Composite PMI increased in August to 61.8 from 60.2 - the highest reading since August 2000. The new order component increased to 61.7 - also the highest reading since 2000. Recall that Irish GDP increased by more than 10% that year.
We forecast 2014 GDP growth of 4.0%. GDP figures for Q1 showed an increase of 2.7% q/q and 4.1% y/y. The jump was mainly driven by increasing net exports but domestic demand also made a positive contribution.
Irish house prices increased 2.0% m/m in July. House prices have increased 17.1% since the bottom, but are still some 41% down from the 2006 peak. House prices in Dublin have increased 33% since the bottom.
The amount of non-performing loans declined further in Q2, although the level remains high. The positive development in the housing market, increasing employment and low rate level are all supportive factors.
The accelerating Irish growth is having positive spill-over effects on public finances. The budget deficit is set to drop from 7.3% of GDP in 2013 to 4% of GDP this year.
We expect that the convergence towards soft-cores such as Belgium and France will continue. Ireland has already conducted almost 90% of this year's planned issuance with only EUR1bn remaining for Q4.
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