7/2/20: Mapping Real Economic Debt 2019

A neat summary map of the real economic debt as a share of the national economies, via IIF, with my addition of Ireland's benchmark relative to its more accurate measure of the national income than GDP:

Yep, it is unflattering... albeit imperfect (there is some over-estimate here on the corporate debt side).

15/12/19: Under the Hood of Irish National Accounts: 3Q 2019 Data

CSO have released the latest (3Q 2019) data for the National Accounts. The headlines are covered in the release here: https://www.cso.ie/en/releasesandpublications/er/na/quarterlynationalaccountsquarter32019/ and are worth checking. There was a massive q/q increase in GNP (+8.9%) and a strong rise in GDP (+1.7%).

Official value added q/q growth figures were quite impressive too:

• Financial & Insurance Activities value added was +5.7 percent in volume, all of which, judging by the state of the Irish banks came probably from the IFSC and insurance premiums hikes
• Professional, Administrative & Support Services +5.1 percent (this sector is now heavily dominated by the multinationals)
• Public Administration, Education and Health sector lagged with a +1.5 percent 
• Arts & Entertainment +1.8 percent
• Construction grew by much more modest +1.3 percent 
• Industry (ex-Construction) fared worse at +1.1 percent 
• Information & Communication increased by 0.8 percent over the same period
• Meanwhile, more domestic-focused Agriculture recorded a decline of 3.2 percent 
• Distribution, Transport, Hotels & Restaurants posted a decline of 1.0 percent.

On the expenditure side of accounts:

• Personal Consumption Expenditure increased by 0.9 percent q/q
• Government expenditure increased 1.2 percent.

Not exactly the gap we want to see, especially during the expansionary cycle, but public consumption has been running below private consumption in level terms ever since the onset of the recovery.

With this in mind, here is what is not discussed in-depth in the CSO release. CSO reports a measure of economic activity that attempts to strip out some (but not all) of the more egregious effects of the tax optimising multinational enterprises' on our national accounts. The official name for it is 'Modified Domestic Demand', "an indicator of domestic demand that excludes the impact of trade in aircraft by aircraft leasing companies and trade in R&D service imports of intellectual property". Alas, the figures do include intangibles inflows, especially IP on-shoring, income from domiciled intangible assets, and transfer pricing activities. Appreciating CSO's difficulties, it is virtually impossible to make a judgement as to what of these three components is real (in so far as it may be actually physically material to Irish enterprises and MNCs trading from here) and what relates to pure tax optimisation.

With liberty not permitted to CSO, let's take the two categories out of the aggregate modified demand figures.

So, this good news first: Modified Total Domestic Demand is growing and this growth (y/y) is improving since hitting the recovery period low in 3Q 2018. 

Bad news: growth in modified domestic demand remains extremely volatile - a feature of the Irish economy since mid-2014 when the first big splashes of the Leprechaun Economics started manifesting themselves (also see last chart below).

Not great news, again, is that domestic growth is not associated with increases in investment (first chart above, blue line). 

More good news: in levels terms, adjusting for inflation, Ireland's Modified Domestic Demand has been running well-above pre-crisis period peak average levels for quite some time (chart below). Even better news, it appears that much of the recent support for growth in demand has been genuinely domestic.

Next chart shows y/y growth rates in the headline Modified Total Domestic Demand as reported by the CSO (blue line) and the same, less transfer pricing, stocks flows and IP flows (grey line). 

Starting with mid-2014, there is a massive variation in growth rates between the domestic economy growth rates as reported by the CSO and the same, adjusting for MNCs-dominated IP and transfer pricing flows, as well as one-off effects of changes in stocks (inventories). There is also tremendous volatility in the MNCs-led activities overall. Historically, standard deviation in the y/y growth rates in official modified domestic demand is 5.68, and for the period from 3Q 2014 this is running at 5.09. For modified demand ex-transfer pricing, IP and stocks flows, the same numbers are 6.12 and 1.62. 

Overall, growth data for Ireland has been quite misleading in terms of capturing the actual tangible activities on the ground in prior years. But since mid-2014, we have entered an entirely new dimension of accounting shenanigans by the multinationals. Much of this is driven by two factors:

1. Changes in tax optimisation strategies driven by the international reforms to taxation regimes and the resulting push by the Irish authorities to alter the more egregious loopholes of the past by replacing them with new (IP-related and intangible capital-favouring) regime; and
2. Changes in the ays in which MNCs prioritise specific investment inflows into Ireland, namely the drive by the MNCs to artificially or superficially increase tangible footprint in the Irish economy (investment in buildings, facilities and on-shored employment) to provide cover for more tax-driven FDI.

Time will tell if these changes will lead to more or less actual growth in the real economy, but it is notable that the likes of the IMF have recently focused their efforts at detecting tax optimising activities at national levels away from income flows (OECD approach to tax reforms) to FDI stocks and firm-level capital activities. By these (IMF's) metrics, Ireland has now been formally identified as a corporate tax haven. How soon before the OECD notices?..

5/1/17: Gwan Ya Beaut... Irish PMIs ≠ Irish GDP

Some years ago, I have shown that Irish measures of economic activity - when collected at sectoral levels - have virtually nothing in common with Irish GDP and GNP. Given recent revisions to economic growth and the National Accounts, including the absurd levels of notional GDP and GNP growth recorded in 2015 and in parts of 2016, it is worth to revisit the same issue.

So here is the data: the best advanced indicator data on Irish economic activity that we have is the set of Purchasing Managers Indices (PMIs) released by Markit for three key sectors of the economy: Construction, Manufacturing and Services. Markit are doing pretty much an honest job surveying companies to determine if they are experiencing uptick or decline in their activities. And they are doing this every month. Yes, there are issues with data quality due to what appears to be a strong pro-MNCs bias in the surveys. And yes, Markit are refusing to fully investigate the matter and to test data formally for such biases. And yes, Markit are still not willing to share with me their data, including the actual final data set of PMIs (I have to collect these manually, every month).

But, for all the above problems, Markit is the only source of leading economic indicators for Ireland.

So next is the question: do rates of growth signalled by PMIs actually relate to the rates of growth recorded in the economy (GDP and GNP)?

Let’s take a look, using CSO’s official National Accounts data.

The above shows whatever is happening in Manufacturing. Nope, growth rates signalled by PMIs are not correlated with growth rates in GDP or GNP.  Changes in Manufacturing PMI signals account for only 9.3% of variation in GNP and 6.4% variation in GDP. You wouldn’t be asking Manufacturing sector for its view if you wanted to gauge Irish aggregate economy. 

The above shows what is happening in Services. Again, growth rates signalled by Services PMIs are not correlated with growth rates in GDP or GNP.  Changes in Services PMI signals account for only 12.6% of variation in GNP and just under 8% variation in GDP. You wouldn’t be asking Services sector for its view if you wanted to gauge Irish aggregate economy either.

Why are both sectors signals come out utterly useless when it comes to signalling growth in either GDP or GNP? We have no idea. But my speculative view is that in reality, even large MNCs can’t organically establish their own ‘contributions’ to Irish GDP because whilst purchasing managers and related executives on operations side might know what their divisions are doing and how much more or less business they are handling, the same managers have no idea what value in the end will be attached to their divisions work by the finance lads on the Mother Ship. In other words, real operations managers have no clue how much their companies are booking in revenues or profits because these revenues and profits have only tangential connection of Irish operations. Tax arbitrage is such a naughty thingy, you see, when it comes to collecting data.

Not that Markit (or a vast array of Irish stuff brokers so keen on using its data to ‘interpret’ ‘buy everything’ signals for Irish assets) mind… Gwan, ya beaut... buy some stocks, will ya?

