Showing posts with label Irish recession. Show all posts
Showing posts with label Irish recession. Show all posts

Friday, September 20, 2013

20/9/2013: Domestic Economy: Continuing Its Sextuplet Dip in Q2 2013

Total Domestic Demand is defined as :

  • Consumer Spending on goods and services + 
  • Government Spending on Current (as opposed to capital) goods and services + 
  • Gross Fixed Capital Formation (basically gross investment) + 
  • Change in Stocks of goods and services in the economy. 

In a more old-fashioned way, it is Investment + Consumption + Net Government Spending.

Put differently, this is the domestic economy (excluding exports net of imports, and outflows of income to the rest of the world net of inflows of income from the rest of the world).

Now, here are the quarterly changes in the domestic economy from 2007 on, for real (constant prices) seasonally adjusted series:


I define 'dips' in the above series similar to the official definition of a recession: two consecutive q/q downward movements. Remember, we have been told since Q2 2010 that the Irish economy has 'stabilised' and even 'returned to growth'. Since then we had: eight quarters of contraction and four quarters of growth in Total Domestic Demand.

The two core drivers downward in the domestic economy on q/q basis are:

On the good news side, q/q increase in Personal Consumption component (above) and external trade (below):

And external trade showing strong performance on q/q basis, which, alas, only partially offsetting the decline recorded in Q1 2013...


And this concludes my analysis of the QNA for Q2 2013.

20/9/2013: H1 2013 QNA: Domestic Economy vs External Trade

In the previous two posts I looked at Q2 national accounts for Ireland in terms of headline GDP and GNP figures, y/y and q/q changes in the first post; and half-yearly figures analysis in the second post. The headline conclusion was that:
  • Q2 2013 real (constant prices) GDP performance is weak, but posits some growth, pushing us out of official third dip recession. 
  • Irish real GNP fell 0.1% in Q2 2013 compared to Q2 2012, having only marginally reversed the 6.01% y/y rise recorded in Q1 2013. 
  • Broadly-speaking, H1 figures show continued economic performance within the new structural range of slower economic activity that set on with the 'recovery' of H2 2010 (the Celtic Canary period).
  • Crucially, moving to less volatile half-yearly figures, Y/Y Irish real GDP fell 1.10% in H1 2013, marking a second consecutive 6-months period of declines (it was down y/y 0.75% in H2 2012 as well). 
  • Y/Y Irish real GNP rose 2.87% in H1 2013, marking third consecutive 6-months period of increases in GNP.
  • At current rates of growth (that is taking 3-year average, since current annual rate is negative), it will take us until 2029 before we can reach real levels of GDP consistent with the pre-crisis levels. 


Now, let's take a look at the underlying components of GDP and GNP from the expenditure side of the national accounts. Since we have half-yearly data, we might as well focus on longer-term, more stable series. For this purpose, let us also look at nominal (not real) values, so we have some idea as to actual activity on the ground, reflective of price changes, as well as volumes changes. There are several reasons for doing this:
  1. Nominal values, expressed in current prices are actually linked to what we get paid, what we pay for and what the economy produces;
  2. Nominal values are also reflective of what the Government spends, collects and what the potential for debt servicing is when it comes to economy's output; and
  3. Nominal values are free from the impact of the inflation adjustments, which are made based on 'average' households and firms, rather than on what we do observe in the economy itself.

There are drawbacks to this analysis, so like everything else in economics, this is not intended to be 'completely and comprehensively' conclusive.


As can be seen from Chart above, Personal Expenditure on Goods and Services rose 0.4% y/y in H1 2013 - which is good news. However, the same was down on H1 2011 (recall that the Government is keen on claiming that consumer confidence and consumption spending rose during its tenure, which is obviously contradicted by the data we have). Compared to peak pre-crisis performance (peak referencing output peak, not specific series peak), we are down 10.61% on H1 2007.

Understandably, Government spending (net of tax receipts) is down when it comes to current goods and services (as opposed to capital goods and services): -2.11% on H1 2012, -4.27% on H1 2011 and -12.46% on H1 2007. You might think this is 'huge', but y/y over the first 6 months of 2013 our net current Government spending is down only EUR 278 million and when it comes to vast/deep cuts since 2007, H1 2007 spending was cut EUR1,754 million by the end of H1 2013.

Meanwhile, Gross Fixed Capital Formation (basically investment in the economy) is down 9.40% in H1 2013 compared to H1 2012, down 14.09% compared to H1 2011 and down 67.73% compared to H1 2007. The reductions in capital investment jun H1 2013 compared to H1 2007 are ten-fold the size of reductions in current Government spending at EUR17,542 million. For another comparison, reductions in personal expenditure on goods and services by households over the same period is EUR4,757 million.

Put in different terms, domestic economy is still falling, with no stabilisation in sight.

Next: external trade and GDP & GNP series:


Exports of goods and services - the only part of the economy that was booming (+15.94% in H1 2013 on H1 2007 and +5.44% on H1 2011) are hitting some bumps. H1 2013 posted a decline in total exports of 0.67% y/y. Meanwhile, imports of goods and services were up 0.08% y/y. As the result of this, our trade balance fell 2.32% y/y in Q2 2013 and is down 3.15% y/y for H1 2013. This is not good, as key Exchequer projections and debt sustainability analysis require healthy growth in trade surplus, not a decline. But more on this below…

GDP at current prices fell 1.49% in H1 2013 compared to H1 2012 and is down 0.28% on H1 2011 and down 15.26% on H1 2007. Recall that our real GDP fell 1.10% y/y in H1 2013. In other words, there is no growth in actual underlying activity. This is pretty bad. Actual euro notes we have in the economy's 'pockets' at the end of H1 2013 (as imperfectly measured by GDP) were fewer than at the end of H1 2012 and H1 2011. And these fewer euros were not worth more, either. I wouldn't call this 'stabilisation'.

Net factor income outflows abroad are falling as well and I commented on these in the previous posts.

GNP expressed in current market prices is 2.32% ahead in H1 2013 compared to H1 2012 and 2.92% ahead of H1 2011. This is good news, especially since GNP is a more accurate reflection of our real economy's output (also rather imperfect) than GDP. Not so good news: GNP is still down 17.53% on H1 2007. 

Chart below drills into the composition of our external trade:



The above clearly shows the massive swing of our external trade activities from goods sectors to services sectors. And on imports of goods side it shows the legacy of the consumption bust, which remains one of the two largest drivers for improved external trade statistics we see on national accounts.

Finally, total domestic demand: the measure of the economy that covers all domestic activities of private and government consumption and investment combined, plus chafes in stocks.


As the above shows, domestic economy continues to suffer losses in activity: Total Domestic Demand fell 0.95% in H1 2013 compared to H1 2012 and is down 3.05% on H1 2011. Compared to H1 2007, Total Domestic Demand is down 27.41%.

Summary: Bad news: Despite improvements in real variables in Q2 2013, domestic economy continued to contract in H1 2013, with domestic demand down compared to H1 2012, driven by declines in Net Government Current Expenditure and in Gross Fixed Capital Formation. Good news is that decline in domestic demand was ameliorated by a marginal increase in Personal Expenditure on Goods and Services. On the bad news side, exports of goods and services fell in H1 2013 compared to H1 2012. These changes, together with domestic demand movements resulted in GDP falling in H1 2013 compared to H1 2012. Lower rate of profits repatriation out of Ireland by the MNCs has resulted in an increase in GNP in H1 2013 compared to H1 2012.


