Once again, think of an investor making a choice between sovereign debt of three countries. Fundamentals about current account (external surpluses generated by economy - subject of the first post), government balances (second post), economic income and growth (present post), as well as unemployment, population and income per working person (following concluding post) all help underpin the economy ability to repay its sovereign debts.
So far, we have shown that:
- By external balances metric, Ireland is a much poorer performer than either Switzerland or Lux;
- By sovereign balances metric, Ireland is a much poorer performer than either Switzerland or Lux
Let me put a caveat here - analysis of GDP figures for Lux is a bit tricky, since Luxembourg official stats exclude all those people who work in Luxembourg but reside outside its borders. So the best benchmark here is Switzerland. Sotake a look at the 'Celtic Tiger' vis-a-vis Switzerland. 2002-2007 growth rates are virtually identical in both. But since 2007 - we have been a basket case, while Swiss have been ticking along nicely, like a fabled clock.
And this is highlighted in each country share of the world GDP as well: we have 61% of Swiss population and 886% of Lux's population (Chart 9). Yet we have - in absolute terms - 54% of Swiss global share of GDP and 438% of Lux's. PPP-adjusted, our GDP is just 28.8% of Swiss and 400% of Lux's. In current prices-measured GDP, Ireland's GDP is 42.2% of Swiss and 400% of Lux's. So that population growth dividend isn't really working for us so far.
Per capita GDP in current prices (Chart 10):
- 2008 peaks in all three countries: Luxembourg=USD118,570.05, Ireland= USD60,510.00, Switzerland= USD68,433.12
- Peaks recovered by: Luxembourg= USD119,048.05 by the end of 2015, Ireland= USD60,729.66 by the end of 2019, Switzerland= USD69,838.79 by the end of 2010.
Of course, we were a stellar performer in terms of GDP growth prior to 2006. That's one fundamental where we did shine. But stripping out construction sector contribution in 2001-2007, we are not that spectacular (Chart 11)...
The fourth and last post will conclude by making comparisons across other variables, such as inflation, population growth and labour markets.