15/7/16: A Booming Tax Haven? And Why Not?

Yes, we all know, Irish GDP in 2015 grew by an officially idiotic 26%. And yes, I am no longer gracing these illusionary / delusionary numbers with an attempt at any serious analysis. Doing so would be too big of an intellectual subsidy to the world of Irish officialdom. So here are two quite opposite (in their top-line accuracy) views of the same problem, that both, in the end, arrive at the same conclusion:

One view is from Fortune magazine http://fortune.com/2016/07/13/ireland-tax-haven-gdp-up/ where the headline says all you need to know

And another is from the Irish Times, that rows in with a more 'diplomatic' (aka - easier to chew by the Dons of the Irish Civil Service) discourse that is worth reading, despite it containing some pretty delusional (see my twitter stream from today on this) statements: http://www.irishtimes.com/business/economy/ireland-s-gdp-figures-why-26-economic-growth-is-a-problem-1.2722170#.V4i7kuyVTic.twitter.

In the nutshell, Fortune got it right at the top level, Irish Times got some beefier discussion of the details.

13/12/15: Irish National Accounts 3Q: Post 6: Exports and MNCs

In the previous 6 posts, I covered:

1. Irish National Accounts 3Q: Sectoral Growth results;
2. Irish year-on-year growth rates in GDP and GNP;
3. Quarterly growth rates in Irish GDP and GNP; 
4. Irish Domestic Demand (Household Consumption, Government Spending and Public and Private Investment)
5. Irish external trade; and
6. Evolution of per-capita metrics and the dynamics of the crisis.

So let’s get down to the last post on the matter of Irish National Accounts for 3Q 2015: the subject of Irish economy’s dependency on MNCs… err… exports that is.

Real Exports as a share of Irish real GDP stood at 120.1% in 3Q 2015, the second highest proportion on record, down from 123.0% in 2Q 2015 which was record-breaking level. Similarly, Nominal Exports as a share of nominal GDP fell from 127.2% in 2Q 2015 (highest on record) to 122.7% (second highest).

This is a remarkable set of numbers, driven predominantly by the activities of MNCs in Irish economy, and a number that is a signifier of all that is wrong with our National Accounts. Unlike countries that serve as a basis for production, Ireland serves as a basis for both some production of goods and services, but also as a platform for large scale tax optimisation. Vast majority of our exports are accounted for by MNCs trading from here, with large share of activity not taking place here, but being booked into Ireland from abroad. This distorts actual levels and value of production, but it also distorts the metrics of this economy’s openness to trade.

As the result on much of the MNCs activities, profits derived in Ireland by MNCs can go four ways:

1. They can be booked into tax havens (in which case they register as outflows from Ireland or Irish imports);
2. They can be booked in Ireland as profits and retained here (in which case they accrue to our National Accounts);
3. They can be registered here and then repatriated abroad (in which case they register as outflows of factor income); and
4. They can be booked into here and then expatriated, but remain on our books, as long as the MNCs is domiciled here (e.g. company created as an Irish entity via inversion).

We have zero ability to tell how much exactly do MNCs derive in profit from activities here and tax optimisation through here. But we do have a number that partially captures (3) above. This is provided by Net Factor Income Outflows to the Rest of the World and here is the chart showing how it evolved over time relative to Exports:

Do note that over 2011 - present period, average net outflow of factor payments abroad has fallen as a share of Exports from 17.5% in the period of 1Q 2002 - 4Q 2010 to 15.1%, the lowest period average on record. In other words, during the last 4 and 3/4 years MNCs operating from Ireland have been expatriating fewer profits abroad than in other periods in history. Question is: what happens to these retained profits over time? Obviously, these MNCs have absolutely no interest in re-investing these profits in Ireland (there is neither the scale for such reinvestment, nor the need). This suggests that either these profits are being parked until such a time as when they can be expatriated for the purpose of funding MNCs investments around the world, or the MNCs overall switched to declaring lower profits as a share of their exports.

Truth is - we do not know what is going on, though we do know that something is afoot.

Overall, however, Irish economic miracle’s dependence on MNCs-driven exports growth is growing, whilst transparency of MNCs operations here (at least as far as the National Accounts go) is declining. Happy FDI days are upon us… as long as the U.S., OECD, EU, and the rest of the host of states and organisations hell-bent on ending the free for all tax optimisation by corporates aren’t looking…

12/12/15: Irish National Accounts 3Q: Post 5: External Trade

In the first post of the series, I covered Irish National Accounts 3Q: Sectoral Growth results. The second post covered year-on-year growth rates in GDP and GNP, while the third post covered quarterly growth rates in GDP and GNP. The fourth post covered Domestic Demand.

Now, consider external trade side of the National Accounts.

Irish Exports of Goods & Services stood at EUR62.52 billion in 3Q 2015, a rise of 12.4% y/y, after posting growth of 13.5% y/y in 2Q 2015 and 15.5% growth in 3Q 2014. Over the last four quarters, Irish Exports of Goods & Services grew, on average, at a rate of 13.4%, implying doubling of exports by value roughly every 5.5 years. If you believe this value to be reflective of a volume of real economic activity taking place in a country with roughly 1.983 million people in employment, you have to be on Amsterdam brownies. Over the 12 months through 3Q 2015, Irish economy has managed to export EUR235.67 billion worth of stuff, or a whooping EUR27.828 billion more than over the same period a year before. That’s EUR118,845 per person working at home or at work in Ireland.

Now, moving beyond the total, Exports of Goods stood at EUR34.062 billion in 3Q 2015, up 16.07% y/y - a doubling rate of 4.5 years. Exports of goods were up 16.03% y/y in 2Q 2015 and 16.9% in 3Q 2014, so over the last 12 months, average rate of growth in Exports of Goods was 18.01%. In other words, Irish Exports of Goods (physical stuff apparently manufactured here) are running at a rate of increase consistent with doubling of exports every 4 years.

Exports of Services are still ‘lagging’ behind, standing at EUR28.458 billion in 3Q 2015, up 8.2% y/y in 3Q 2015, having previously risen 10.5% in 2Q 2015. Both rates of growth are below 13.9% heroic rate of expansion achieved in 3Q 2014. Over the last four quarters, average rate of growth in Irish Exports of Services was 8.6%, to EUR107.29 billion.

However, in order to produce all these marvels of exports (and indeed to sustain living and consumption), Ireland does import truck loads of stuff and services. Thus, Imports of Goods and Services overall rose to EUR52.788 billion in 3Q 2015, up 18.9% y/y and beating 16.5% growth in 2Q 2015 and even 18.75% growth in 3Q 2014. Over the last four quarters average rate of growth in Imports of Goods and Services was impressive 17.6%.

Some of this growth was down to increased consumer demand. Imports of Goods alone rose 5.1% y/y in Q3 2015, compared to 8.1% in 2Q 2015 and 16.7% in 3Q 2014 (over the last four quarters, average growth rate was 10.1%). Imports of Services, however, jumped big time: up 27.9% y/y in 3Q 2015, having previously grown 21.8% in 2Q 2015 and 20.2% in 3Q 2014 (average for the last four quarters is 22.6%). Of course, imports of services include imports of IP by the web-based and ICT and IFSC firms, while imports of goods include pharma inputs, transport inputs (e.g. aircraft leased by another strand of MNCs and domestic tax optimisers) and so on.

Both, exports and imports changes are also partially driven by changes in the exchange rates, which are virtually impossible to track, since contracts for shipments within MNCs are neither transparent, more disclosed to us, mere mortals, and can have virtually no connection to real world exchange rates.

