Friday, December 20, 2013

20/12/2013: Q3 GDP: Is There a Domestic Recovery?


In previous posts, I covered:
1) top-level data on GDP and GNP growth in q3 2013 (here: http://trueeconomics.blogspot.ie/2013/12/19122013-good-gdp-gnp-growth-headlines.html)
2) expenditure components of GDP and GNP (here: http://trueeconomics.blogspot.ie/2013/12/19122013-qna-q3-2013-expenditure-side.html), and
3) 3-quarters aggregates changes in GDP and GNP (here: http://trueeconomics.blogspot.ie/2013/12/20122013-how-real-is-that-gdp-and-gnp.html)


Now, onto the Domestic Demand.

With both GDP and GNP now severely skewed by the transfer pricing going on in the ICT Services sectors in Ireland, it is no longer reasonable to look at either GDP or GNP for the signs of underlying activity gains in the real Irish economy. Instead, we should consider a combination of all three: changes in GDP, GNP and Final Domestic Demand. Final Domestic Demand is defined as a combination of:

  • Government spending on goods and services (other than investment goods)
  • Government and private investment in the economy, and
  • Private household consumption of goods and services

Unlike Total Domestic Demand, Final Domestic Demand excludes stocks built up by businesses.


First, looking at the Q1-Q3 aggregates comparatives based on data that is not seasonally-adjusted and is expressed in constant euros. In Q1-Q3 2013, final domestic demand in Ireland fell 1.41% compared to the same period in 2012 (down EUR1,293 million y/y). Final Domestic Demand is now down 2.89% on the first three quarters of 2011 and is down 21.6% on the same period of 2007.

In other words, over Q-Q3 2013, on aggregate, there is still no recovery in the domestic economy in Ireland.


Second, let's take a look at q/q changes in the GDP, GNP and Final Domestic Demand. For this purpose, we consider seasonally-adjusted constant euros series.

In Q3 2013, Exports of goods and services fell 0.80% q/q on seasonally-adjusted basis. The decline was shallow compared to 4.63% rise in Q2 2013, but it replicates the pattern of 'quarter up, quarter down' established since Q3 2012.

Overall, since Q1 2011 (in other words since the 'adjustment programme' or 'bailout' started) Irish exports of goods and services were up over 6 quarters and down over 5 quarters. Exports-led recovery stacks ups s follows:

  • In 1997-2007 average quarterly growth in exports of goods and services in Ireland stood at 2.445%;
  • In 2008-present that rate was 0.281% and
  • In 2011-present it is 0.4988%

In other words, massive increases in ICT services exports over the period of the crisis are not strong enough to generate significant uplift momentum in exports growth.

GDP at constant market prices rose 1.502% q/q in Q3 2013, marking a second consecutive quarter of growth. In Q2 2013 the rise was 1.023%. Since Q1 2011, GDP rose on a quarterly basis in 7 quarters and was down in 4 quarters. Overall recovery comparatives are:

  • In 1997-2007 GDP growth average 1.630% on a quarterly basis;
  • Over 2008-present the average is -0.353% and
  • Over Q1 2011-present the average is +0.358%

So there is a longer-term recovery on average, based on GDP, but it is weak, consistent with annualised rate of growth of just 1.44%.


GNP at constant market prices rose 1.580% q/q in Q3 2013, marking the first quarter of growth. In Q2 2013 the GNP contracted 0.133%. Since Q1 2011, GNP rose on a quarterly basis in 6 quarters, it was flat at zero in one quarter, and was down in 4 quarters. Overall recovery comparatives are:

  • In 1997-2007 GNP growth averaged 1.522% on a quarterly basis;
  • Over 2008-present the average is -0.302% and
  • Over Q1 2011-present the average is +0.171%

So there is a longer-term recovery on average, based on GNP, but it is weak, consistent with annualised rate of growth of just 0.68%.


Final Domestic Demand at constant market prices rose 2.412% q/q in Q3 2013, marking the second quarter of growth. In Q2 2013 the FDD was up 0.218%. Since Q1 2011, Final Domestic Demand rose on a quarterly basis in 7 quarters, and was down in 4 quarters. Overall recovery comparatives are:

  • In 1997-2007 FDD growth averaged 1.621% on a quarterly basis;
  • Over 2008-present the average is -0.961% and
  • Over Q1 2011-present the average is -0.175%

So there is no longer-term recovery on average, based on Final Domestic Demand, with FDD contracting on average at an annualised rate of 0.70%. There is, however, good news of FDD rising for two consecutive quarters, clocking cumulative growth of just 2.64% over 6 months or 5.34% annualised. The problem is that the levels from which this growth is taking place are low.

As shown above, overall recovery is not yet taking hold in the domestic economy, although there are some gains recorded in the domestic demand that are encouraging and have been sustained over 2 consecutive quarters.
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