In simple terms, if Irish economy were a student asking for a report card for H1 2013, I don't think there would be much on it worth boasting about. Let's hope H2 2013 will be different for the better.

Thursday, September 19, 2013

19/9/2013: First Half 2013: Irish GDP and GNP growth divergence

CSO published Q2 national accounts for Ireland today and these are worth detailed analysis, which I will break up into a series of posts next. 

In the previous post, I covered headline GDP and GNP figures, y/y and q/q changes. As a reminder, the headline conclusions were that:
  • In Q2 2013 Irish real GDP fell 1.17% on Q2 2012, marking the fourth consecutive quarter of real GDP contractions, the longest period of continuous contractions since the end of Q2 2010. 
  • Irish real GNP fell 0.1% in Q2 2013 compared to Q2 2012, having only marginally reversed the 6.01% y/y rise recorded in Q1 2013. 
  • On quarterly basis, seasonally-adjusted Q2 2013 real GDP rose 0.45% on Q1 2013, ending the third spell of the recession that lasted from Q3 2012 through Q1 2013. The expansion, however was weak and well below the one recorded during the previous recovery periods. 
  • I am continuing to expect that Q3 2013 will post stronger performance than Q2 2013 with possible GDP q/q upside of closer to 1%.


Now, let's move onto H1 (first half of 2013) analysis.

Q2 2013 release allows us to look at half-annual GDP and GNP changes, something that removes some of the quarterly volatility and also brings us closer to the analysis that is relevant from the budgetary perspective. Remember, budgets are not based on quarterly forecasts, but annual ones.

H1 2013 GDP at constant prices seasonally adjusted fell 0.47% on H2 2012, marking the third consecutive half-yearly period of declines. Last time we had a half-yearly period of growth was in H2 2011.

H1 2013 GNP grew 2.17% over H1 2013 compared to H2 2012, marking the third consecutive 6-months period of growth. In other words, GNP perfectly countermoves against GDP. Why? Because of the changes in transfers of earned profits by the multinationals. 



Here's an interesting thing. The chart above shows three periods of Irish growth history (I am being sarcastic/humorous here, so no offence intended): 
  1. The Celtic Tiger period - for which we have consistent data here is only covered by the period from 1997 through 2000: averaged H/H growth rates of 4.49%;
  2. The Celtic Garfield period - which lasted roughly from 2001 through H1 2007; Celtic Garfield period growth averaged 2.51%; and
  3. The Celtic Canary period (as the proverbial one in the EU's economic model coal mine) that started with the imaginary 'recovery' of 2010 and is running currently: averaged growth of 0.24% (do remember, that excludes the period of massive contraction between H2 2007 and H2 2009 when the average rate of growth was -2.0% H/H)

You can see that the slowdown in growth is not only due to the crisis, but appears to be structural in nature. The Canary part is because Irish economy's fundamentals are such that we should be growing at 3.5-4.5 percent annually. Yet we are growing at - say averaging Celtic Garfield and Celtic Canary periods - at 1.35-1.4 percent annually. This is the slowdown toward the European levels of growth for Ireland... something to think about?

Next, take a look at the levels of activity based on 6 months figures:


And now, let's talk about year-on-year changes in H1 2013:
  • Y/Y Irish real GDP fell 1.10% in H1 2013 (in other words, against H1 2012), marking a second consecutive 6-months period of declines (it was down y/y 0.75% in H2 2012 as well). 
  • Y/Y Irish real GNP rose 2.87% in H1 2013, marking third consecutive 6-months period of increases in GNP.
  • Overall, H1 real GDP (non-seasonally-adjusted) was up 1.65% on H1 2010 when we first heard about the 'recovery' of Irish economy or 'stabilisation'. Thus over 3 years, our GDP grew 1.65% - producing average annual rate of growth of 0.55%. Not exactly stellar, but better than nothing.


Our current H1 2013 GDP is down 7.98% on peak levels, so we are still far away from recovering to pre-crisis levels in real terms. In fact, at current rates of growth (that is taking 3-year average, since current annual rate is negative), it will take us until 2029 before we can reach real levels of GDP consistent with the pre-crisis levels. When someone says we have a lost decade, what they really mean - in real GDP terms - is that we are likely to have lost 23 years. And that does not count the opportunity cost of foregone growth. That is one hell of a long 'lost decade'.

To summarise the above: Good news is: real GNP is up 2.87% y/y, and up for the third consecutive 6-month period. Bad news is: our real GDP is down 1.1% y/y and this marks second consecutive 6-month period of declines.

I expect growth to be positive in H2 2013, with y/y around 1.0-1.2%.  Which should push our full year growth closer to zero.


Stay tuned for more analysis of QNA results.

19/9/2013: Irish GDP and GNP: Q2 2013 & the 'end of the third recession'

CSO published Q2 national accounts for Ireland today and these are worth detailed analysis, which I will break up into a series of posts next. 

Starting with the headline GDP and GNP figures:

In Q2 2013 Irish real (constant prices) GDP fell 1.17% compared to Q2 2012, compounding the previous fall of 1.04% y/y recorded in Q1 2013. On an annual basis, this marks the fourth consecutive quarter of real GDP contractions, the longest period of continuous contractions since the end of Q2 2010. Currently, real GDP stands 7.83% below the historical peak.

At the same time, Irish real GNP fell 0.1% in Q2 2013 compared to Q2 2012, having only marginally reversed the 6.01% y/y rise recorded in Q1 2013. Despite a surprisingly robust rise in Q1, Q2 2013 real GNP stood 10.40% lower than pre-crisis peak.

The swing in the direction between GDP and GNP was driven in Q2 2013 by a 5.85% drop in the outflows of transfer payments to the rest of the world compared to Q2 2012, which compounded a massive 28.26% decline in the transfer payments recorded in Q1 2013. In other words, GNP improvements appeared to have been sustained by a massive parking of MNCs profits in Ireland. The reasons for this are unknown, but we can speculate that the MNCs are holding back profits from transferring out of Ireland due tot ax considerations and due to subdued global investment activities. It remains to be seen what happens to the GDP and GNP were the MNCs to begin once again actively exporting retained earnings.


Note: shaded periods show episodes of more than 2 quarters consecutive contractions (here on y/y basis, so these are not official recessions)

On quarterly basis, seasonally-adjusted series:

Q2 2013 real GDP rose 0.45% on Q1 2013, partially compensating for the 0.59% contraction in Q1 2013 and ending the third spell of the recession that lasted from Q3.2012 through Q1 2013. The expansion, however was weak and well below the one recorded during the previous recovery periods. For example in Q1 2010, the end of the second recessionary dip, GDP expanded by 0.82%. The end to one-quarter drop of Q2 2010 led to a GDP rise of 1.08% in Q3 2010, the end of one quarter contraction in Q4 2010 was followed by 1.48% expansion in Q1 2011 and 1.38% expansion in Q2 2011, even the end of Q1 2012 quarterly decline was marked by a 0.48% expansion in Q2 2012. In previous episodes, recovery that was associated with growth rates at below 0.7% q/q was swiftly followed by the subsequent quarter contraction in GDP. This suggests underlying weakness in the GDP performance in Q2 2013, although my personal expectation is that Q3 2013 will post stronger performance than Q2 2013 with possible GDP q/q upside of closer to 1%.