All of which means that just as in the case of our GDP and GNP and even Domestic Demand, Irish figures for external trade are pretty much meaningless: we really have no idea how much of all this activity sustains in wages & salaries, business income and employment and even taxes that is anchored to this country.

But, given everyone’s obsession with official accounts, we shall plough on and look at trade balance next.

Ireland’s Trade Balance in Goods hit the absolute historical record high in 3Q 2015 at EUR15.602 billion, up 32.4% y/y and exceeding growth rate in 2Q 2015 (+27.5%) and 3Q 2014 (+17.2%). Meanwhile, Trade Balance in Services posted the largest deficit in history at EUR5.87 billion, up almost ten-fold on same period in 2014, having previously grown by 154% in 2Q 2015.

Thus, overall Trade Balance for Goods and Services fell 13.4% y/y in 3Q 2015 to EUR9.732 billion, having posted second consecutive quarter of y/y growth (it shrunk 0.51% y/y in 2Q 2015).

As chart above shows, overall Trade Balance dynamics have been poor for Ireland despite the record-busting exports and all the headlines about huge contribution of external trade to the economy. On average basis, period average for 1Q 2013-present shows growth rate averaging not-too-shabby 5.1% y/y. However, this corresponds to the lowest average growth rate for any other period on record, including the disaster years of 1Q 2008 - 4Q 2012 (average growth rate of 24.3% y/y).

11/12/15: Irish National Accounts 3Q: Post 4: Domestic Demand

In the previous posts of the series, I covered Irish National Accounts 3Q: Sectoral Growth results;  year-on-year growth rates in GDP and GNP; and quarterly growth rates in GDP and GNP.

Now, let’s look at the Domestic Demand.

Personal Expenditure on Goods & Services rose 3.63% y/y in 3Q 2015 in real terms, posting a stronger growth than in 2Q 2015 (+2.91%) and in 3Q 2014 (+1.11%). Over the last four consecutive quarters, growth in Personal Expenditure on Goods & Services averaged 3.36%. All of this is strong and encouraging, as Personal Expenditure on Goods & Services is one of the few figures still remaining in the National Accounts that are unpolluted by the MNCs activities and as such is a significant reflection of the strength of the real economy.

Despite the rise in 3Q 2015, current level of Personal Expenditure on Goods & Services remains 7.85% below pre-crisis peak levels.

Still, in 3Q 2015, Personal Expenditure on Goods & Services contributed EUR779 million to y/y growth in GDP and GNP, which is up on EUR616 million growth contribution in 2Q 2015 and on EUR236 million growth in 3Q 2014.

Expenditure by Government on Current Goods & Services fell in 3Q 2015 (down -1.38% y/y or -EUR94 million). This compares to growth of 1.82% y/y in 2Q 2015 and 3.23% growth in 3Q 2014. Over the last four quarters, Expenditure by Government on Current Goods & Services growth averaged strong 3.95% - faster than growth in Persona Consumption.

As with Personal Consumption, Government Expenditure is still down on pre-crisis peak levels, in fact, it is down more than Personal Consumption at -13.1%.

Gross Domestic Fixed Capital Formation continued to post literally unbelievable readings in 3Q 2015, rising 35.8% y/y, compared to 34.2% increase recorded in 2Q 2015 and to 10.1% rise in 3Q 2014. 3Q 2015 y/y growth figure was the highest on record and there is a clear pattern of dramatic increases over 4Q 2014, 2Q 2015 and 3Q 2015, with last four quarters average growth rate at 24.9% implying that Irish economy’s capital stock should be doubling in size every 3 years. This is plain bonkers and is a clear signifier of distortions induced into the Irish economy by the likes of Nama, vulture funds and MNCs.

Based on our official accounts, whilst building and construction (including civil engineering etc) added only EUR44 million to GDP in 3Q 2015, Fixed Capital Formation jumped by EUR3.1 billion over the same period of time.

Still, even with this patently questionable accounting, Irish Gross Domestic Fixed Capital Formation remains 11.8% below pre-crisis peak levels.

With all three components of Final Domestic Demand still under pre-crisis peak levels performance, Final Domestic Demand ended 3Q 2015 some 7.0% below pre-crisis peak. However, Final Domestic Demand did post strong growth, rising 10.2% in 3Q 2015 compared to 3Q 2014, with rate of growth in 3Q basically consistent with 10.1% expansion recorded in 2Q 2015, and up strongly on 3.1% y/y growth recorded in 3Q 2014. Over the last four quarters, Final Domestic Demand growth rate averaged 8.35%.

However, virtually all of growth in Final Domestic Demand was accounted for by Fixed Capital Formation - the only component of the Domestic Demand that is impacted by the MNCs. In 3Q 2015, growth in Final Domestic Demand stood at EUR3.782 billion, of which EUR3.098 billion came from Fixed Capital Formation side.

One additional point is worth making with respect to the expenditure side of Irish National Accounts in 3Q 2015. In last quarter, EUR497 million (or 37.6% of total GNP growth y/y) came from the expansion in the Value of Physical Changes in Stocks. This is not insignificant. In 3Q 2015, compared to 3Q 2014, Personal Expenditure in Ireland contributed EUR779 million, while Changes in the Value of Stocks contributed EUR497 million. Absent this level of growth in stocks, Irish GNP would have been up only 3.43% y/y instead of 5.5% and taking into the account last four quarters average changes in Stocks, the GNP would have been up just 2.8%. In other words, quite a bit of Irish GDP and GNP growth in 3Q 2015 was down to companies accumulating Physical Stocks of goods and services, sitting unsold.

A key observation, therefore, from the entire National Accounts series is that one cannot talk about Irish economy ‘overheating’ or ‘running at its potential output’ anymore: all three headline growth figures of GDP growth (+6.84% y/y in 3Q 2015), GNP growth (+5.50% y/y) and Domestic Demand growth (+10.23% y/y) are influenced significantly by MNCs and post-crisis financial and property markets re-pricing. In the surreal world of Irish economics, the thermometer that could have told us about economy’s health is simply badly broken.


Stay tuned for analysis of Irish External Trade figures next.

10/12/15: Irish National Accounts 3Q: Post 3: Quarterly GDP and GNP Growth

In the first post of the series, I covered Irish National Accounts 3Q: Sectoral Growth results (http://trueeconomics.blogspot.ie/2015/12/101215-irish-national-accounts-3q-part.html).

The second post covered year-on-year growth rates in GDP and GNP (http://trueeconomics.blogspot.ie/2015/12/101215-irish-national-accounts-3q-post.html)

Now, consider quarterly growth rates analysis.

While things were bustlingly rosy for GDP and GNP based on year-on-year growth figures, the picture is much more mixed when it comes to quarterly growth rates.

Firstly, GDP at constant factor costs rose 1.43% q/q in 3Q 2015, down from 2.4% growth recorded in 2Q 2015 and on 2.54% growth recorded in 3Q 2014. In so far as this reflects sectoral activity, this slower 3Q 2015 growth is hard to interpret.

Taxes at constant factor costs actually fell 1.49% q/q in 3Q 2015, having risen just 0.37% q/q in 2Q 2015. 2014 3Q contraction was much sharper at 6.65%.

GDP at constant market prices rose 1.37% q/q in 3Q 2015, once again posting slower rates of growth than in 2Q 2015 (+1.89%) and in 3Q 2014 (+2.06%). The current rate of q/q growth in GDP was the slowest in 3 quarters, but remains significant (above 1.33% average for the period of 1Q 2013 - 3Q 2015.

