16 Dec 2019

Irish Economy: GDP +5.8% y/y in Q319

Quarterly National Accounts data for Q3 show that the economy expanded by 5.0% y/y in the third quarter, a marginal increase from the 4.9% y/y growth rate in Q2 (although this was revised down from 5.8% y/y). 

GDP was +1.8% q/q and +5.9% in the first three quarters of the year. These exceptional growth rates are flattered by the multi-national sector, but the domestic economy is also expanding at a healthy clip – Modified Final Domestic Demand was +3.5% y/y in Q3.

Personal consumption increased by 3.3% y/y in Q3, shrugging off poor consumer confidence indicators in the period. Although a modest decline from 3.7% y/y growth in Q2, this is a healthy rate of increase and the third successive quarter of 3%+ growth. Net expenditure by the government sector was +3.9% y/y in Q3, broadly in line with the rate of increase of recent quarters. Looking at the domestic components of Investment spending, expenditure on Dwellings & Improvements was +8.5% y/y reflecting the steady rate of housing output growth and Other Building & Construction was -0.2% y/y. Exports were +11.7% y/y, the fifth quarter in the last six with growth above 10%, although the multi-national sector, and the pharma and ICT industries in particular, account for a large proportion of the country’s exports.

Following such strong rates of growth in the first three quarters of the year, even a flat q/q performance in Q4 would see the full-year growth rate reach 6%. While the multi-national sector continues to flatter the headline growth numbers, growth is based-based and there are no indications in the National Accounts data that the weakness in the economic sentiment indicators over the second half of the year is impacting the real economy. We would therefore be surprised to see a “Brexit bounce” extend significantly beyond the same sentiment indicators on foot of the (short-term) reduction in Brexit uncertainties in the wake of the decisive UK election.

UK this week

After last week’s seismic political shift in the UK, attention now turns to Thursday when a Queen’s speech is expected to be held and largely reiterate the legislative agenda set out in October. It is then expected that the Prime Minister will seek to bring the Withdrawal Agreement Bill back before the House of Commons before Christmas in order to put the UK on track to leave the EU by 31 January. There is also talk that the Prime Minister is weighing up a Cabinet reshuffle, with reports ranging from a fairly limited one to a more sweeping clear out that would see half of his top team ousted. Note that the Prime Minister may wait until after Brexit to conduct a major reshuffle given speculation that the government is planning to merge various government departments to align priorities more closely to future trade deals and diplomatic goals. 

This week also sees the Bank of England’s MPC meet for the final time this year. Our expectation is that Bank rate will be held at 0.75%, albeit with the committee split 7-2 once again, as Jonathan Haskel and Michael Saunders maintain their call for a 25bp reduction. Note we will also see the release of Financial Stability Report and the annual stress test results after the market close on Monday, after having postponed them from 10 December due to the election campaign. The Financial Times reports that a decision on the next Bank of England Governor may be made over the coming days ahead of Mark Carney’s departure on 31 January. Frontrunners are said to include LSE Director Minouche Shafik, FCA chief executive Andrew Bailey and former Federal Reserve Board member Kevin Warsh.

US this week

Global markets have enjoyed a bounce after the signing of the Phase 1 US/China trade deal on Friday. That sense of palpable relief may be short lived as yet another headache comes in the shape of a looming US government shutdown. 

Apparently, there is a dozen appropriation bills needing to be passed by Congress before the Christmas recess. Recall that a similar fiscal standoff this time last year led to a record 35-day partial US government shutdown. Arguably, there is greater impetus to avoid a shutdown among both the Democrats and the Republicans, less it comes back to bite them in the 2020 presidential election. 

Any bipartisan cooperation is unlikely to extend to impeachment proceedings against the President. While the Democratic-controlled House of Representatives will likely vote to impeach Mr Trump next week, any resultant vote in the Senate would need 20 Republicans to cross party lines for the President to be ousted. 

In any case, US data next week includes industrial production, GDP and PCE inflation.

Europe & ROTW this week

European data and events are decidedly quieter this week. Following the initial deluge of ‘flash’ PMIs on Monday, the only notable data releases this week are set to be the German IfO survey and ‘final’ Eurozone HICP inflation on Wednesday as well as French consumer spending on Friday. There is, however, a landmark Riksbank decision due on Thursday given expectations it will hike the benchmark repo rate, taking it out of negative territory for the first time in five years.  

In Asia, China watchers are set to pore over industrial production, retail sales and fixed asset investment figures for November today before the release of the benchmark 1-year Loan Prime Rate on Friday. There is also a Bank of Japan decision on Thursday and Japanese CPI figures.

Economic Releases

EU 09.00 Composite PMI

UK 09.30 Composite PMI

US 14.45 Manufacturing PMI

UK 17.00 BoE financial stability report