On GNP side, seasonally-adjusted real GNP fell 0.37% in Q2 2013 in q/q terms, ending two consecutive quarters of quarterly growth (Q1 2013 growth was robust 2.2% q/q and Q4 2012 growth was weak at 0.32%).

Two charts:



Note: shaded periods show episodes of more than 2 quarters consecutive contractions (here on q/q basis, seasonally adjusted, thus representing official recessions).

On historical comparison basis, table below summarises latest movements in GDP and GNP:


So a summary: we are officially out of the third dip of the Great Recession. This is a good news. 

Bad news is that this data is once again being paraded around as a sing of 'stabilisation' of economic activity. Alas, the first time we've heard this 'stabilisation' argument was in Q1 2010, when the main - longest and deepest - second dip ended. Since then, Irish economy has managed to grow by just 2.63% in real GDP terms and only 3.54% in real GNP terms. Since the onset of the recovery, we have posted average quarterly growth of only 0.18% (seasonally-adjusted figures) and this effectively means that the economy is in a stabilisation pattern closer to coma than to a sustained recovery.

Good note to all of this is that, as mentioned above, I do expect stronger activity to be recorded for Q3 2013 and possibly for Q4 2013 as well.

Tuesday, August 13, 2013

8/13/2013: Sunday Times, August 11: Wither Middle Ireland


This is an unedited version of my Sunday Times article from August 11, 2013.


Recent data from Irish retailers, aggregate services indices as well as household surveys paints a picture of an economy divided in misery and fortunes. Following an already unprecedented five years of straight declines, domestic demand, stripping out one-off effects, such as weather, continues to shrink. This is the paralysed core of our economy. At the opposite side of the spectrum, pockets of strength remain within some demographic groups – namely the young and mobile professionals and debt-free older households. These form a de facto sub-economy only marginally attached to Ireland’s long-term future. With personal consumption still accounting for over half of the total annual GDP, a society torn between these two divergent drivers of domestic demand, savings and investment, is an economy at risk.


On the surface, CSO data through H1 2013 shows that Irish retail sales (excluding cars) grew modestly in June 2013 when compared to the same period a year ago. Much of this growth was due to weather effects and these are likely to strengthen even further in the third quarter. However, removing food, fuel and bars sales, core retail sales were down 1.7 percent in value and were up 0.8% percent in volume in April-June 2013, year-on-year. In other words, core sales are still being driven primarily by price declines rather than by organic growth in demand.

Meanwhile, aggregate data released this week, covering services (as opposed to sales of goods alone) showed annual declines in June 2013 in accommodation, and food and beverage services activities.

The bad news is that five years into the process of reducing household expenditures, Irish consumers are still tightening their belts. Not only discretionary spending is dropping, but demand for staples is contracting as well. At the end of H1 2013, retail sales were down on 2007 levels for both durable and non-durable household consumption items, as well as food.

This data is largely consistent with the analysis of the household budget surveys released earlier this month.  These surveys showed that compared to 2009, Irish households have cut deeper into their bills in twelve months through Q3 2012. Demand for groceries, clothing and footware, recreation, health Insurance and education saw continued cutbacks. For example, in the 24 months prior to June 2011, 56 percent of Irish households cut down on food purchases. Further 51 percent cut spending in the 12 months through September 2012. Despite these already severe cutbacks, industry surveys show that Irish households are still concerned with high cost of basic consumables.

Households’ propensity to cut costs has risen in the twelve months through September 2012 compared to the 24 months period to June 2011 as those still holding onto their jobs are now shifting into deeper cost savings mode. This busts the myth that the only people forced to severely cut their spending are the unemployed and the poor. The largest proportion of severe cuts in the earlier part of the recession fell onto the shoulders of the households where at least one person was jobless, followed by students. Back then households in employment were the category second least impacted by household budgets cuts. Last year, households still in employment were the second most likely to reduce spending. Significantly - households with some members on home duties, retired or not at work due to illness or disability posted the shallowest average cuts of all demographic groups.

The above explains why the data from multiples retailers in Ireland has been showing a V-shaped pattern of changes in consumer demand, with higher demand witnessed in lower-priced categories of own-brand goods supplied by discount retailers, such as Aldi and Lidl, and the premium own-brands of traditional multiples, such as Tesco. Demand for mid-range priced goods usually purchased by the middle class continued to fall.

Ditto for the luxury end of the market, with exception of Dublin, as sales of food and drink in specialist stores have fallen almost 20 percent on pre-crisis peak. Exactly the same pattern of shift away from the middle of price range sales emerged in the demand for electrical goods.


The drivers for the above trends are crystal clear. Middle Ireland is under severe pressures financially, while Happily-Retired and Yappy Irelands are having a relatively easy recession or living through the good times. The main force working through the Irish domestic demand is that of polarization of households not along the lines of employed v unemployed, but along the more complex and fragmented demographic lines.

The average number of spending cutbacks in 12 months through September 2012 for households with no person at work stood at 2.6 categories of spending. The same numbers for households with one and two persons working were 3.3 and 3.2 categories, respectively.

This pattern of cutbacks and income distribution changes across the households is also strengthening over time. In effect, due to Government policies, Ireland is becoming a country with severely polarised distribution of financial well-being. This polarisation is contrary to the one witnessed in normal economies and is different from the one that majority of out policymakers and analysts have been decrying to-date.

The Great Recession has finally exhausted ordinary savings of both working and unemployed households, while lack of income growth has meant that even those in employment are now sinking under the weight of debt and tax and cost inflation driven by the State budgetary policies to-date.

Last week, CSO reported distribution of the households by their ability to manage bills and debts over 12 months prior to July-September 2012. Of households with at least one adult aged 65 and over, up to 28 percent were experiencing difficulties in managing their debts and bills. For households with all adults under the age of 65 the corresponding number was up to 46 percent. Up to 69 percent of the families with children were in the same boat. The older the respondent was, the less pressure on paying their bills their reported.

In normal economies it is the older families that face tighter budget constraints. In today's Ireland it is the younger and the middle-age families with children that are being pressured the hardest by the crisis. This bedrock of financial health in the normal times has been pulled from underneath the economy by the Great Recession.

At the same time, the crisis has generated a new class of the relatively well-off. Based on employment levels and quality, earnings, as well as regular and irregular bonuses data, three sectors in the Irish economy stand out as the winners during the crisis: the ICT services, specialist exports-focused services and international financial services. All three sectors are dominated by younger workers with high percentage of employees coming from abroad and working on a temporary assignment basis here. The demographic they represent is primarily from mid-20s through mid-30s, with smaller size families. These groups of employees are also heavily concentrated geographically, with exporting services sectors workers primarily living in Dublin, followed by a handful of other core urban areas.