GNP surprised to a downside, falling 0.81% q/q in 3Q 2015, having previously posted growth of 1.35% in 2Q 2015 and having expanded 2.71% in 3Q 2014. In fact, 3Q 2015 is the worst quarter-on-quarter growth result for GNP since 4Q 2013 and the second quarter of negative growth over the last 4 quarters (previous one was in 1Q 2015 at -0.24%).

Over the first three quarters of 2015, GNP growth averaged 0.1%, which compares poorly to 1.97% average for the first three quarters of 2014 and 3.21% average growth posted for the first 3 quarters of 2013, and ditto for 2012.

The key takeaways here are:

1. Q/Q GDP growth remains robust, but is now the lowest in 3 consecutive quarters;
2. Q/Q GNP growth has turned negative once again in 3Q 2015, posting the worst reading for any quarter since 4Q 2013.
3. Meanwhile, net factor income outflows to the rest of the world are booming, hitting (on seasonally adjusted basis) the highest level since 4Q 2011 and the second highest level on record. 

In other words, MNCs extraction of profits from the economy is ramping out, which is helping the Exchequer and pushes up GDP, but also is leading to GNP growth lagging that of GDP.


Stay tuned for more analysis coming up.

10/12/15: Irish National Accounts 3Q: Post 2: Annual GDP and GNP Growth

In the first post of the series, I covered Irish National Accounts 3Q: Sectoral Growth results (http://trueeconomics.blogspot.ie/2015/12/101215-irish-national-accounts-3q-part.html).

Now, consider data for GDP and GNP aggregates. Starting with seasonally unadjusted data (real variables) to allow for y/y comparatives.

Taxes at Constant Factor Costs:

• In 3Q 2015, Taxes at Constant Factor Costs rose at 6.95% y/y, having previously posted an increase of 6.04% in 2Q 2015 and a rise of 1.67% y/y in 3Q 2014. Taxes at Constant Factor Costs added EUR403 million to official GDP in 3Q 2015, a rise on the increase of EUR279 million in 2Q 2015 and a massive jump compared to the y/y uplift of EUR95 million in 3Q 2014. This clearly correlates with the data from the Exchequer and most likely is dominated by unexpected (and unexplained) growth in corporation tax receipts. 
• Over nine months through September 2015, Taxes at Constant Factor Costs rose EUR1.129 billion (+7.05%) compared to the same period of 2014. This rise now accounts for 16.9% of the increase in GNP over the same period. 

GDP at Constant Market Prices:

• GDP rose incredible 6.95% y/y in 3Q 2015, having previously posted growth of 6.84% y/y in 2Q 2015, both up on 3.75% growth in 3Q 2014. Year on year, 3Q 2015 rose EUR3.384 billion, which was up on 2Q 2015 growth of 3.234 billion, with both quarters posting massive uplift compared to 3Q 2014 growth of EUR1.757 billion.
• In 3 quarters of 2015, GDP rose by EUR9.943 billion which corresponds to annual growth of 7.04% and amounts to 148% uplift compared to the rise in GNP.

GNP at Constant Market Prices:

• -GNP rose 3.18% y/y in 3Q 2015, less than half the rate of increase in GDP. This comes on foot of the 5.5% y/y growth in 2Q 2015 and lower than 3Q 2014 growth of 3.68%. 
• Over the 9 months through September 2015, Irish GNP grew cumulative EUR6.694 billion (+5.58%) compared to the same period of 2014. This is appreciable growth, but it is far short of the GDP expansion over the same period. 

Per chart above, both GDP and GNP continue on the upward trend, albeit at different rates of growth. This divergence is now translating into widening (once again) GDP/GNP gap. In 2Q 2015, the GDP/GNP gap stood at 18.9%. In 3Q 2015 the gap widened to 21.65% - the largest since 1Q 2012 and well above the average of 17.8% for the period from 1Q 2013 through 3Q 2015. This gap used to reflect most of the over-statement of actual economic activity due to the MNCs trading in the Irish economy, but it no longer does, as new accounting standards now push up (superficially) or investment (via R&D reclassification in recent years, and through the upcoming ‘Knowledge Development Box’) and as MNCs continue to alter their pattern of profit flows through Ireland.

The latter aspect is reflected in rising volatility of Net Factor Income Flows which rose to 17.8% as a share of GDP in 3Q 2015, the highest level since 1Q 2012.

Incidentally, Net Factor Income for Rest of the World stood at a whooping EUR9.264 billion in 3Q 2015 - the highest level on record. Over nine months through September, MNCs-driven outflows of payments from Ireland exceeded inflows of payments into Ireland by a massive EUR24.67 billion which is 15.2 percent higher than for the same period of 2014.

Here is a comparative to ponder: in the first three quarters of 2015, GNP rose EUR6.69 billion on the same period of 2014, while net outflows of factor payments out of Ireland rose EUR3.25 billion, almost 1/3 of the increase in GDP and 1/5 of the increase in GNP.

Still, it is worth noting that for all of the above caveats, based on 4 quarters rolling cumulative measure, Irish GDP is now 6.97% above pre-crisis peak and is 6.78% ahead of where it was a year ago. For GNP, current 4 quarters cumulative reading is 8% ahead of pre-crisis peak and 6.45 above last year’s reading.


Stay tuned for quarterly growth rates analysis coming up next.

10/12/15: Irish National Accounts 3Q: Part 1: Sectoral Growth

CSO released data for national accounts for Ireland, so in the next few posts I will be covering headline results. As usual, starting with sectoral accounts, showing decomposition of growth by sector. All data is based on seasonally unadjusted figures, allowing for y/y comparatives and expressed in real terms.

Agriculture, Forestry and Fishing sector contribution to GDP:

• Real activity in Agriculture, Forestry and Fishing sector rose strong 16.0% y/y in 3Q 2015 a rate of growth that was more robust than 9.97% expansion recorded in the sector in 3Q 2014. This is the fastest pace of y/y growth in 3 quarters, and especially welcoming given that 2Q 2015 growth came in at negative -2.87% y/y. Overall, Agriculture, Forestry and Fishing sector contributed EUR210 million to GDP growth in 3Q 2015, which amounts to 7% of total 3Q 2015 expansion in GDP y/y. On a cumulative 3 quarters basis, Agriculture, Forestry and Fishing sector expanded its activity by EUR200 million or +5.67% y/y, which is well below same period 2014 growth that stood at EUR502 million and +16.58%. 
• One key conclusion from the above figures is that Agriculture Forestry and Fishing has expanded robustly over both 3Q 2015 and on the cumulative basis over the first nine months of 2015. Which is good news.

Industry sector contribution to GDP:

• Overall Industry, including construction posted expansion of 16.08% y/y in 3Q 2015, which compares favourably to 5.15% growth in 2Q 2015 and to 4.23% growth y/y in 3Q 2014. Industry contribution to GDP growth over the first nine months of 2015 stood at EUR3.519 billion up 10.17% y/y. This is an improvement on the sector contribution over the first nine months of 2014 which stood at EUR2.25 billion (+6.95% y/y).
• Within Industry sector, Transportable Goods Industries and Utilities sub-sector activity rose 17.83% y/y in 3Q 2015 - a pace of growth well ahead of 5.51% growth in 2Q 2015 and 3.70% in 3Q 2014. Over the first nine months of 2015, Transportable Goods Industries and Utilities sub-sector added EUR3.412 billion to our GDP (+10.97% y/y), which vastly outstrips EUR1.913 billion added by the sub-sector to the economy over the first nine months of 2014. 
• So, our second core conclusion from these data is that Transportable Goods Industries and Utilities sub-sector - dominated strongly by MNCs - has been growing at unbelievably high rates of 10.97% y/y over the first 3 months of 2015. This is consistent with sector activity more than doubling in less than 7 years - a rate of expansion that consistent with a rapidly growing emerging economy, rather than with a mature economy. The Transportable Goods Industries and Utilities sub-sector was responsible for 54.3% of total growth in GDP over 3Q 2015 and 39% of total growth in Irish GDP over the period of 1Q-3Q 2015. Again, these are simply incredible figures, suggesting high degree of distortions from MNCs accounting practices and, potentially, exchange rates changes.
• Building and Construction sub-sector of Industry showed much more modest rates of growth, with 3Q 2015 y/y expansion at 3.49%, better than 1.52% growth recorded in 2Q 2015, but less than 7.8% growth in 3Q 2014. Construction sector contributed 1.47% to the overall gains in Irish GDP over 3Q period. For the first nine months of 2015, cumulative y/y growth in Building and Construction sub-sector output amounted to just EUR108 million (+3.09% y/y) which is three times slower in terms of the rates of growth recorded in the sub-sector over the same period of 2014.
• Our third core conclusion, therefore, is that traditional activity - proxied by Building and Construction sub-sector is growing in Ireland at rates probably closer to 3.5-4 percent - appreciable and positive, but not as massive as 6.8% growth recorded by the sectoral GDP (GDP at factor cost).

