Yesterday’s Irish Quarterly National Accounts (QNA) release for Q1 2016 contained dramatic revisions to past estimates of Ireland’s headline economic growth rates. Real GDP is now estimated to have growth by a staggering 26.3% in 2015, a dramatic re-statement relative to the previous estimate of 7.8%. Similarly, real GNP is now reported as having grown by 18.7% last year, up from 5.7% as previously estimated.
Large revisions are commonly a prominent feature of the Irish QNA figures, particularly the summer release which incorporates annual benchmark historic revisions arising from newly-available source data. In this case, freshly-available information since the last release includes detailed tax files from the Revenue Commissioners as well as other official activity estimates and survey results. In particular, the new information set incorporates some enormous transactions and reclassifications linked to multi-national corporation (MNC) relocation and restructuring decisions, which have resulted in revisions of unprecedented magnitude on this occasion.
Part of what is happening in today’s figures is that they reflect the growing complexity of national income accounting in a very small, highly-open economy such as Ireland in which sizeable elements of the business sector operate as parts of often-complex cross-border global operations. Given the marked distortions affecting the headline growth rates, the trends in the consumer spending figures are probably the most useful takeaway from today’s release.
In this respect, the key message is one of solid acceleration in a key area of the domestic economy in 2015, followed by a continuation of robust growth in the first quarter of 2016. And we think that this narrative is probably as good as any in thinking about how the domestic economy has been doing on an underlying basis as it moved through 2015 and into the early part of 2016. The Irish QNA are potentially going to remain both volatile and difficult to interpret in the quarters ahead. This means that other, less volatile and less prone-to-revision indicators such as employment, tax receipts and the PMI surveys are going to command an additional premium as we track the economy’s progress through 2016 and its ability to weather the Brexit shock.
Elsewhere yesterday in the US the May JOLTS data showed job openings fell to 5.5m from 5.845m (openings rate of 3.7% from 3.9%), and an unchanged quits rate of 2.0%. There was also plenty of chatter from US central bankers with the Fed’s Bullard (voter) saying that he expects the US economy to remain stuck in low-growth mode for two to three years, providing the central bank room to raise rates just once over that time. Also the Fed’s Kashkari (non-voter) said that the FOMC should not be in any hurry to raise US interest rates because inflation is so low and the economy is still short of full employment and finally the Fed’a Mester (voter) said that the sharp rebound in US job growth last month eased concerns that the country’s labour market had regressed, adding that she continues to expect gradual interest rate rises.
For the day ahead first up of note Euro zone May industrial production data at 10am. Whilst in the US we get MBA Mortgage Applications at midday and US Import prices at 1.30pm. Also of note The Bank of Canada holds its July monetary policy meeting this afternoon at 3pm. The Bank will release its interest rate decision alongside the usual short statement and the quarterly Monetary Policy Report. BoC Governor Poloz will hold a press conference following the release. Market consensus is for the Bank of Canada to hold the policy rate unchanged at 0.5%.
In the currency markets, for the day ahead Sterling is likely again to be in focus ahead of the Bank of England meeting at midday on Thursday. Yesterday saw sterling rally nearly 2% against the dollar trading from a low of 1.2973 early in the session up to a high yesterday of 1.3295. Similarly in EURGBP, sterling was stronger sending the currency pair lower 1.87% on the day from a high of 0.8524 early on to 0.8350 at the close. This morning we open at 1.3246 in GBPUSD and 0.8340 in EURGBP at the time of writing.