Even as early as 2006-2007, market research has shown that these types of households favour premium consumption of convenience food, spend more of their income on going out and travel abroad, and less on purchases of durable goods, household goods, education and health insurance. They do not invest in this economy and hold off-shore most of their long-term savings. Their financial investments are also held and managed abroad and often include mostly shares and options in their own employers. Their children are not going to continue growing up in Ireland and will not be a part of our future workforce. The skills they accumulate while working here are transitory to the overall stock of Irish human capital. On a social level, their demand for entertainment is currently best exemplified by the booming restaurants and bars across the D2-D4-D6 areas of Dublin and stands in stark contrast to Middle Ireland’s hollowed out town centres and neighborhoods with empty storefronts and vacant building sites.


Today’s Ireland is a society where the middle class and large swaths of the upper-middle class have been dragged under water by the combination of the unprecedented crisis, compounded by rampant state-sanctioned cost inflation and legacy debt.

The data on domestic demand suggests that we might be entering a classic ‘Bull trap’. Here, tight rental markets in the leafy South Dublin neighborhoods fuels sales of rentable properties to service the needs of the Yappy Ireland. These pockets of activity are at a risk of generating inflated expectations of incoming prosperity. Don’t be fooled by this – the risks to the real Irish economy are still there, in plain view, in the streets of real Ireland.

Recognising this reality requires the Government to reconsider the tax increases that are impacting adversely the middle and the upper-middle classes. It also means that the State must reform, rapidly and thoroughly the semi-state sector to reduce the cost drag exerted by the Irish utilities, transportation, health and education services providers on Middle Ireland families’ balancesheets.  Lastly, prudent risk management requires for us to manage very carefully the process of mortgages arrears restructuring and debt work-outs. While many economy have survived sovereign and banking sectors busts, no economy can emerge from a crisis having destroyed its middle classes.



Box-out:

In Ptolemaic cosmology, astronomers believed that the Earth was the centre of the Universe. To balance this Universe, Ptolemists used to draw complex sets of larger and smaller circles - known as epicycles - to describes their orbits around the Earth. The problem with epicycles spelled the demise of the Ptolemaic cosmology in the end: as the known number of planets and stars increased, the system of superficial orbits rapidly collapsed under its own complexity. The Ptolemaic absurdity, however, is still alive today in Irish economic policies. A year ago, the Government had a clear choice of policy options: a site-value tax (SVT) that can be levied on all forms of properties, including land, or a residential property tax that can be levied only on structures. In a study covering all known forms of policy mechanisms used to fund public infrastructure around the world,  submitted to the Department of Environment, I have argued that one of the major advantage of the SVT over a property tax was that it would have incentivised more efficient use land, reducing land hoarding and speculation. There were multiple other advantages of SVT over the property tax as well. Alas, the Government opted for a property tax favouring under-use of land over all other properties. This tax suits the major lobbies influencing the State: farmers and well-off rural landed families. Fast-forward eight months from last December: this week, Dublin City Council called for a levy on unused vacant sites. Hundreds of sites lay vacant across the city - blotching the cityscape and posing a threat to personal safety to many workers, as well as an unpleasant reminder of the property bust and economy's dysfunctionality to the would-be foreign investors. Dublin City has been trying to force this land back into development since 2009, although no one in the city has a slightest idea where the demand for such development might come from. Thus, our Ptolemaic system of economic policies is about to draw yet another contrived, complex and inefficient balancing circle on the map of our tax policies to compensate for the Government's rejection of the site value tax. After all, managing the superficial complexity of a political economy that attempts to appease the landed classes, while satisfying the needs and demands of foreign investors and urban authorities is an arduous task

Friday, June 28, 2013

28/6/2013: Expenditure Components of GDP: Q1 2013

Having looked at the recession/expansion dynamics in Irish economy on foot of Q1 2013 figures (here),  the dynamics in GDP and GNP in Ireland at the aggregate levels (here), and the mythology of the 'exports-led recovery' (here), let's round up the Q1 2013 QNA cover with a look at the expenditure-lined components of the GNP and GDP.

Below we look at the Seasonally-adjusted Current Market Prices data.

Personal Expenditure on Consumption Goods and Services fell 2.21% in Q1 2013 q/q and was up 0.01% y/y. This compares against much more benign drop of -0.07% q/q in Q4 2012 and a 1.15% rise y/y. Since Q1 2011, when the Coalition came to power, Personal Expenditure is down 1.55%. In terms of q/q changes, Q1 2013 marked second consecutive quarter of declines.

Net Government Expenditure on Current Goods and Services declined 0.1% q/q in Q1 2013 and was down 2.56% y/y. This marks moderation in declines recorded in Q4 2012 when q/q decline stood at -1.90% and y/y decline was running at -2.88%. Net Government Expenditure decline was the shallowest contributor to voerall economic contraction recorded in Q1 2013. Compared to Q1 2011, Net Government Expenditure on Current Goods & Services was down 3.98% in Q1 2013. In terms of q/q changes, Q1 2013 marked second consecutive quarter of declines.

Gross Fixed Capital Formation - the most devastated expenditure component of GNP to-date has fallen massive 7.32% in Q1 2013 in q/q terms and was down whooping 18.74% in y/y terms. This shows dramatic acceleration in decline from -2.16% drop in q/q terms in Q4 2012 and the reversal of the y/y rise of +4.31% recorded in Q4 2012. Relative to Q1 2011, Gross Fixed Capital Formation was down 14.25% in Q1 2013. In q/q terms, Q1 2013 marked second consecutive quarter of declines.

Exports excluding factor income shrunk 0.79% in Q4 2012 on q/q basis and there was 4.93% growth in y/y terms. This was then. In Q1 2013 exports of goods and services fell 4.59% q/q and were down 3.13% y/y. Relative to Q1 2011 exports of goods and services net of factor income payments were up 2.22% in Q1 2013, but we also marked two consecutive quarters of contraction here.

Imports of goods and services, net of factor income payments were down 2.12% q/q in Q1 2013 and -3.13% y/y. This marks significant shift 'South' in the series compared to Q4 2012 when imports shrunk 1.05% q/q and were up 4.57% in y/y terms. Imports are running -0.05% down on Q1 2011 and Q1 2013 marks the second consecutive quarter of q/q declines.




GDP at curent prices, seasonally adjusted fell 0.6% q/q in Q4 2012 and there was annual growth of 0.38%. In Q1 2013, GDP fell 2.16% q/q and there was annual decline of 2.09%. This marks third consecutive quarter of decline in GDP and thus officially, return of the recession is dated to Q4 2012. The average rate of recessionary decline in GDP in the current episode is so far -1.06% per quarter. This is shallower than the previous recessionary episode (Q4 2008-Q4 2009) when GDP contractions averaged 2.76% per quarter. Compared to Q1 2011, Q1 2013 GDP at current market prices stood at -1.04%, or put differently, gross domestic product in Ireland in Q1 2013 stood below the levels attained in Q1 2011 when the current Government came to power.

Net factor income from the rest of the world declined in both Q4 and Q1, with decline accelerating in Q1 2013 to 19.21% q/q from 2.92% in Q4 2012. As the result of this, GNP moved up, in the opposite direction of the GDP.

