Ireland well positioned to benefit from global upswing

The OECD and IMF have been predicting for some time that global growth would strengthen in the second half of 2013 and through 2014, provided the world economy did not suffer any fresh adverse shocks, reports this mornings Irish Examiner.

The ongoing support from accommodative monetary policies, less severe stance of fiscal policy, and an improvement in financial markets and general confidence are all expected to contribute to a pick-up in economic activity.

Recent indicators are pointing to such a strengthening in economic growth. Notably, the JP Morgan Global Composite PMI, a leading indicator of economic activity, jumped to 54.1 in July, its highest level in 16 months. Other leading indicators have also been on the rise in recent months, suggesting that growth is indeed picking up.

Hard data are also improving, with stronger industrial production figures in many economies, a pick-up in international trade, improving retail spending figures, and better labour market numbers.

Indeed, GDP data for the second quarter revealed stronger growth in the US and UK. Meanwhile, second-quarter GDP data for the eurozone, due tomorrow, are expected to show the economy has emerged from a long recession, with output rising for the first time since the third quarter of 2011.

The OECD and IMF have warned that the road to recovery will be bumpy and uneven, especially in advanced economies. These still face considerable headwinds from continuing deleveraging, tight credit conditions, and ongoing measures to bring down budget deficits. Thus, downside risks to growth still dominate.

Nonetheless, it is encouraging that the pick-up in global growth seems broad and gaining momentum. Inflation is also expected to remain very low.

As a result, central banks have been able to reassure markets that interest rates can stay at their current, very low levels for a longer period, despite improving economic growth.

Signs of improving economic conditions have also become increasingly apparent in Ireland in recent months. Consumer confidence has risen to its best level since late 2007. The OECD leading indicator for Ireland has been rising steadily for some time, and is now at a five-year high. Meanwhile, the PMI for the large services sector jumped sharply in July, hitting a six-year high.

GDP growth in Ireland slowed sharply last year as a result of a marked fall-off in exports. This reflected both the weak international economic environment and a decline in output from the pharmaceutical sector due to the ‘patent cliff’.

However, the industrial sector is rebounding, with output up 1.3% in the first quarter and 3.3% in the second quarter. Notably, output from the pharmaceutical sector rose 6% in the latest quarter. The PMI for the manufacturing sector has also moved back into expansion territory.

We expect these positive trends to be reflected in an improved performance by exports as the year goes on.

An improving global economy, big gains in competitiveness made by Ireland, strong inflows of foreign direct investment, and signs the pharmaceutical sector has turned the corner all point to a rebound in Irish exports.

Meanwhile, labour market conditions continue to improve, with jobs being added in the private sector and the unemployment rate on a clear downtrend.

Construction activity is picking up, albeit from very depressed levels, while the housing market looks to be over the worst.

Ireland has undergone considerable adjustments in recent years that leave it well placed to benefit from an improving global environment. Unsurprisingly, the economy looks to be accelerating again, after slowing last year and in early 2013. Source: Irish Examiner Ltd