Let's take a look at three more dynamic sectoral components of GNP.
Services and industry are now pulling in different directions, which means the proverbial glass on growth is really half-full (or half-empty). Amazingly, construction sector continues to shrink. This is even better illustrated as the sector share of domestic economy:
Now, recall that PMIs for construction sector for November showed continued monthly contraction in sector activity, led by civil engineering (as the rest of the sector has already shrunk by well over 80%). 2011 forecast for new homes completion is now around 9,000 units - and in my view that too is rather optimistic. This means we can expect more bad news out of the sector with a continued knock on effect onto auxiliary services and materials sectors.Taking a look at GDP and GNP in current prices terms:
For the second quarter in a row, the value of Irish exports was in excess of the value of the country GDP (by 2.94% in Q3 - down from 3.03% in Q2, while in Q3 2009 it was 11% below the level of GDP). Undoubtedly, weakening euro helped here.Again, in current prices, consumers are still striking, while capital investment has gone even deeper into the negative territory, so that the very partial replacement of amortized stocks that gave it a temporary boost in Q2 before has been exhausted. Government spending is not showing much of a decline.
Take a look at quarterly rates of change in the above components:
We are now an economy that consumes its capital stock, not the one that adds to it for future growth.
There is a symmetry here, then?
ReplyDeleteBy pumping credit into the economy, the economy FIRE sector converts it into income enabling more borrowing and yet more "income".
In reality, they are mis-treating long term investment debt as income.
Inevitably, the demand fails, the cause of all busts, and then all the "income" disappears as reflected by statistics.
This has happened before and may happen again. The banking sub-sector is now the only one to mis-treat loans in this way, now. They are being encouraged to do so as it is the only way to recapitalize without open subsidy, which is also happening.
There will be "overshoot" in the correction, because debt must be repaid added to the absence of the debt as a source of income. There has also been an absence of true sensible investment given that capital was converted into income for such a long period. That means that infrastructure, the area where most cutbacks have been made, should be the area for stimulus!
Steve Keen has suggested that more than 1% of the economy devoted to some measure of banking means a boom is underway?
ReplyDeleteHe seems to be ahead off most economists in his approach as his figures appear predictive rather than descriptive?
I'm not an economics wizard, and god knows where they ( the majority) have gotten us all. To be honest I think we really need some meat-and-potatoes basic common sense decisions. We also need a realistic, feet on the ground, meat-and-potatoes government to straighten all this mess out.
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