GNP at current market prices grew 0.68% q/q in Q1 2013, down on 1.18% expansion recored in Q4 2012. On y/y basis, GNP grew 4.12% in Q4 2012 and by 4.26% in Q1 2013. Compared to Q1 2011, GNP is now up 2.46%.

Both Final Domestic Demand and Total Domestic Demand posted second consecutive quarter of q/q contraction in Q1 2013.





To summarise, not a single line of expenditure posted an increase in the Q1 2013 in terms of q/q changes once seasonal adjustments are taken into the account. In other words, the sole positive improvement in the numbers - relating to GNP - was driven exclusively by reduced outflow of funds from MNCs.

Worse, not a single line in the determination of the GDP in Ireland was up in q/q terms in any quarter since the end of Q3 2012. We had, put differently, 6 months of across the board contractions in the economy, when we consider expenditure-based definition of GDP.


28/6/2013: Exports-led recovery: Q1 2013

I covered the headline numbers and trends for the GDP and GNP in previous two posts: here and here. Now, onto some more detailed analysis.

Remember, from the very beginning of the crisis, Irish and Troika leaders have been incessantly talking about the 'exports-led recovery'. Position on this blog concerning this thesis consistently remained that:

  1. Exports growth is great, but
  2. Exports growth is unlikely to be sufficient to lift the entire economy, and
  3. Exports growth projections were unrealistic, while
  4. Exports re-orientation toward services, away from goods was less conducive to delivering real growth in the economy.
Q1 2013 data continues to confirm my analysis.

In Q1 2013, based on real valuations (expressed in constant market prices),
  • Exports of Goods & Services shrunk 6.47% q/q and fell 4.09% y/y. This compares to +1.19% q/q growth in Q4 2012 and +1.28% expansion y/y. Compared to Q1 2011, when the current coalition took over the reigns in the Leinster House, total exports of goods and services are down 0.88% in real, inflation-adjusted terms. Troika sustainability projections envisioned growth of over 6% over the same period of time.
  • Imports of Goods and Services showed pretty much the same dynamics as exports in both Q4 2012 and Q1 2013, but owing to sharper contractions in 2011-2012 these are now down 4.34% compared to Q1 2011.
  • Exports of Goods fell in Q1 2013 by 3.83% q/q and 9.37% y/y, while there were declines of 2.68% q/q and 2.33% y/y in Q4 2012.
  • Exports of Services were down 8.75% q/q but up 1.27% y/y in Q1 2013, and these were up 4.77% q/q and 4.63% y/y in Q4 2012.


  • Trade Balance in Goods and Services fell 4.96% q/q and was down 3.63% y/y in Q1 2013, with Q4 2012 respective changes at -15.91% q/q and +0.98% y/y. Compared to Q1 2011, trade balance is up 15.91%
  • Trade Balance in Goods was down 6.63% q/q in Q4 2012 and this deteriorated to -10.73% growth in Q1 2013. Y/y, trade balance in goods contracted 0.05% in Q4 2012 and shrunk 10.59% in Q1 2013. On Q1 2011, trade balance in goods is down 14.04%.
  • Trade Balance in Services fell from EUR1,130mln in Q3 2012 to EUR132mln in Q4 2012 before improving to EUR601mln in Q1 2013. In Q1 2012 the balance stood at EUR28 million.


28/6/2013: Underlying dynamics in Irish GDP & GNP: Q1 2013

Q1 2013 National Accounts do not make for a pleasant reading. The implications from the business cycle perspective are pretty clear - we are in a continued (3rd quarter in a row) recession, which constitutes the fourth 'dip' since the onset of the Great Recession. The post summarising that evidence is linked here.

In this post, let's take a look at the GDP and GNP in constant prices.

On seasonally-adjusted basis (removing seasonal volatility),

  • GDP at constant factor cost (national output ex-taxes and subsidies) fell 0.65% q/q in Q1 2013, having contracted 0.12% q/q in previous quarter. On an annual basis, the GDP at factor cost declined 1.32% in Q1 2013, accelerating annual rate of decline relative to Q4 2012 when it fell 1.04%.
  • Compared to Q1 2011, when the current Government came to power, GDP at factor cost was 0.72% higher in Q1 2013.
  • Taxes rose 1.04% q/q in Q1 2013, after having posted a decline of 0.64% in Q4 2012. On an annual basis, taxes were down 0.79% in Q4 2012, but they rose 2.32% in Q1 2013.
  • Compared to Q1 2011, taxes were up 1.16% in Q1 2013.
  • To summarise the above, austerity is clearly biting. Taxes are rising at a 60% faster rate than economic activity.
  • Subsidies remained relatively constant in Q1 2013 on an annual basis, implying that net taxes rose strongly.
  • GDP at constant prices (accounting for taxes net of subsidies - the headline metric usually referenced as GDP) fell 0.58% q/q in Q1 2013, which follows a shallower contraction of 0.18% recorded in Q4 2012. On an annual basis, GDP contracted by 1.03% in Q1 2013, following a 1.02% contraction in Q4 2012.
  • Net factor income for the Rest of World (outflows to the rest of the world from factor payments, net of inflows of Irish incomes earned abroad) fell dramatically in Q1 2013, down 16.96% q/q, following a 3.22% decline q/q in Q4 2012. In year-on-year terms, net outflows fell 16.55% in Q4 2012 and by 27.58% in Q1 2013. 
  • It is impossible to tell from QNA the core drivers of the net outflows, however, from the balance of payments data we have reinvested earnings in Q1 2013 by the foreign companies in Ireland at EUR4,753 million, up on EUR4,010 million in Q4 2012 and down on EUR6,768 million in Q1 2012. The gap of Repatriations of earnings from Ireland are not provided for Q1 2013.
  • On foot of significantly reduced outflow of funds abroad, GNP at constant market prices rose in Q1 2013 rose 2.85% q/q and 5.46% y/y, beating growth of 0.51% q/q and 3.01% y/y recorded in Q4 2012. 
  • However, as analysis in the subsequent posts will show, this growth is entirely dependent on reduced outflows of funds abroad. Q/q, net expatriation of funds slowed down by EUR1,204 million, while earnings outflows abroad shrunk by EUR2,015 million.
  • Taking the average net factor payments abroad for Q1 2010-2012 in place of Q1 2013 figure, GNP growth controlling for net factor payments changes would have been around -0.01% y/y and -2.48% q/q.
Charts below summarise seasonally unadjusted series:



The chart below clearly shows that even in y/y terms, we are now in a solid, three-quarters long (so far_ recession.

The GDP/GNP gap has, predictably - given the shrinking of net factor payments abroad - declined from 25-26 percent (seasonally-adjusted and unadjusted) in Q1 2012 to 17.3-17.5 percent in Q1 2013:


It is worth noting in the chart above a significant increase in volatility in the gap, which is reflective of the greater volatility in Ireland's GDP and GNP series as well as destabilisation in growth correlation between GDP and GNP. This new pattern is most pronounced starting with Q1 2008 and is associated with both - the crisis and the underlying re-distribution of growth drivers away from the domestic economy to services exports, especially during the 2010-2011 'recovery'.

