Economic recovery may be weaker than forecast - Central Bank warning
THE recovery over the last year may be weaker than forecast because of accounting anomalies from certain companies, the Central Bank has said.
The Central Bank has joined both the Fiscal Advisory Council and IMF in pointing out that GDP last year – at an estimated 5.1pc – was inflated by so-called contract manufacturing.
This is where an Irish-resident firm contracts a manufacturer abroad to produce a good for supply to a client overseas. The sale of the good is recorded as a goods export, while the contracted production is considered a service import.
In its first quarterly bulletin for 2015, published this morning, the Central Bank said the main driver of growth over the last year has been the exceptionally strong export performance.
This, it says, is down to what it calls special factors. The Central Bank said exports from Ireland grew much faster than demand from overseas customers last year, with the difference attributed to contract manufacturing.
“Viewing the surge in export growth as a temporary factor suggests the underlying strength of the recovery over the past year is less than signalled by the currently projected increase in GDP growth for 2014 of just over 5pc,” the Central Bank bulletin said.
The Bank said exports this year is expected to move back into line with demand.
Late last year the Fiscal Advisory Council warned the strong GDP figures last year should be “taken with a pinch of salt” because of the export anomalies.
The Council said contract manufacturing would have boosted GDP in the first half of the year by about 2.5 percentage points.
The Fiscal Advisory Council said it wasn't known which companies are doing this because data provided to the Central Statistics Office is confidential. It also speculated that it was "one or a few" and that it was most likely in the high-tech sector.
Despite this, the Central Bank said in its bulletin that the recovery had broadened and gained momentum over the past year.
“Recovery has been led by strong growth in exports and investment and is also being supported by the resumption of growth in consumer spending,” the bulletin said.
“The latter has been helped by the continuing growth in employment, which even though slowing somewhat, has allowed the unemployment rate to continue to decline steadily.”
The Central Bank is forecasting that the economy will grow by 3.7pc this year, down from the estimated 5.1pc last year. Unemployment is expected to drop to 10.4pc this year.