Friday, July 4, 2014

4/7/2014: Q1 2014: Domestic Demand dynamics

In the previous posts I covered the revisions to our GDP and GNP introduced by the CSO, top-level GDP and GNP growth dynamics, and sectoral decomposition of GDP.  These provided:

  1. Some caveats to reading into the new data 
  2. That the GDP has been trending flat between Q2-Q3 2008 and Q1 2014, while the uplift from the recession period trough in Q4 2009 being much more anaemic than in any period between 1997 and 2007. The good news: in Q1 2014, rates of growth in both GDP and GNP were above their respective averages for post-Q3 2010 period. Bad news: these are still below the Q1 2001-Q4 2007 averages.
  3. Evidence that in Q1 2014, four out of five sectors of the economy posted increases in activity y/y. 

Now, let's consider Domestic Demand data. In the past I have argued (including based on econometric evidence) that Domestic Demand dynamics are most closely (of all aggregates) track our economy's actual dynamics, as these control for activities of the MNCs that are not domestically-anchored (in other words, they include effects of MNCs activities on Exchequer and households, but exclude their activities relating to sales abroad and expatriation of profits and tax optimisation).

Of the components of Domestic Demand:

  • Personal Consumption Expenditure on Goods and Services stood at EUR19.915 billion in Q1 2014, which is up EUR42 million (yes, you do need a microscope to spot this - it is a rise of just 0.21% y/y. Good news is that this is the first quarter of increases in Consumption Expenditure after four consecutive quarters of decreases. Previously we had a EUR125 million drop in Personal Consumption Expenditure in Q4 2013 compared to Q4 2012.
  • Net Current Government Expenditure stood at EUR6.614 billion in Q1 2014 which is EUR167 billion up on Q1 2013 (+2.59% y/y) and marks third consecutive y/y increase in the series.  Over the last 6 months, Personal Consumption fell by a cumulative EUR83 million and Government Net Current Expenditure rose EUR617 million. Austerity seems to be hitting households more than public sector?..
  • Gross Domestic Fixed Capital Formation (basically an imperfect proxy for investment) registered at EUR6.864 billion in Q1 2014, up EUR191 million y/y. Which sounds pretty good (a 2.86% rise y/y in Q1 2014) unless one recalls that in Q4 2013 this dropped 11.35% y/y. Over the last 6 months Fixed Capital Formation is down EUR798 million y/y in a sign that hardly confirms the heroic claims of scores of foreign and irish investors flocking to buy assets here.
  • Exports of Goods and Services, per QNA data, stood at EUR47.164 billion in Q1 1014, up strongly +7.41% y/y, the fastest rate of y/y growth since Q1 2011 and marking fourth consecutive quarter of growth. I will cover exports data in a separate post, as there is some strange problem with QNA data appearing here.
  • Imports of Goods and Services were up too, rising to EUR37.635 billion a y/y increase of EUR2.086 billion.  
  • Over the last 6 months, cumulatively, y/y Exports rose EUR4.970 billion and Imports rose EUR3.741 billion.
  • Total domestic demand (sum of Personal Expenditure, Government Current Expenditure, Gross Fixed Capital Formation and Value of Physical Changes in Stocks in the economy) stood at EUR33.828 billion. This represents a y/y increase of just EUR335 million or 1.0%. This is the first quarter we recorded an increase since Q4 2013 saw a y/y drop in Total Domestic Demand of 3.83%. Over the last 6 months, cumulatively, Irish domestic economy was down EUR1.087 billion compared to the same 6 months period a year before.

The above are illustrated in the two charts below:

Lastly, let's take a look at nominal data, representing what we actually have in our pockets without adjusting for inflation. Over Q1 2014, nominal total demand rose by EUR499 million y/y, while over the last 6 months it is down EUR570 million y/y. So in effect all the growth in Q1 2014 did not cover even half the decline recorded in Q4 2013. One step forward after two steps back?..

Chart below summarises nominal changes over the last 6 months and 12 months.

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