Thursday, December 11, 2014

11/12/2014: QNA Q3 2014: Domestic Demand - Roasted Chicken vs Flying Phoenix

Here is the second post on QNA detailed analysis, covering sectoral distribution of activity in Q3 2014.

Onto my favourite set of QNA data - covering Domestic Demand. Remember that by definition, Domestic Demand comes closest to measuring true extent of Irish economic activity because it combines public and private consumption, public and private investment and net exports. So let's take a look at what's going up and what's taking water.

All data is based on seasonally unadjusted, constant prices terms.

Personal expenditure on goods and services - aka domestic consumption other than Government consumption - stood at EUR20.278 billion in Q3 2014 in real terms which is just EUR9 million above where it was in Q3 2013. In other words, personal consumption grew by a miserly 0.044% in Q3 2014 compared to Q3 2013. Basically - there is no growth here. In Q2 2014, personal consumption expanded at a rate of 1.2% y/y, so we have a major slowdown in spending growth. Over the last 6 months covered by data, personal consumption expanded by a poorly 0.615% - hardly a sign of economy returning to health, let alone a Celtic Phoenix rising.

Net Current Expenditure by Government fared even worse than personal expenditure: it fell EUR91 million in Q3 2014 compared to Q3 2013, down 1.36%, having posted an increase of 5.88% in Q2 2014. Over the last 6 months through September 2014, Government consumption rose 2.15% which is faster than the increase in personal consumption, confirming the simple fact: Irish austerity is more about hammering households than reducing current spending by the Government. Still, the Celtic Phoenix looks more like a roasted chicken with 2.15% growth y/y over 6 months period.

As an aside, one must wonder why in the year of European and local elections would Government spending go up robustly in the quarters relating to elections campaigns while crashing thereafter? Hmm... of course, we do have the New Politics, right?..

Gross Domestic Fixed Capital Formation - the fabled 'Nama-land' and 'foreign investors' and 'sizzling property markets' meme - grew at a rate of 7.8% in Q3 2014 compared to Q3 2013, which is fast, but not as fast as 19.21% recorded in Q2 2014. Over the last 6 months, domestic investment expanded by 13.33%. Which suggests we have found a Phoenix in flight. Except, err… the levels of investment: in Q3 2014 these were at EUR6.592 billion - the 20th lowest reading in any quarter since Q1 2008. That is the 20th lowest quarter out of 28 quarters of the crisis. If we are to look at pre-crisis levels, we'd have to go back to Q3 1998 to find as low of a reading or lower than the one we attained in Q3 2014.

Adding the above three categories together gives us Final Domestic Demand. This measure of the economy grew by 1.20% y/y in Q3 2014. Not too bad, but not quite brilliant. Especially since it marks a slowdown on growth achieved in previous quarter (+5.39%). In 6 months through September, however, Final Domestic Demand expanded 3.25%. Again, not too shabby.

Throwing in changes in the value of stocks transforms Final Domestic Demand into Total Domestic Demand. This posted growth of 4.67% y/y in Q2 2014 and it shrunk at a rate of -0.12% y/y in Q3 2014. Over 6 months through September 2014, Total Domestic Demand expanded by only 2.21%.

So domestic demand growth is slowing down - across all segments. And by one metric it is actually shrinking. Once again, one has to draw two conclusions:

  • We are seeing falling growth signs in the economy; and
  • In some segments of the economy, negative growth is now presenting itself once again.

Can anyone recall if Phoenix is supposed to be flying straight back into the fire?..

Stay tuned for the analysis of external trade figures next.

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