Distribution Transport Software and Communication (DTSC) sector activity:

• Distribution Transport Software and Communication sector activity grew at 8.28% y/y in 3Q 2015, which is slower than 11.2% growth recorded in 2Q 2015, but faster than 7.52% growth penned in 3Q 2014. The sector contributed EUR1.05 billion to GDP expansion in 3Q 2015 which amounts to 35.1% of the total growth in the GDP at factor cost. On the 9 months cumulative basis, Distribution Transport Software and Communication sector activity grew by EUR3.38 billion (+9.7% y/y) in 2015 compared to 2014.
• Once again, robust rates of growth in the sector are most likely reflective of the shifting MNCs strategies relating to tax optimisation, plus, potentially, the effects of exchange rates changes.

Public Administration and Defence sector contribution to GDP at factor cost:

• Public Administration and Defence sector activity shrunk 0.97% y/y in 3Q 2015, which is shallower contraction that -4.37% decline y/y in 2Q 2015 and -2.58% drop y/y in 3Q 2014. On a 9 months basis, Public Administration and Defence sector activity reduced our GDP at factor cost by EUR167 million (-3.59%). 
• 3Q 2015 contraction in sector activity was the shallowest in 5 quarters.

Other Services (including Rent) sector activity:

• Other Services (including Rent) activity rose 3.84% y/y in 3Q 2015, having previously posted 4.35% expansion in 2Q 2015 and 5.23% growth in 3Q 2014. 
• The sector contributed 22.9% of total growth in GDP at factor cost in 3Q 2015. 

As chart above shows, GDP at factor cost posted rates of growth above 2012 - 3Q 2015 average in every quarter since Q1 2014. Also, since 1Q 2015, rates of growth have been running above pre-crisis period average (Q4 2002-Q4 2007).

All of this is good, with positive dynamics in trends:

However, growth by sources remains unbalanced and most likely reflects skew in favour of MNCs-led sub-sectors:

Key conclusions are:

• Irish sectoral growth shows strong aggregate figures, with GDP at factor cost expansion over the first nine months of 2015 amounting to EUR8.831 billion (+6.91%) year on year, which is stronger than growth recorded over the same period of 2014 (EUR5.852 billion or +4.80% y/y).
• Sectoral contribution to growth show continued evolution of unbalanced economy skewed in favour of MNCs-led sectors, with Transportable Goods Industries and Utilities sector accounting for 38% of total growth recorded over the first nine months of 2015 compared to the same period of 2014, followed by Distribution Transport Software and Communication (38% share of total growth) and Other Services (including Rent) (+24% share). (Note: these shares add up to more than actual GDP at factor cost due to the ways in which CSO computes GDP at factor cost totals)
• All indications are that despite the MNCs bias in the figures, domestic activity did improve and is currently running at higher rates than in 2Q 2015 and over the first nine months of 2014.

Stay tuned for more analysis. 

10/9/15: 2Q 2015 National Accounts: External Trade

In the first post of the series covering 2Q national Accounts data, I dealt with sectoral composition of growth, using GDP at Factor Cost figures.

The second post considered the headline GDP and GNP growth data.

The third post in the series looked at the Expenditure side of the National Accounts, and Domestic Demand that normally more closely reflects true underlying economic performance,

Now, consider extern trade.

• Exports of Goods and Services were up 13.56% y/y in 2Q 2015 previously having risen 14.17% y/y in 1Q 2015. Over the last 4 quarters, growth in exports of goods and services averaged 14.2% y/y.
• Most of growth in exports of Goods and Services is accounted for by growth in Goods exports alone. These rose 16.36% y/y in 2Q 2015 after rising 16.86% y/y in 1Q 2015. Average y/y growth rate in the last 4 quarters was 18.38%. In other words, apparently Irish exports of goods are doubling in size every 4 years. Which, of course, is simply unbelievable. Instead, what we have here is a combination of tax optimisation by the MNCs and effects of currency valuations on the same.
• Exports of Services also grew strongly in 2Q 2015, rising 10.34% y/y, having previously grown 10.94% in 1Q 2015 and averaging growth of 9.94% over the last 4 quarters. Again, these numbers are beyond any reasonable believable uptick in real activity and reflect MNCs activities and forex valuations.
• Imports of Goods and Services rose 16.9% y/y in 2Q 2015, an increase on already fast rate of growth of 15.46% in 1Q 2015. Unlike exports side, imports side of goods and services trade was primarily driven by imports of services which rose 21.8% y/y in 2Q 2015 (+20.7% y/y on average over the last 4 quarters) as compared to 9.0% growth y/y in imports of goods (+13.5% y/y on average over last 4 quarters).

As the result of the above changes,

• Trade Balance in Goods and Services fell in 2Q 2015 by 1.8% y/y, having previously recorded an increase of 7.4% y/y in 1Q 2015. Combined 1H 2015 trade balance is now up only EUR399 million on same period 2014 (+2.26%).
• Trade Balance in Goods registered 26.9% higher surplus in 2Q 2015, and was up EUR6.206 billion in 1H 2015 compared to 1H 2014 (+28.4%). Trade Balance in Services, however, posted worsening deficit of EUR5.584 billion in 2Q 2015 against a deficit of EUR2.174 billion back in 2Q 2014. Over the 1H 2015, trade deficit in services worsened by EUR5.806 billion compared to 1H 2014 (a deterioration of 136% y/y).

CONCLUSION:

1. Irish external trade continued to show strong influences from currency valuations and MNCs activities ramp up, making the overall external trade growth figures look pretty much meaningless. 
2. Overall Trade Balance, however, deteriorated in 2Q 2015, which means that external trade made a negate contribution to GDP growth. 
3. Over the course of 1H 2015, the increase in overall Irish trade balance was relatively modest at 2.26% with growth in goods exports net of goods imports largely offset by growth in services imports net of services exports.

Stay tuned for more analysis of the National Accounts.

10/9/15: 2Q 2015 National Accounts: Domestic Demand

In the first post of the series covering 2Q national Accounts data, I dealt with sectoral composition of growth, using GDP at Factor Cost figures.

The second post considered the headline GDP and GNP growth data.

Here, let's consider the Expenditure side of the National Accounts, and most importantly, Domestic Demand that more likely reflects true underlying economic performance, removing some (but by far not all) tax activity by the MNCs.

As before, I will be dealing with y/y growth figures throughout the post.

