Quarterly Bulletin Q3 2013

10
The Domestic Economy
Quarterly Bulletin 03 / July 13
Demand
Consumer spending
Annual National Accounts for 2012 point to a
marginal decline in personal consumption of
0.3 per cent last year, continuing a generally
persistent downward trend in consumer
spending over the last five years. The main
determining factor underlying the weakness of
consumer demand over this period has been
the erosion of disposable incomes primarily
due to declining employment and added to
by an increase in taxes and lower transfer
payments. In addition, the personal savings
rate, following a sharp increase at the onset of
the current crisis, has remained elevated in the
face of continuing economic uncertainty and
the need to reduce debt levels and to adjust to
a significant decline in personal sector wealth.
These headwinds, while becoming gradually
less acute, will continue to restrain consumer
demand over the next year and at this stage a
further decline in consumer spending seems
likely in 2013 with the prospect of only modest
positive growth in 2014.
The pattern of consumer demand during
2012 was one of significant weakness in the
early months of the year, followed by recovery
by mid-year, but with renewed weakness
in the final quarter. This weakness became
more pronounced in the first quarter of this
year, when consumer spending declined
by 3 per cent in seasonally adjusted terms.
While indicators such as retail sales, new car
registrations and indirect tax receipts pointed
to a decline in consumption in the first quarter,
the rate of decline was greater than expected.
While some recovery in consumer spending is
expected for the remainder of this year against
a background of a gradual improvement in
labour market conditions and a marginal pickup
in consumer sentiment, it seems likely
at this stage that the volume of consumer
spending will decline again in 2013, by 0.5
per cent. As regards 2014, a continuation of
the positive trend in labour market conditions
and a less significant fiscal adjustment point
to some improvement in the prospects for
personal disposable incomes which may
support a modest increase in consumption of
about 0.4 per cent.
Chart 1: Index of Volume of Retail Sales
% Change Year-on-Year – 3 Month Moving Average
12
10
8
6
4
2
0
-2
-4
-6
-8
-10
-12
-14
-16
-18
-20
-22
JMMJ SNJMMJ SNJMMJ SNJMMJ SNJMMJ SN JMMJ SNJM
2007 2008 2009 2010 2011 2012 2013
All Businesses
Source: CSO.
Investment
Core (excluding Motor Trades)
Turning to investment, National Income and
Expenditure accounts for 2012 indicate
that investment spending declined again
last year, albeit by a more marginal 1 per
cent. Weakness in new housing output and
home improvements was partially offset by a
surprisingly strong increase in non-housing
building and construction. An increase in
investment in machinery and equipment of
2.6 per cent - buoyed by a significant jump in
expenditure on transport equipment (mainly
airplanes) - was not enough to compensate
for a decline in building and construction of
approximately 4 per cent.
Quarterly National Accounts for the first quarter
of 2013, and other available indicators, hint
at a more positive outcome for investment
this year. Abstracting from aircraft investment
(which is volatile and subject to timing factors),
investment grew by 6.3 per cent year-on-year
in Q1 2013. New housing output looks to
have bottomed out last year at 8,488 new
units, and although running slightly behind last
year’s trend for the first five months of the year,
forward looking indicators suggest that new
housing output is likely to register about 9,000
units this year, picking up to 11,000 units next
year as demand for family units in some urban
areas translates into output.