Thursday, June 27, 2013

27/6/2013: Quadru-Sextu-ple-dip Recession in Ireland: Q1 2013

All you need to know about today's QNA data release (though it won't deter me from more detailed analysis later) is:
  • Ireland is in a quadruple-dip recession (chart below)
  • You and I are in a sextuple-dip recession (second chart below)


Incidentally, just in case you felt like previous 'expansion' (officially from Q1 2010 through Q2 2012) was not much of an expansion at all, then you live in the world we inhabit, closely related to the Gross Domestic Demand. If you felt things were just fine then, you might live in Australia, or read too much of the Department of Finance presentations on their web site, or... I have no idea...

As I commented on earlier post by Brian Lucey: That light at the end of the tunnel did turn out to be an incoming train...

Update: Meanwhile, Minister Noonan thinks that the above (3 consecutive quarters of contraction in the economy, official fourth dip in the Great Recession and 6th dip in Total Domestic Demand) is "certainly disappointing but it's one set of statistics" (link). How long till Enda pops up to greet us with Dude's famous return: http://www.youtube.com/watch?v=QsogswrH6ck

Sunday, March 24, 2013

24/3/2013: Irish GDP & GNP Growth 2007-2012


Five charts summarising Irish GDP and GNP dynamics in 2007-2012 period. The first set is of 4 charts plotting various measures of GDP and GNP in constant and current prices in terms of year-on-year changes:




In all of the above, I show two 'trend' figures: the 2% annual real growth trend as a long-term sustainability level of growth and the within-crisis (period of contracting GDP or GNP) and out-of-crisis (period of sustained positive growth) averages. These two sets of lines provide a marker for assessing as to whether or not the economy is currently running at the growth rates above or below trend.

And to summarise the state of play today:


Thus, after almost two years of 'turned corners' and 'recoveries'

  • Ireland's GDP and GNP are still massively below the pre-crisis levels of 2007. 
  • Ireland's GDP growth in constant and current prices is running below trend levels in Q3 and Q4 2012
  • Ireland's GDP growth shorter-term trend (post-crisis) is below the long-term trend levels, which is simply not consistent with normal U-shaped recovery
  • Ireland's GNP growth is running at above trend levels for 3 quarters now in constant prices terms, and close to the trend levels for current prices terms
  • By all measures (across current and constant prices) both GDP and GNP are posting markedly slower rates of growth in Q4 2012 compared to previous quarters.

Friday, March 22, 2013

22/3/2013: National Accounts 2012: Ireland - Part 4

The first post of the series covering 2012 National Accounts looked at the headline numbers for real GDP growth. The second post covered sectoral weights in GNP and our GDP/GNP gap. In the third post I explored the opportunity cost of the crisis and the effect the realignment of economic activities in Ireland is having on fiscal position.

Now, let's focus on the quarterly series. 

The headline for quarterly national accounts should be reading: Ireland is back in a recession for the fourth dip
  • Q/Q Irish GDP fell, in real terms, 1.5% in Q4 2012, which followed a 1.9% q/q contraction in Q3 2012, marking two consecutive q/q contractions. 
  • Y/Y Irish GDP was flat - exactly flat - on Q4 2011 but in Q3 2012 it was up 0.9%.

Meanwhile, 
  • GNP was up 0.67% q/q in Q4 2012 after posting a contraction of 1.75% in Q3 2012 in q/q terms.
  • Y/Y GNP was up 3.04% in Q4 2012 after posting a y/y gain of 3.9% in Q3 2012
  • In H2 2012, GDP rose 0.4 y/y and shrunk 1.4% on H1 2012, while GNP rose 3.5% y/y and was up 1.89% on H1 2012.

Volatility is the name of the game for our national accounts, folks.

You can see components of GDP dynamics here.

Quarterly GDP/GNP gap posted second consecutive easing, moving away from mean reversion, suggesting the MNCs are building up capex reserves - once these are to be deployed, prepare for the gap to shift down to 20-22% territory and GNP shrinking by up to EUR2.6bn in any given quarter of reversion relative to Q4 2012. Were mean reversion to bite in Q4 2012, we would have had GNP down y/y and q/q and ditto for H2 down y/y.





22/3/2013: National Accounts 2012: Ireland - Part 3


The first post of the series covering 2012 National Accounts looked at the headline numbers for real GDP growth. 

The second post covered sectoral weights in GNP and our GDP/GNP gap.

Overall, there are two main themes in rebalancing of the economy that showed up in data so far: 
1) Increasing share of MNCs activity in GDP (and temporarily GNP), which means that the official figures for the National Accounts now even more overestimate the real economic activity in the country; and
2) Long-term falling out of Agriculture, Forestry & Fishing and Construction sectors from the economy, with Public Administration & Defence clearly showing signs of contraction, albeit at the rate that is, so far, trailing contraction in overall economy over the period 2003-2012.

In this post, let's take a look at the opportunity cost of the crisis.

Recall that relative to peak, Irish GDP is down 5.97% as of the end of 2012 and GNP is down 8.08% despite 'two years of consecutive growth' the Government is so keen on emphasising. 

Also recall that 1980-2011 average growth rates in constant prices terms were 3.58% per annum, whilst IMF forecasts consistent structural or potential growth rate is currently around 2%. Using 2% figure we can, therefore, estimate the opportunity cost of the current crisis as losses to GDP and GNP arising from the growth foregone during the crisis. Chart below illustrates:



The grand total in opportunity cost due to the crisis (note, this is not an exercise in 'blaming the Government' or providing any estimate of real or actual losses, but rather an estimate of the opportunity cost of the crisis) is:
-- EUR104.5bn of cumulated foregone GDP for 2008-2012 or per-capita EUR22,823;
-- EUR58.8bn of cumulated foregone GNP for 2008-2012 or EUR12,828 per capita

With taxes net of subsidies at 9.647% of the GDP in 2012, the above implies roughly EUR10.1bn in foregone net tax receipts or ca EUR2bn in annual receipts. Using 2008-2012 average weight of net taxes in GDP implies EUR2.4bn in foregone annual net tax receipts.

What does this mean? Aside from the massive opportunity cost of the crisis, we have a rather revealing figure on foregone tax receipts. The figure clearly suggests that even were economic activity running at the 2% growth rate since 2007 without the crisis, re-alignment of economic activity away from domestic sectors toward MNCs-dominated activities and toward MNCs-dominated services activities in particular would still result in unsustainable deficits and would still required some sort of a fiscal adjustment, thanks to our taxation system that is extremely unbalanced when it comes to supporting MNCs-focused activities.

22/3/2013: National Accounts 2012: Ireland - Part 2


The first post of the series covering 2012 National Accounts looked at the headline numbers for real GDP growth (link here).

This post covers sectoral weights in GNP and our GDP/GNP gap.

In terms of the latter, GDP/GNP gap in 2012 stood at 22.02% in favour of GDP, down from the record 25.0% in 2011, but still the third highest in 2003-2012 period. The trend remains up and latest decline in the gap clearly appears to be mean-reverting adjustment similar to the pattern established since 2005-2006.


The above suggests that over time we can expect upward movement in the gap, leading to the contraction in GNP (either in growth terms or even in levels). For example, adjusting 2012 GNP for 3-year average gap implies lower GNP by some 0.3% or EUR378mln, adjusting the same for 3-year average annual growth rates in the gap implies GNP lower by EUR3.0bn or 2%.