Remember: Final Domestic Demand is a sum of Personal Expenditure, Government Expenditure, and Gross Fixed Capital Formation. Adding to that change in stocks gives us Total Domestic Demand, while adding net exports to Total Domestic Demand and subtracting outflows of factor payments to the rest of the world gives us GDP.

• In 2Q 2015, Personal Expenditure on Goods and Services rose 2.83% y/y, having previously risen 3.71% in 1Q 2015. The rate of growth in 2Q 2015 was, therefore, slower than in 1Q, but faster than in 2Q 2014 (2.28%). Overall, Personal Expenditure added EUR599 million to the economy in 2Q 2015 compared to the same period in 2014, a drop in positive contribution from EUR784 million added in 1Q 2015. Nonetheless, the figures for Personal Expenditure are healthy.
• Net Expenditure by Government on current goods & services rose 1.73% y/y in 2Q 2015, which marks a slowdown on 5.45% rate of growth recorded in 1Q 2015. Rate of growth recorded in 2Q 2015 was also lower compared to 2Q 2014 when Government expenditure rose 3.92% y/y in real terms. This marks 2Q 2015 as the first quarter since 1Q 2013 in which Government expenditure rose slower than Personal expenditure.
• Gross Domestic Fixed Capital Formation posted a massive 34.2% rise y/y in 2Q 2015, compared to already rapid growth of 9.2% recorded in 1Q 2015. It is worth noting that these figures include investments by MNCs tax-registered in Ireland (e.g. tax inversions et al) and vulture funds and other foreign investors' purchases of domestic assets. Over the last 4 quarters, Gross Domestic Fixed Capital Formation growth averaged 18.44%. This line of expenditure contributed EUR2.977 billion to GDP growth in 2Q 2015 and in H1 2015 total contribution was EUR3.781 billion.
• As the result of the above, Final Domestic Demand rose 10.07% y/y in 2Q 2015 - a massive rate of increase, especially compared to 5.34% growth recorded in 1Q 2015 and 6.4% growth recorded in 2Q 2014.

However, despite all the Nama sales and vultures investments, tax inversions and organic growth, Irish Final Domestic demand remains below the levels attained prior to the crisis, albeit the gap is now at only 5.62%:

Chart below shows the extraordinary uplift in Gross Fixed Capital Formation:

We have no idea what drove this uptick, but were Gross Fixed Capital Formation growth running at 1Q 2015 pace in 2Q 2015, this line of expenditure contribution to GDP would have been EUR2.175 billion lower, and overall GDP growth would have been less than 2.1% y/y instead of 6.7%. This just shows how volatile Irish figures are and how dependent they can be to a single line change of unknown nature.

CONCLUSIONS: 

1. Overall, Irish economy posted moderate growth in Personal Expenditure and Government Expenditure in 2Q 2015. Slightly negative news is that growth in 2Q 2015 was slower in these two categories than in 1Q 2015.
2. Gross Fixed Capital Formation posted an unprecedented rate of increase y/y rising 34.2% in 2Q 2015. There is absolutely no clarity as to the sources or nature of this growth, especially considering that traditional investment areas of Building & Construction have been growing at just 1.5% y/y in 2Q 2015. Stripping out growth in this area in excess of 1Q 2015 already rapid expansion would have generated much lower, more realistic growth figure for GDP and for Domestic demand.
3. Final Domestic Demand expanded strongly on foot of Fixed Capital Formation, rising 10.1% y/y in 2Q 2015 almost double the 5.3% rate of growth recorded in 1Q 2015.
4. One area of potential concern is the impact on Domestic Demand (via Gross Fixed Capital Formation) from the MNCs activities via MNCs inverted into Ireland. There are multiple examples of such inversions across various sectors all having potential implications on how we treat investment by such firms in National Accounts. Another area of concern is treatment of capital investments by some financial firms, such as aircraft leasing firms and, increasingly, vulture funds and REITS.

Analysis of external trade flows is to follow, so stay tuned.

10/9/15: 2Q 2015 National Accounts: GDP and GNP Growth

In the previous post covering 2Q national Accounts data, I dealt with sectoral composition of growth, using GDP at Factor Cost figures.

Here, consider the headline GDP and GNP growth data.

First, year on year figures:

• As noted earlier, GDP at factor cost rose 6.52% y/y in 2Q 2015, having previously expanded 6.77% y/y in 1Q 2015. This means that sectoral growth slowed down slightly in 2Q 2015 compared to 1Q 2015, although the slowdown was not very large. Still 2Q 2015 growth was faster than 2Q 2014 growth (6.31%). These are good news. In 2Q 2015, GDP at constant factor cost contributed EUR2.833 billion to overall GDP and over the course of 1H 2015 cumulative y/y contribution was EUR5.576 billion.
• Taxes rose 5.13% y/y in 2Q 2015, having previously grown at 8.06% y/y in 1Q 2015. There is quite a bit of seasonal and within-year timing variations in these series, so we can look at 1H 2015 effects instead. 1H 2015 cumulative taxes contribution to GDP was EUR687 million, which EUR995 million contribution over 1H 2014.
• Subsidies made a positive contribution to GDP growth (or rather - less negative) in 1Q 2015 of EUR58 million, followed by a positive contribution in 2Q 2015 at EUR83 million. Overall, subsidies reduction (subsidies enter as negative into GDP) was EUR141 million in 1H 2015 compared to 1h 2014a swing of EUR321 million in terms of GDP growth in 2015-2014 compared to 2014-2013 periods.
• GDP at constant market prices rose 6.67% y/y in 2Q 2015, down on 7.17% growth recorded in 1Q 2015. So GDP growth was fast in 2Q, but slower than in 1Q. Surprisingly, to some media observers, GDP growth in 2Q 2014 was also higher at 7.0% as compared to 2Q 2015.
• Outflows of profits abroad (MNCs expatriation net of Irish companies repatriation of profits from abroad) jumped in 2Q 2015, moderating overall GNP growth. In 2Q 2015, net factor income for the rest of the world reached EUR8.039 billion compared to 1Q 2015 at EUR7.383 billion and 2Q 2014 at EUR7.013 billion (more on this later).
• As the result, Irish GNP at constant market prices grew strong 5.28% y/y in 2Q 2015, which is nonetheless well below 8.07% growth recorded in 1Q 2015 and below blisteringly high rate of growth of 10.71% recorded in 2Q 2014. Over 1H 2015, GNP expanded by EUR5.2 billion compared to H1 2014, but this growth was slower than the rate of growth recorded in H1 2014 compared to H1 2013 (+EUR5.469 billion).

Again, given markets' surprise at Irish growth (compared to market expectations), here is a chart with a simple polynomial trend in GDP and GNP growth rates:

As chart above shows, both GDP and GNP growth surprised to the downside on trend, not to the upside. Which, again, begs a question: what models are being used to forecast Irish economic performance?

Now, consider GDP/GNP gap:

In 2Q 2015 GDP/GNP gap in Ireland stood at 18.95% - the highest since 2Q 2013 and well above the period average, as illustrated in the chart above. Net factor income outflows ratio to GDP was 15.94% - also the highest reading since Q2 2013. Both, higher gap and higher ratio signal (imperfectly) MNCs activity acceleration built into Irish growth figures, albeit we cannot connect these gaps to specific quarter when activity was actually registered.

Table below summarises y/y growth rates in 2Q 2015 and 1H 2015:

Table below summarises q/q growth rates in 1Q 2015 and 2Q 2015, as well as 2Q 2014:

Summary:

• GDP at constant prices rose 1.87% q/q in 2Q 2015 which marks a marginal slowdown on 1Q 2015 growth of 2.13%. 
• GNP at constant prices rose 1.91% in 2Q 2015 compared to 1Q 2015, reversing the loss of 0.17% recorded q/q in 1Q 2015. Which is also a good outrun.
• In annual growth terms, however, both GDP and GNP came in with slower growth y/y in 2Q 2015 than in 1Q 2015. That said, growth in GDP was very high at 6.67% y/y and growth in GNP was solid and more realistic 5.28% y/y,
• Headline figures, therefore, reflect strong performance, but as noted in the previous note, much of this performance is driven by MNCs-dominated sectors activity.

