Recent Quarterly National Accounts data show that the Irish economy recorded a second successive quarter of growth in the third quarter of 2013, with real GDP increasing by 1.5 per cent when compared with the second quarter. Particularly encouraging have been the recent tentative signs of recovery in domestic activity, with total domestic demand increasing by 2.4 per cent over the quarter to Q3 – the strongest such growth in over three years. This was driven by double digit investment growth in the quarter – a clear sign that confidence is returning to businesses domestically. Indeed core investment (excluding the volatile aircraft component) has now increased robustly in each of the last three quarters.
Further improvements in confidence are important to support a continued recovery in domestic demand. In this context, the ending of the programme of external financial assistance will help to further enhance confidence as it clearly demonstrates that we have moved to the next stage of our recovery.
On the external side, although goods exports continue to be impacted by sector specific issues related to the pharma-chem sector, services exports were up by 3.3 per cent in year-on-year terms in the third quarter. The strong performance of services exports has been supported by the significant competitiveness gains achieved in Ireland over the last number of years. Irish unit labour costs are forecast to improve by 23 per cent relative to the euro area average between 2008 and 2015 according to the latest Commission forecasts. Price levels have also corrected considerably in Ireland in recent years, with annual inflation rates in Ireland below the euro area average for every year since 2009.
Encouragingly, the positive output trends are having a favourable impact on the labour market, with year-on-year employment growth of 3.2 per cent – the highest rate in the entire EU in the quarter – recorded in the third quarter, representing an additional 58,000 jobs over the year. In line with these developments we’ve seen the unemployment rate fall nearly 3 percentage points in less than two years, down to 12.4 per cent in December.
Looking towards the future, my Department is forecasting growth of 2.0 per cent for this year – a figure endorsed by the Irish Fiscal Advisory Council – and for growth to average around 3.0 per cent over the medium-term. Central to these projections is the assumption of a sustained recovery in our key trading partners. In this regard I am encouraged by developments in key trading partners of late.
