Thursday, March 13, 2014

13/3/2014: Domestic Demand 2013 - A Black Hole of Booming Confidence...

This is a third post on the 2013 national accounts.

Remember that boisterous claim by the Irish Government that our economy is growing at rates faster than the euro area average? Eurozone GDP down 0.4% y/y in 2013. It is down 0.65% in Ireland.

That was covered in previous posts here: and here:

But aside from that, QNA also provides a look into the dynamics of domestic demand, which gives a much more accurate picture than GDP and GNP as to what is happening on the ground in the real economy.

Chart above shows y/y changes in domestic demand and its components.

Good news: Gross Fixed Capital Formation was up in 2013, rising EUR710 million y/y.

Bad news: everything else is down:

  • Personal Consumption down EUR941 million y/y in 2013 - a massive acceleration in decline compared to the drop of 'only' EUR229mln in 2011-2012.
  • Net local and central Government spending on current goods and services (so excluding capital investment) is down EUR135 million. I guess one might be tempted to say that is good, because it is an 'improvement' of sorts on a drop of EUR963 million in 2011-2012, but getting worse slower ain't exactly getting better…
  • Final domestic demand posted another year of contraction. In 2012 it was down EUR1.361 billion on 2011. Last year it shrunk EUR366 million on 2012.

In simple terms, domestic demand is now down every year since 2008 and 2013 levels of real domestic demand are down 18.4 percent on their 2008 levels. In 2013, final domestic demand was down 0.3%.

Personal consumption was down 1.15% y/y, net spending by Government on current goods and services was down 0.55% y/y, gorse fixed capital formation was up 4.15%. Something must have happened to all the confidence consumers were having throughout the year… or at lest conveying to the ESRI researchers...

In summary: there is no recovery in domestic economy. None. Which begs a question: what were all those jobs that we have 'created' in 2013 producing? We know that the 'farming jobs' added were generating output equivalent (on average) to EUR 9,900 per person. The rest? Maybe they were measuring confidence?

Chart below shows 2013 demand compared to 2010, 2011 and 2013 levels.

Good thing foreign investors and cash buyers are snapping those D4-D6 houses, because without them, the rest of the domestic economy is still shrinking…

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