from the last Budget which kicked in only last April and May.
Other commentators continue to be more sanguine, including Mr Robbie Kelleher, head of research with Davy Stockbrokers. Davy has cut its forecast for GNP growth for this year from 5.4 per cent to 3.9 per cent to reflect a raft of other economic bad news such as rising redundancies and falling house prices. Income tax, argues Mr Kelleher, is only one of a number of factors to be taken into account. Davy's 2001 GNP forecast may turn out to be a bit on the low side, conceded Mr Kelleher, but the real issue is that growth has slowed dramatically in the final quarter and next year will be 1 per cent, he said.
Mr Danny McCoy of the Economic and Social Research Institute said he also remained comfortable with his forecast of 5 per cent GNP growth for the year as a whole and around 3 per cent next year. There will have to be a very dramatic deceleration to growth levels of around 2 per cent in the third and fourth quarters of this year to bring this about, he said.