While the above exercises are highly stylised and should not be taken as rigorous assessments, they show clearly that volatility in our GNP induced by the MNCs transfers of profits abroad is significant and renders some of the y/y comparatives highly suspect.


Now on to sectoral contributions to the economy:
  • Agriculture, Forestry & Fishing share of GNP declined from 2.4% in 2011 to 2.1% in 2012, thus falling back to where it was at the peak of the property and construction boom in 2006. This is the joint-lowest sector weight in GNP in 2003-2012 series with 2006 being another year of lowest contribution. Put simply, we have a Department out there in the Civil Service that is overseeing something that amounts to only 2.1% of the economy and not once in 2003-2012 period amounted anything more than 2.9%. In fact, 2003-2012 average contribution for the sector is just 2.53% with subsidies from EU accounting for much of that. You don't have to be a genius to see that the 'Food Island' ideal is just a pipe dream when it comes to our own production levels. We might have a larger food sector, but it is not dependent critically on our agricultural sector.
  • Industry accounted for 28.4% of GNP, down from 29.3% in 2011. 2003-2012 average contribution is 30.24% which shows overall the secular decline in the sector importance. Most of this decline was driven by the collapse of Building & Construction sector which went from 9.9% share in 2004 to 1.4% share in 2012 - massive 8 years of consecutive declines. Ex-Construction, Irish industry (well, mostly MNCs) have grown in their share of GNP contribution from 24.6% in 2003 to 27% in 2012.
  • Distribution, Transport & Comms sector share remained relatively static at 27.5% of GDP in 2012 compared to 27.6% in 2011 when it heir the record levels for 2003-2012 period.
  • In line with the declines in overall activity, Public Administration and Defence sector posted a decrease in its share of GNP from 5.9% in 2011 to 5.5% in 2012. Still: back in 2003-2006 the sector was running at 3.9% to 4.1% and 2003-2012 average is still 5.2% - below the current running levels. 
  • Other Services sector importance in GNP contribution fell back from 46.7% in 2011 to 45.2% in 2012 and the sector is now slightly behind the 46% average for 2003-2012.
  • Taxes Net of Subsidies slipped further from 12.4% in 2011 to 11.8% in 2012. The 2003-2012 peak was in 2007 at 16.1%.


Thus, overall, there are two main themes in rebalancing of the economy: 
  1. Increasing share of MNCs activity in GDP (and temporarily GNP), which means that the official figures for the National Accounts now even more overestimate the real economic activity in the country; and
  2. Long-term falling out of Agriculture, Forestry & Fishing and Construction sectors from the economy, with Public Administration & Defence clearly showing signs of contraction, albeit at the rate that is, so far, trailing contraction in overall economy over the period 2003-2012.


Thursday, March 21, 2013

21/3/2013: National Accounts 2012: Ireland - Part 1


This is the first post on the QNA data for National Accounts for 2012 released today.

In this post, let's take a look at the National Accounts in Constant Market Prices Terms for GDP disaggregation by Sector of Origin.

Top-line results:
  • Agriculture, forestry and fishing sector (the 'Food Island' thingy) posted a big decline y/y in 2012 in overall activity, down from EUR3,049bn to EUR2,744bn between 2011 and 2012. The sector is now down 30.6% on peak (2005) activity and 20.4% below the 2003-2012 average level of annual activity. Sector activity is down 27.1% on 2003. In brief, this is the sector is in the fifth consecutive year of contractions. 
  • Industry activity rose marginally in 2012 to EUR37.269bn from EUR 37.168bn in 2011 (up 0.27% y/y). The pace of annual increases slipped from 1.88% in 2010 to 1.76% in 2011 and to 0.27% in 2012. The sector activity is down 20.53% on peak (2004) and down 9.43% on 2003-2012 average, with sector activity now running at 17.03% below 2003 levels.
  • As the sub sector of Industry, Building & Construction activity continued to decline in 2012, marking 8th consecutive year of decline since the peak in 2004. The sub-sector activity dropped to EUR1.857bn in 2012 down 7.38% on 2011 level with 2012 being the first year since 2008 when activity y/y declines were in single digits percentage terms. Needless to say, the sub-sector activity is now running 86.4% below peak levels, 72.3% below 2003-2012 average and 85.1% below 2003 levels.
  • Distribution, Transport and Communications sector activity rose 3.09% y/y in 2012 to mark another year of record activity at EUR36.125bn. The rate of growth y/y was robust, but behind 3.88% recorded in 2011 and 4.7% in 2010. The sector activity is now running at 25.8% ahead of 2003-2012 average and 66.71% up on 2003 level. Good performance.
  • Public Administration & Defence sector didn't do a hell of a lot over the year, posting EUR7.236bn contribution to GDP in 2012, down 4.17% y/y. This was a deeper contraction than 3.58% decline in 2011, but shallower than 5.6% drop in 2010 and 4.5% in 2009. The sector activity overall is now down 16.7% on peak (2008) and is 2.93% ahead of the 2003-2012 average, while overall activity level is up massive 34.4% on 2003 level. All in, the sector is the only other sector (in addition to Distribution, Transport & Communications) that sees its activity running ahead of 2003 levels.
  • Other services (including rents) sector activity rose from EUR59.252bn in 2011 to EUR59.372bn in 2012 in constant prices terms, up 0.2%, marking the first year of growth since the peak in 2006. The sector overall performance is now 5.03% below 2003-2012 average and is 0.7% behind 2003 levels.

All in, as mentioned above, only two sectors of economy are currently (end of 2012) up on 2003 levels of activity once we control for inflation: Distribution, Transport & Communications and Public Administration & Defence.





Taxes net of Subsidies fell marginally from EUR15.769bn in 2011 to EUR15.456bn in 2012, down 1.98% y/y. The rate of decline has now accelerated once again from 1.13% in 2011, but is behind 2.65% drop in 2010. Compared to peak (2006), Taxes Net of Subsidies are down 32.9% and down 17.6% on 2003-2012 average. This category contribution to GDP is now down 15% on 2003 levels once we adjust for inflation.

Overall GDP at constant market prices rose to EUR160.214bn from EUR158.725bn in 2011 up 0.94% y/y, posting slower rate of growth than 1.43% in 2011. The GDP, adjusted for inflation now stands at 5.97% below the peak at 2007 and 1.11% below 2003-2012 average. Compared to 2003 GDP is up 4.74%.

Net Factor Income from the Rest of the World recorded another outflow from Ireland of EUR28.908bn in 2012, down on outflow of EUR31.742 bn in 2011, marking the second highest rate of annual outflows during 2003-2012 period.

Lower outflows and higher GDP helped push GNP up to EUR131.306bn in 2012 from EUR126.983bn in 2011, a rise of 3.4% y/y, reversing 2.47% decline in 2011 and up on 0.94% increase in 2010. Relative to peak (2007) GNP is now down 9.61% and GNP is down 3.41% on 2003-2012 average. Compared to 2003 the GNP stands at -0.45%.


