Friday, July 4, 2014

4/7/2014: Q1 2014: GDP & GNP dynamics

In the previous posts I covered the revisions to our GDP and GNP introduced by the CSO and sectoral decomposition of GDP. The former sets out some caveats to reading into the new data and the latter shows that in Q1 2014, four out of five sectors of the economy posted increases in activity y/y. These are good numbers.

Now, let's consider GDP and GNP data at the aggregate levels.

First y/y comparatives based on Not Seasonally-Adjusted data:

  • GDP in constant prices came in at EUR44.445 billion in Q1  2014, which marks an increase of 4.14% y/y and the reversal of Q4 2013 y/y decline of 1.15%. 6mo average rate of growth (y/y) in GDP is now at 1.49% and 12mo average is at 1.14%. Over the last 12 months through Q1 2014, GDP expanded by a cumulative 1.13% compared to 12 months through Q1 2013.
  • Net Factor Income outflows from Ireland accelerated from EUR7.013 billion in Q1 2013 to EUR7.584 billion. Given the lack of global capes, this suggests that MNCs are booking more profit out of Ireland based on actual activity uplift here, rather than on transfers of previously booked profits. But that is a speculative conjecture. Still, rate of profits expatriation out of Ireland is lower in Q1 2014 than in Q1 2012, Q1 2011 and Q1 2010, which means that MNCs are still parking large amounts of retained profits here. When these are going to flow to overseas investment opportunities (e.g. if, say, Emerging Markets investment outlook improves in time, there will be bigger holes in irish national accounts).
  • GNP in content prices stood at EUR36.861 billion in Q1 2014, up 3.35% y/y and broadly in line with the average growth rate over the last three quarters. This marks the third consecutive quarter of growth in GNP. Over the last 6 months, GNP expanded by 2.98% on average and cumulative growth over the last 12 months compared to same period a year before is 2.67%.

Two charts to illustrate:

The above clearly shows 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 has been much more anaemic than in any period between 1997 and 2007.

The good news is that in Q1 2014, rates of growth in both GDP and GNP were above their respective averages for post-Q3 2010 period. Bad news is that these are still below the Q1 2001-Q4 2007 averages.

GNP/GDP gap has worsened in Q1 2014 to 17.1% from 16.4% in Q1 2013. The same happened to the private sector GNP/GDP gap which increased from 18.3% in Q1 2013 to 19.1% in Q1 2014. This implies that official statistics, based on GDP figures more severely over-estimate actual economic activity in Ireland in Q1 this year, compared to Q1 last.

Chart to illustrate:

Switching to Seasonally-Adjusted data for q/q comparatives:

  • GDP in constant prices terms grew by 2.67% q/q in Q1 2014, reversing a 0.08% decline in Q4 2013 and marking the first quarter of expansion. 6mo average growth rate q/q in GDP is now at 1.30% and 12mo at 1.26%. 
  • GNP in constant prices terms grew by 0.48% q/q in Q1 2014, a major slowdown on 2.24% growth in Q4 2013. Q1 2014 marked the third quarter of expansion, albeit at vastly slower rate of growth compared to both Q3 2013 and Q4 2013. 6mo average growth rate q/q in GNP is now at 1.36% and 12mo at 1.34%. 

Chart to illustrate:

Finally, let's re-time recessions post-revisions.

Red bars mark cases of consecutive two (or more) quarters of negative q/q growth in GDP and GNP:

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