Stay tuned for the expenditure side of the National Accounts in a later post.

10/9/15: 2Q 2015 National Accounts: Sectoral Growth Analysis

So Irish National Accounts data for 2Q 2015 was released today. Brace yourselves for series of blog posts here and a torrent of congratulatory waffle across the media.

Starting, as I always do, with sectoral composition of growth, using GDP at Factor Cost figures. All referenced here are in real terms (inflation-adjusted) and seasonally unadjusted so we can look at what matters most: annual rate of growth (y/y).

And we are off:

• Agriculture, Forestry and Fishing sector contribution of GDP in 2Q 2015 was EUR1.341 billion (yeah, that's right… just that much). And this figure represents a decline of 1.18% y/y. Ugh… growth it ain't. But good news is, sector output grew 5.57% y/y in 1Q 2015, so for the year to-date we are still up cumulative EUR32 million in the sector (+1.44%). Still, a year ago in 2Q 2014 the rate of growth in the sector was 23.8%.
• Industry (inclusive of Building & Construction) output contribution to GDP was EUR13,711 billion. Aha… more than ten times that of Agriculture Forestry & Fishing sector. But never mind, we don't call Ireland the Widgets Island… So the sector grew 4.36% y/y in 2Q 2015 which adds to 10.52% growth in 1Q 2015. Healthy numbers all even though 2Q was a slowdown. And a year ago, in 2Q 2014 things were even more heated - then sector grew at 14.7% y/y. But 1H figure is pretty healthy all around: up EUR1.739 billion in 1H 2014 (+7.18%).
• Take some decomposition of growth in Industry. Transportable Goods Industries and Utilities sub-sector (aka Pharma MNCs Central) grew at a hefty rate of 11.2% in 1Q 2015 and this fell to 4.64% y/y growth in 2Q 2015. Again, sub-sector growth was weaker in 2Q 2015 than in 2Q 2014 (+14.71% y/y). However, Transportable Goods Industries sub-sector was the biggest contributor to growth in 2Q 2014 of all Industries, but more on this below. Meanwhile, Building & Construction sub-sector expanded by 4.41% in 1Q 2015 and this sub-sector managed to grow only 1.52% in 2Q 2015. For all the ink expended by irish media pushing revival of the Construction sector stories in recent months, 1H 2015 cumulative y/y growth in the sub-sector was just EUR64 million (+2.87%). Still, growth is growth, right? 
• Distribution, Transport, Software and Communications sector (aka non-Pharma MNCs Central) was the booming one this quarter. In 1Q 2015 this sector expanded output by 9.64% and in 2Q 2015 this rose to 11.40% y/y. Yes, folks, things are doubling in this sector faster than every 7 years (pretty soon, all Beemers in the world will be made in Drogheda and all Mercs will be stamped out in Wexford). Back to numbers: this sector is now almost as large as the entire Industrial sector in Ireland at EUR12.398 billion 2Q 2015 contribution to GDP. Over 1H 2015 the sector added EUR2.335 billion in growth to the GDP, more than any other sector in the economy and its output was up 10.52% y/y.
• Public Administration and Defence sector continued to shrink in 2Q 2015, falling 4.05% y/y after having posted a 5.45% contraction in 1Q 2015. The sector managed to subtract from GDP growth some EUR147 million (-4.74%) y/y over 1H 2015.
• Other Services, including rents, sector was up steady 4.35% y/y in 2Q 2015 having previously grown 4.42% y/y in 1Q 2015. Over 1H 2015, compared to 1H 2014, the sector contribution to GDP expanded by EUR1.48 billion (+4.39%).

Here is a chart illustrating evolution of GDP art Factor Cost:

The above shows that GDP at factor cost grew by 6.52% y/y in 2Q 2015 down slightly on 6.77% growth in 1Q 2015, but still fast. GDP at factor cost expanded by EUR5.576 billion in 1H 2015 compared to 1H 2014 (+6.64%). Very fast. Which is good news.

Trends are illustrated in the chart below:

As chart above shows very clearly, level of GDP at factor cost came in as a slight surprise above the simple polynomial trend line, but growth rate in GDP has both moderated in 2Q 2015 compared to 1Q 2015 and came at below the trend line. Which begs a question: what are all those analysts who underestimated GDP growth use for a model?.. But never mind - forecasting Irish economy is a hazardous task.

Now, here's an interesting bit:

As the chart above shows, lion's share of growth in 2Q 2015 came in from the MNCs-dominated sectors:

• Industry (ex-Building & Construction) contributed almost 1/5 of the entire growth
• Distribution, Transport, Software and Communications sector (aka non-Pharma MNCs Central) contributed whooping 45%; and
• Other Services contributed 26%.

Everything else mattered not.

The same picture, pretty much, holds for 1H cumulative growth contributions:

Summary: so what has been happening over 2Q 2015 and 1H 2015? 

1. Yes, we have growth and fast growth at it. Mostly, it is broadly-based across various sectors. 
2. But dominant sectors that act as two leading (by a mile) sources of growth are  Industry (ex-Building & Construction) dominated by Pharma and Chemicals, plus Distribution, Transport, Software and Communications sector, dominated by non-Pharma MNCs. Interestingly, last year, 1H 2014 growth y/y involved much shallower expansion of output in Distribution Transport Software and Communication sector (+4.62% against this year's +10.53%), which possibly signals amplified tax optimisation and exchange rates effects of MNCs activities in the sector. 
3. Growth was much stronger in domestic sectors a year ago than in 1H 2015: Agriculture (+20.87% y/y in 1H 2014 against +1.44% in 1H 2015) and Building & Construction (+12.5% y/y in 1H 2014 against +2.87% y/y in 1H 2015) sectors.
4. Y/Y 2Q 2015 growth was slower than 1Q 2015 across all sectors other than Distribution, Transport, Software and Communications sector. Annual contraction rate moderated slightly in Public Administration sector in 2Q 2015 compared to 1Q 2015.

We can't say much about quality of growth beyond that... But stay tuned for more detailed analysis of National Accounts data later.

30/7/15: Irish 1Q 2015 Growth: Sectoral Contributions

Some very strong headline figures on Irish growth in 1Q 2015 are out today from the CSO so I will be blogging on these in a number of posts today.

To start with, let's take a look at data on GDP composition at Factor Cost - in other words, contributions of various economic sectors to GDP on output side of the National Accounts. The analysis below references real GDP (adjusted for prices changes).

