In terms of constant prices (real variables):
- Irish Q2 GDP came in at €41,080mln - a rise of €829mln qoq or 2.1% - strong showing. Last time GDP stood at above €41bn was in Q4 2008. YOY real GDP is up €936mln or 2.3% - another strong figure. However, we are still €3.158bn below Q2 2007 levels (-7.1%). This is a benchmark to reach since it represents the pre-crisis peak.
- GNP came in at €32.683bn in Q2 2011, up €354mln (+1.1%) qoq - growth, but anemic given previous quarter sharp fall-off. YOY GNP is also up 1.1% (+€368mln), but relative to Q2 2007 we are still down 11.7%.
Due to slower growth in GNP, the GNP/GDP gap has widened in Q2 2011 from 19.7% in Q1 to 20.4% in Q2. We are now at the largest gap point since Q1 2003. Importantly, the gap widening - due to higher outflows of profits expatriated by the MNCs - did not push GNP into negative growth this quarter. This reflects positive activity in non-exporting sectors. Income from the ROW - the category that captures profits expatriation - went from -€7.922bn in Q1 2011 to -€8.397bn in Q2 2011, reaching the highest level since Q1 2003.
Index of sectoral activity shows that:
- Consumption activity declined from 98.5 in Q1 2011 to 97.8 in Q2 2011. Index of consumption activity stood at 100.2 in Q2 2010. Q2 2011 marks the second quarter of index falling below 100 (which marks Q1 2005 level of activity). Prior to the last two quarters, index never dipped below 100 in the series since Q1 2005. In constant prices, Consumption has dropped from Q1 2011 reading of €20.336bn to €20.19bn in Q2 2011. This reflects an 0.7% decline qoq and 2.4% drop yoy. Compared to Q2 2007 we are now spending €4.199bn less on Consumption (-10.7%).
- Net Government Expenditure has dropped from €6.708bn in Q1 to €6.484bn in Q2 2011 (-3.3% qoq). Government spending is now 3.3% behind Q2 2010 and 10.7% below Q2 2007 levels. Notice that Government consumption decreases are now catching up with those in private consumption. To see this, consider index movements. Recall that in Q1 2005 the index stood at 100. Current index for Government expenditure reading is 104.3, down from 107.9 in Q1, but still above Q1 2005 levels.
- Fixed capital formation improved slightly, in terms of index, rising from 46.5 in Q1 2011 to 46.7 in Q2 2011. However this is the fourth consecutive month that the index is below 50. In absolute terms, Gross fixed capital formation was €4.665bn in Q2 2011, up 0.4% on Q1 2011. Capital investment is, however, still 14.3% below the levels in Q2 2010 and a massive 51% below Q2 2007 levels. My recent research, presented last week at a conference in UCC shows that we are now close to failing to cover amortization and depreciation on existent stock of both private and public capital.
- One of the largest positive contributions to growth in Q2 2011 came from the increases in the value of physical changes in stocks, which rose €760mln qoq and €782mln yoy.
- Exports are booming - as we know, and imports rose much less dramatically than exports Q2 2011, so net trade grew, yielding a net positive contribution to GDP. Exports are now up 5.8% qoq against imports rising 3.4%, while yoy exports are up 4.9% against imports rising just 0.1%. This clearly suggests that we are not running 8%+ growth in exports and also shows that transfer pricing is one of the core drivers of our exports as inputs imports are not exactly dramatic. The 8% growth in exports is what underlies much of the DofF rosy projections for 2011 made back in the Budget 2011 (of course, since then DofF has revised its growth projections down to 0.8% annual rate for 2011 GDP).
I will post on detailed breakdown by sectors and annual forecasts for QNA series in my next post.
So to conclude & summarise: we have some good news here - both GDP and GNP expanded, against the backdrop of continued growth in MNCs profits outflows, implying that despite sluggish GNP growth, domestic activity (if only carried out by exporting sectors) is growing. These numbers are, of course, subject to significant uncertainty as preliminary data tends to be revised and sometimes substantially, while overall quarterly series tend to show high volatility. Lastly, there is an ongoing slowdown in all leading indicators for Q3 growth both domestically and internationally. And longer-term view is still bleak - with continued domestic and international crises, dead banking sector, prospect of state-sponsored duopoly in the banking sector in the foreseeable future, forthcoming increases in taxation and further cuts in investment, and importantly, the prospect of rising pressures post-crisis on the interest rates expectations.
Nonetheless, for our battered economy of the last 3 years, we can have a light smile tonight.
3 comments:
It is sub-optimal growth, an end product of the government's austerity measures. The move towards another global recession will wipe out these meagre gains. Given a different alternative path to recovery, GNP, GDP, Exports, Consumption, fixed capital formation would be much higher. Unfortunately figures and graphs merely depict an uncomfortable reality or an artificially imposed reality (depending on your viewpoint), they do not remove massive debt burdens, stimulate economic recovery, innovation, growth, etc. etc.
The continuing turmoil on the markets, and inability of Irish and European government austerity measures to deal with the crisis shows the utter futility of the present course of action and mindset. There is a desperate need to move away from the current economic paradigm, so beloved of our government ministers and civil servants. I have created a series of alternative proposals to the government policies and bank bailout mechanisms. They are practical and innovative and would remove the private banking debt burden off the backs of Irish taxpayers and the unemployed and disabled and onto the backs of the private bankers and central bankers. You can view the alternative proposals at www.goodwillbank.com.
Have a read and see what you think.
Thank you for such detailed article Constantin. How much do you fear the slow down in growth in France and Germany will impact on the Irish exports in the next 2 quarters? Hopefully not too much
While the numbers show a meagre improvement, they also depict the harsh reality of the government's misguided austerity policies. The figures for GNP, GDP, Exports, fixed capital formation etc. are below average and well below optimum levels for an economy such as Ireland, and this is reflected in the high unemployment rate, continuing capital flight, emigration rate, poverty rate and rising bankruptcies. I don't see these figures presented though. Once an economy has reached rock bottom, it can only crawl up, by meagre gains, though the continuing austerity policies and recession may enable the descent into a new rock bottom, a new level of economic disaster. Thus figures, graphs and stats are unhelpful, as they in themselves do not propose new alternative policies and alternative strategic directions. Why is not possible for economists to provide figures for alternative policies and courses of action, passed on regression analysis, correlations, dynamic continuing factors and past behaviour and trends.
The continuing turmoil on the markets, and inability of Irish and European government austerity measures to deal with the crisis shows the utter futility of the present course of action and mindset. There is a desperate need to move away from the current economic paradigm, so beloved of our government ministers and civil servants. I have created a series of alternative proposals to the government policies and bank bailout mechanisms. They are practical and innovative and would remove the private banking debt burden off the backs of Irish taxpayers and the unemployed and disabled and onto the backs of the private bankers and central bankers. You can view the alternative proposals at http://www.goodwillbank.com.
Have a read and see what you think.
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