- Irish Q3 GDP data released today showed only a very modest growth rate of 0.1% q/q and 3.5% y/y. While the soft print is out of sync with the upbeat leading indicators, it is not really a surprise. Some negative payback was a risk after the strong Q1 and Q2 releases. Irish GDP increased 1.5% q/q and an astonishing 7.3% y/y in Q2. Irish GDP is still on track for 5% growth in 2014. The more domestically focused GNP increased 0.5% q/q and 2.5% y/y.
- Private consumption was unchanged compared to Q2 while government consumption decreased 0.9% q/q after having increased 1.1% in Q2. Investments only decreased 0.9% after having jumped 8% q/q in Q2. Net exports contributed negatively with 0.1% q/q due to imports surging 3.5%.
- Leading indicators out of Ireland have remained upbeat during Q4. Hard data is signalling strong growth with retail sales up by 5.6% y/y in October and industrial production trending upwards with the latest October print up by 38.2% y/y.
- Soft data also continues to signal very strong growth in Q3. Composite PMI printed at 59.9 for November – the level is equivalent to that of the early 00s. Recall that Irish GDP increased by more than 10% in 2000. The construction PMI is as high as 63.5.
- Both the labour market and housing market are also in showing positive development. The unemployment rate has dropped more than 4pp since the peak and at 10.7% in November (source: Live Register) it is now well below the euro area average. Employment has been increasing since the end of 2012.
- Irish house prices increased 2.9% m/m in October. Compared to a year ago, house prices are up by 16.3%. House prices have increased 25.6% since the bottom, but are still some 36% down from the 2006 peak. House prices in Dublin have increased 46% since the bottom, but are still 36% down from the 2006 peak. Ireland will most likely impose a LTV cap of 80-90% next year. This could lower the pace of house price increases somewhat. Nevertheless, construction is expected to support the strong Irish growth in the next couple of years.
- The next focal point for Ireland will be the EUR9bn repayment out of the EUR22bn IMF loan before year-end. This will lower Ireland’s interest burden as the average cost on the IMF loan was as high as 4.99%. This will also have a positive spillover on Irish debt.
- The Irish debt trajectory is on a firm downward path. Irish fundamentals are set to outshine even semi-core peers such as Belgium as early as next year. This will trigger further Irish rating upgrades next year.
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