Quarterly Bulletin Q3 2013

The Domestic Economy
Quarterly Bulletin 03 / July 13
15
Table 3: Balance of Payments 2012, 2013 f , 2014 f
Current Account 2012 2013 f 2014 f
Merchandise Trade Balance (Adjusted) 36,367 35,354 35,433
Services 3,206 5,539 9,075
Net Factor Income from Rest of the World -31,120 -32,237 -34,465
Current International Transfers -1,205 -1,250 -1,300
Balance on Current Account 7,250 7,406 8,743
(% of GDP) 4.4 4.4 5.1
grew at an average rate of 13.7 per cent in 2012,
while the value of business services exports was
11 per cent higher. Turning to the outturn for Q1,
the data suggest that services export growth
moderated during the first quarter. On an annual
basis, exports grew by 4.6 per cent in Q4 2012;
the equivalent figure for Q1 2013 was 1.3 per
cent. This is likely to reflect the weak external
demand conditions, which also negatively
impacted the performance of goods exports.
Tourism recorded a strong first quarter with
annual growth of almost 12 per cent.
The latest (June) Investec Services PMI,
which is constructed on a similar basis to the
Manufacturing PMI, provides an encouraging
update on operating conditions in the services
sector. The headline PMI indicates an eleventh
successive month of growth in June, with the
pace of expansion accelerating from May’s
reading. The latest improvement is broad-based,
with unadjusted data for all of the four subsectors
indicating growth in business activity.
The pace of growth in New Business and New
Export Business quickened during June. Despite
the recent strength of the services PMI readings,
the overall index remains well below the level
recorded in 2007.
Given the recent signs of weakness, the
projections for services exports have been
revised downwards. Nevertheless, the services
sector is expected to perform solidly in 2013 and
to lead the expansion in overall exports given the
projected decline in goods trade this year. An
improvement in the European economy should
provide an impetus to services exports in 2014
leading to a more robust expansion.
The volume of services imports expanded by 1.7
per cent in 2012 having also increased in 2011.
The growth in overall imports was due primarily
to higher imports in the sectors of royalties and
licences and business services. A return to faster
services export growth over the forecast horizon
is expected to lead to acceleration in the pace of
services import growth in 2014.
Recent Bulletins have noted the emergence
for the first time of a surplus in services trade.
The Annual National Accounts for 2012 show
a services surplus of €3.2 billion compared to
a deficit of €1.6 billion in 2011 and €7.6 billion
in 2008. Strong growth in services exports
has underpinned the expansion in the services
surplus. On the merchandise side, the trade
balance narrowed marginally in 2012 as the
reduction in goods exports was largely offset by
a similar decline in imports. The narrowing in the
merchandise balance was more than offset by
the positive services balance leading to a sharp
widening of the overall trade balance in goods
and services during 2012. The data for Q1
indicate a fifth consecutive quarterly surplus in
services trade.
The current account of the balance of payments
recorded a deficit of 6 per cent of GDP in 2008.
The deficit narrowed rapidly in 2009 and the
current account moved into surplus from 2010.
The turnaround in the current account from a
large deficit position in 2008 to a substantial
surplus in 2012 is due to a combination of
developments. As noted above, there has been
an expansion in the overall trade balance driven
by the growth in services exports. Offsetting
this to some extent are profit repatriations by
foreign multinationals located in Ireland and
higher national debt interest payments abroad.
However, as explained by FitzGerald (2013), net
profit flows into Ireland by redomiciled PLCs have
grown in recent years. The effect of these profit