In 1Q 2015:

• Agriculture, Forestry & Fishing sector posted growth in output of 5.8% y/y. This contrasts with growth of 21.0% recorded y/y in 4Q 2014 and with 16.5% expansion y/y in 1Q 2014. This is the slowest growth in the sector since Q3 2013. Overall, in annual terms, the sector accounted for 2.02% contribution to the overall GDP growth (Factor Cost GDP) or EUR50 million y/y (compared to EUR194 million added by the sector in 4Q 2014). The sector was the second smallest contributor to growth in GDP (at Factor Cost) in 1Q 2015 after Building & Construction. Quarterly growth in the sector was negative: in 1Q 2015 Agriculture et al sector shrunk (on seasonally-adjusted basis) by 30% compared to 4Q 2014 and this contrasts with 25.4% growth q/q recorded in the sector in 4Q 2014.
• Industry (ex-Building & Construction) grew strongly in 1Q 2015, posting y/y expansion of 9.63% compared to 8.71% expansion in 4Q 2014 and 0.56% growth in 1Q 2014. This marks 1Q 2015 as the fastest growth quarter (y/y terms) since Q3 2014 and the second fastest growth quarter (y/y) since Q4 2010. As the result, the sector accounted for 39.1% of all growth recorded in GDP (at Factor Cost) in 1Q 2015. The sector was the single largest contributor to GDP (at Factor Cost) growth in 1Q 2015. A caveat here is that this sector growth is strongly influenced by the MNCs, especially Pharma, Bio and Medical Devices sectors, but more on this when I am covering external sectors performance in subsequent posts. Quarter on quarter growth in Industry (ex-Building & Construction) was much less impressive than annual growth rates. In 1Q 2015, Industry contribution to GDP actually was negative on q/q basis at -0.31% compared to 5.16% growth recorded q/q in 4Q 2014 and 3.35% growth recorded q/q in 1Q 2014.
• Building and Construction sector posted positive y/y growth of 3.26% in 1Q 2015, which contrasts positively with a -0.16% contraction y/y posted in 4Q 2015. However, 1Q 2015 y/y growth was much weaker than 9.66% growth recorded in the sector in 1Q 2014. Overall, Building & Construction sector contribution to growth in GDP (at Factor Cost) stood at 1.38% in 1Q 2015 - the smallest positive contributor to growth in 1Q.
• Distribution, Transport, Software & Communication (DTSC) sector made a strong contribution to growth in 1Q 2015, with activity up 6.5% y/y. The rate of annual growth is relatively steady in the sector, having posted growth of 5.4% in 4Q 2014 and 5.93% growth in 1Q 2014. The sector accounted for 29.1% of total growth in GDP (at Factor Cost) in y/y terms. The caveat applying to these figures is that the sector includes many ICT-related MNCs which have been recently posting growth in tax optimisation-linked activities. Quarterly growth in the sector was also positive, with 1Q 2015 activity up 2.11% on 4Q 2014, after posting growth of 1.05% q/q in 1Q 2014.
• Public Administration & Defence (PAD) sector posted another quarter of annual contraction in activity, shrinking -5.52% y/y in 1Q 2015 after posting -3.09% decline in 4Q 2014. In contrast, the sector expanded by 2.21% in 1Q 2014. Overall, sector made negative contribution of -3.4% to annual GDP (at Factor Cost) growth in 1Q 2015. This marks the largest contraction in annual growth rates in the sector since 2Q 2012.
• Other Services (including rents) sector posted another quarter of steady growth, rising 4.42% y/y in 1Q 2015, having previously posted growth of 4.40% in 4Q 2014 and 4.12% in 1Q 2014. Sector contribution to overall growth in GDP (at Factor Cost) was 30.1% - second largest after Industry ex-Construction.

Chart below summarises sectoral shares of GDP growth in 1Q 2015:

The above clearly shows that the bulk of growth in 1Q 2015 by sector must be compared against growth in exports to attempt to control for MNCs activities before drawing any conclusions about headline growth figures anchoring to the real economy. I will do this in subsequent posts, so stay tuned.

Overall, real GDP at Factor Cost posted growth of 6.1% y/y in 1Q 2015 - a healthy figure compared to 5.28% growth recorded in 4Q 2014 and to 3.87% y/y expansion in 1Q 2014. Thus annual rate of growth accelerated in 1Q 2015 compared to 4Q 2014 and to growth a year ago.  Overall, sectoral activity expanded GDP by EUR2.47 billion in 1Q 2015 compared to growth of EUR2.176 billion in 4Q 2014.

As chart above shows, annual growth rate is currently running above the period average (2012-present) and marks statistically significant rate of annual growth. Which is very good news.

On a quarterly basis, GDP (at Factor Cost) grew by a more modest 0.74% quarterly rate in 1Q 2015, slightly slower than in 4Q 2014 when it expanded 0.79% q/q and much slower than in 1Q 2014 when it grew at 1.57% q/q.  This marks 1Q 2015 as the slowest quarter over the 5 consecutive quarters and the second slowest in 8 consecutive quarters.

Longer-term trends:

Based on annual rates of growth and levels performance, Irish real GDP (at Factor Cost) is on a renewed positive trend. Once again - good news.

Stay tuned for more analysis of the National Accounts figures in subsequent posts.

4/6/15: Irish Growth Fudge: Village, May

My most recent article for the Village Magazine [May 2015] is now available on-line: http://www.villagemagazine.ie/index.php/2015/05/1-not-5-growth-in-2014/

Covering the problems with Irish growth accounting.

11/12/2014: QNA Q3 2014: Real GDP & GNP Growth Dynamics

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

• My post on the top level results for Q3 2014 is here: http://trueeconomics.blogspot.ie/2014/12/11122014-q3-2014-irish-growth-broadly.html
• And the second post covering sectoral performance by broader sectors of economy is here: http://trueeconomics.blogspot.ie/2014/12/11122014-qna-q3-2014-sectoral-activity.html

Now, onto a closer look at the GDP and GNP aggregates.

First, non-seasonally adjusted data, allowing for year-on-year comparatives.

• In Q3 2014, taxes net of subsidies amounted to EUR5.103 billion which is up 4.33% (+EUR212 million) on Q3 2013
• GDP in real terms reached EUR45.972 billion in Q3 2014, which is 3.54% higher than in Q3 2013. This is the slowest rate of GDP growth in y/y terms since Q4 2013 when GDP contracted 1.15%. Overall, GDP growth in Q3 2014 in y/y terms was less than half the rate of growth in Q2 2014.
• In Q3 2014, GNP stood at EUR38.52 billion which represents a growth of 2.49% y/y - the slowest rate of growth since Q2 2013.
• Excluding taxes and subsidies, private sectors GDP (GDP netting out taxes and subsidies) few strongly in Q3 2014 - which is the good news - rising 4.18% y/y. This is slower than Q2 2014 growth of 6.66%, but is better than Q1 growth of 3.55%.

GNP/GDP gap at the end of Q3 2014 stood at 16.21% which is the lowest in 3 quarters. Private sectors GNP/GDP gap also fell - reaching 18.23%, down from 19.18% in Q2.

Now, consider seasonally-adjusted data, allowing for quarter-on-quarter comparatives:

• In Q3 2014, seasonally-adjusted GDP grew at the rate of 0.0793% which marks the slowest rate of q/q growth since Q4 2013 when real GDP contracted q/q. The rate of growth in Q3 was 14 times lower than in Q2 and almost 36 times lower than in Q1 2014. In effect, the economy - measured by real GDP - stood still in Q3 2014.
• Meanwhile, in Q3 2014, real GNP expanded by 0.472% which marks weak, sub-period average growth and the second consecutive quarter of very poor GNP performance: in Q2 2014 GNP expanded by just 0.23% on q/q basis. 
• Last healthy growth in q/q terms for real GNP was back in Q1 2014 when it expanded by 1.86%.

Quarter-on-quarter growth terms signal official recessions (defined as two consecutive quarters of negative growth). Charts below map relative GDP and GNP performance in q/q terms by each quarter, identifying strong expansions, weak expansions and contractions. As charts clearly show, in GDP terms, we are currently in the first quarter of sub-average growth after Q1-Q2 above average growth periods. In GNP terms, we are into third consecutive quarter of sub-average growth.

Once again, broadly-speaking, we are witnessing a slowdown in growth momentum (bad news), but are still managing to stay in non-negative growth territory (good news).

Stay tuned for more Q3 QNA analysis later.