So overall, 2012 did post growth of 0.94% on GDP side in real terms and a more robust gain of 3.4% on GNP side. However, both expanded on foot of external sectors and factors, namely marginal growth in Industry (+0.27% y/y marking big slowdown on 2011 growth), Distribution, Transport & Communications (+3.09% y/y in 2012 marking another slowdown on 2011 growth rates) and Other Services (+0.2% y/y - an improvement on contraction of -0.93% in 2011). GNP growth was also underpinned by reduced outflow of funds from multinationals abroad, which is a temporary factor, likely to be reversed once MNCs begin new investment outside Ireland.

In the next post I will cover sectoral weights and GDP/GNP gap.

Wednesday, December 19, 2012

19/12/2012: Irish National Accounts Q3 2012 - part 2


As promised in my first post on Q3 2012 National Accounts, here are the details of the main components of Irish GDP and GNP with more short-term trends focus (first post focused on cumulated changes for the 9 months from January through September 2012).

Unfortunately, these short-term series are less impressive than cumulated series. Here's why.

First, consider GDP and GNP decomposition by sector of activity, expressed in constant market prices terms:

  • Agriculture, Fishing & Forestry (AFF) subsector posted €564 million worth of activity in Q3 2012, down €477.o million (-45.8%) on Q2 2012 and down €123 million (-17.9%) y/y. This marks the second consecutive quarter of y/y declines, which technically means that the sector is in a recession. AFF sector overall share of GDP is now 1.41%, so it is a minute contributor to the GDP dynamics.
  • Industry activity printed at €8,868 million in Q3 2012, down €1,659 million (-15.8%) q/q and down 4.0% y/y. Only about 1/4 of the overall decline in Industry activity came from Building & Construction sub-sector which posted another fall-off in Q3 compared to Q2 (down €17 million or -3.7% q/q and down 9.9% y/y). Overall Industry share of GDP is now at 22.15% so any movement in the sector activity is significant for headline GDP and GNP.
  • Distribution, Transport and Communications (DTC) sector expanded to €8,940 million in Q3 2012 (up €1,071 million or +13.6% q/q and up 1.8% y/y). The sector now accounts for 22.33% of GDP.
  • Public Administration and Defence (PAD) sector showed €37 million (+2.1%) q/q expansion in Q3 2012, printing at €1,823 million. Y/y the sector is down 4.1% (just €78 million in net reductions). The sector now accounts for 4.55% of our GDP.
  • Other Services - a sector accounting for 37.4% of our GDP - increased activity by €239.0 mln (+1.6%) q/q and are up 0.3% or €47 million y/y. 
  • Compared to Q3 2007: Agriculture, Forestry and Fishing sector activity is down 27.4% (-€213mln); Industry activity is down 12.8% (-€1,298mln), of which Building & Construction is down 63.1% (-€765mln); Distribution, Transport and Communications sector is up 25.8% (+€1,832mln); Public Administration and Defence is down 14.9% (-€318mln); Other Services are down €980mln or -6.1%.


The above chart shows GDP and GNP prints, which posted the following dynamics in Constant Prices terms:
  • GDP at constant factor cost (ex net taxes) was down to €36,043 million in Q3 2012 (-€865mln and -2.3% q/q). Y/y GDP at constant factor cost is up €272 million (+0.8%)
  • Taxes net of subsidies rose to €3,998 million (+€353mln and +9.7% q/q) and are up €48mln (+1.2%) y/y.
  • Thus, GDP at constant market prices was down to €40,041 million in Q3 2012 (down €512mln or -1.3% q/q) and up €320mln (+0.8%) y/y. Compared to 2007 levels, GDP is down 3.3% (_€1,3540mln).
  • Net factor income from abroad contracted by €154mln in Q3 2012 (-2.1% q/q) compared to Q2 2012 to -€7,069mln. Year on year outflows are down €859 million or -10.8%. However, net outflows abroad are still up 17.2% (€1,038mln) on 2007. Currently, net transfer from Ireland abroad amount to 17.65% of our GDP.
  • With reduced outflows to the rest of the world (primarily driven by falling transfer pricing by multinationals), our GNP in constant market prices still contracted by €358 million (-1.1%) q/q. In Q2 2012 it grew by €2,075mln (+6.6%) q/q. The robust growth in Q2 was partially offset by the decline in Q3. Year-on-year our Q3 2012 GNP is still up +€1,178mln (+3.7%). However, compared to 2007, Q3 2012 GNP is down €2,237mln (-6.4%).
As the result of the above, Irish GDP/GNP gap decreased slightly from 17.81% in Q2 2012 to 17.65% in Q3 2012.



Here are the components of the above expressed as indices, with Q1 2005 set at 100:




On seasonally-adjusted basis, expressed in Constant Market Prices terms:

  • Personal Consumption of goods and services rose €160mln (+0.8%) q/q and is up €367mln (+1.8%) y/y. However, this is not the first time that personal consumption increased since the beginning of the crisis. For example, it rose €335mln in Q1 2010-Q3 2010 and by €420mln in Q3 2011-Q4 2011. 
  • In real, seasonally-adjusted terms, our personal consumption of goods and services is now at the levels between Q4 2005 and Q1 2006. However, some of this 'support' for consumption is coming from significant price increases in state-controlled sectors, which are not linearly reflected in GDP deflators (price adjustments).
  • Net expenditure by central and local government decline €4 million to €6,204 million in Q3 2012 compared to Q2 2012 (-0.1% q/q) and is now down €172 million y/y (-2.7% y/y).
  • While Personal Consumption fell €3,013 million (-12.8%) in 2007-2012 Q3 on Q3, Government spending declined €1,132 million (15.4%) over the same period of time. At annualized rates, this means a decline of personal consumption contribution to GDP of some €12 billion per annum and a decline of Government spending contribution to GDP of some €4.5 billion per annum.
  • Irish Government expenditure in real terms is running at the levels comparable with Q1-Q2 2006, or a quarter ahead of where personal consumption rests. However, any biases induced to personal consumption upside from state-controlled price increases also act to generate superficially lower government spending reported here (as this is Net expenditure by the government, excluding taxes and receipts). In other words, the true difference between Government and private spending is most likely much wider than one quarter.
  • Gross domestic fixed capital formation improved in Q3 2012 compared to Q2 2012, rising to €3,962mln (+€315mln or €8.6% q/q), which resulted in an annual increase of €323mln (+8.9%) y/y. Still capital formation is down €7,432 million (-65.2%) on Q3 2007.
  • Our fixed capital formation is now running at just 40% of Q1 2005 levels.
  • Exports of goods and services rose 1.3% (+€567mln) in Q3 2012 compared to Q2 2012 (increase of €2,788mln or +6.7% y/y). Imports are up €1,005mln (+3.0%) q/q and are up €1,742 mln (+5.3%) y/y. Compared to Q3 2007, exports are now up 17.3% (+€6,598mln) and imports are down 1.2% (-€404mln).
  • Irish exports now account for 108.01% of our GDP and our imports are at 83.38% of GDP.


In seasonally-adjusted terms:

  • Irish GDP rose €310mln (+0.8%) q/q and €1,464mln (+3.7%) y/y, but GDP remains deeply below Q3 2007 levels (-€4,632mln or -10.1%).
  • Irish GNP shrunk €245mln (-0.7%) q/q and is up €1,909mln (+6.0%) y/y. GNP remains deeply below Q3 2007 levels (-€6,357mln or -15.8%).