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.

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