Most recent Economic Perspectives for Ireland
Recently released Irish GDP data for the second quarter show a further dramatic increase in Irish economic activity. The 6.3% qoq increase that took GDP growth to 21.6 yoy is much larger than we envisaged and means that, even on relatively cautious assumptions about the remainder of the year, we need to revise up our forecast for Irish GDP growth for 2021 from 10% to 15%.
While the key growth driver remains Ireland’s export focused multinational sector, the most encouraging aspect of the Q2 release was the strength of the recovery in domestic focused activity as health-related restrictions were eased. Modified final domestic demand increased by 8.4% qoq, a slightly faster pace than GDP. However, unlike the export sector which has maintained persistently strong momentum through the pandemic period, it remains the case that domestic spending is still very much in catch-up mode.
Irish house price inflation accelerated sharply in July, reaching 8.6% from 6.9% in June. The annual rate of Irish house price inflation has now risen for eleven months in a row and the July reading is the highest in year-on-year increase in three years (August 2018 +8.9%). The current intensity of price increase, allied to comparatively weak readings a year ago, means Irish house price inflation looks set to climb further in coming months as the diagram below suggests. There is universal agreement that the major logjam in the Irish property market is inadequate supply but much of the impetus to accelerating house price inflation of late may be coming from a strengthening of demand as the domestic economy rebounds.