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?

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. 

11/9/15: 2Q 2015 National Accounts: Recovery on pre-crisis peak

In the first post of the series covering 2Q national Accounts data, I dealt with sectoral composition of growth. The second post considered the headline GDP and GNP growth data. The third post in the series looked at Domestic Demand that normally more closely reflects true underlying economic performance, and the fourth post covered external trade.

In this post, let us briefly consider per capita GDP, GNP and Domestic Demand.

Chart below shows cumulative four quarters per capita GDP, GNP and Domestic Demand based on the latest data for population estimates and the National Accounts through 2Q 2015.

As shown above, Final Domestic Demand on per capita basis was at EUR33,782, up 5.95% y/y in 2Q   2015, closing some of the crisis period gap. Still, compared to peak, per capita Final Domestic Demand is still 13.3% below pre-crisis peak levels in real (inflation-adjusted terms). In part, this is driven by the Personal Consumption Expenditure which, on a per-capita basis was EUR19,163, up 2.1% y/y in 2Q 2015, but down 8% on pre-crisis peak.

GDP per capita rose 5.3% y/y in 2Q 2015 to EUR42,106, down only 0.82% on pre-crisis peak. GNP per capita rose to EUR36,189 up 5.9% y/y and 1.49% ahead of pre-crisis peak.

CONCLUSIONS: With GNP per capita attaining pre-crisis levels back in 1Q 2015, the recovery from the crisis has been effectively completed in real terms in terms of GNP after 28 quarters. In GDP terms, we are now close to regaining the pre-crisis peak levels, with 30 quarters to-date at below the peak. However, recovery is still some distance away in terms of Final Domestic Demand per capita and in terms of Personal Consumption Expenditure. 

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.

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.

17/5/15: Irish Merchandise Trade: 1Q 2015

Irish trade in goods statistics - the ones responsible for the tax-induced economic dizziness in the National Accounts over 2014 - are back at posting more absurd numbers.

Take a look at data through March 2015:

• 1Q 2015 imports of goods stood at EUR14,819 million which represents an increase of 10.5% y/y and 18.6% cumulative rise over the last two years. Relative to 2000-2007 period average, Irish imports of goods are up 3.8%. These are pretty large numbers, even allowing for currency valuations. 
• 1Q 2015 exports of goods from Ireland stood at EUR24,957.6 million, which represents an increase of 17.4% y/y. Yep, apparently Irish exports outputs are growing at a rate that implies doubling of the entire export capacity every 4 years, plus a month or so. No, seriously, folks - at this rate of building manufacturing facilities and logistics parks to accommodate all this stupendous growth, there won't be any cranes and construction crews left in the entire UK and probably none in France either. All would have been busy adding new land to Ireland.
• Now, we can compute % change in exports per 1% change in imports as the latter are often inputs into production of the former. Even recognising that imports of goods are also growing on foot of improving domestic demand, current exports elasticity with respect to imports is the third largest - lagging behind only two out the last 25 years: 1992 and 2004. What happened back in 1992? Ah, yes, new FDI in ICT manufacturing sector pushed Irish exports by 16% y/y in one year off a low base. It took couple of years thereafter for imports to catch up with this tremendous 'value creation' by stuffing computers and software disks into boxes. And in 2004? Well, that arrived on foot of abysmal 2003, when exports sunk and trade surplus went into largest y/y decline on record. So here we have it: the miracle of Irish exports growth: more of 1992 (tax arbitrage) and less 2004 (post collapse bounce).

Now, take a look at some dizzying numbers for March:

As the above shows, March marked the third highest value of goods exports for any month on record. Year on year, imports of goods were up 14.21% in March after posting 12.08% growth in February. Meanwhile, exports of goods rose 20.85% y/y in March after posting 16.92% growth in February. Trade balance rose 32.61% y/y in March having grown 24.21% in February.

Put frankly, even Google's big data analysts would struggle connecting these numbers to any tangible reality.

Chart below shows shorter range for dynamics.

11/12/2014: QNA Q3 2014: Irish Growth Broadly De-accelerates

CSO-released preliminary estimates for Q3 2014 show:

- GDP "remained practically unchanged in volume terms on a seasonally adjusted basis compared with Q2 2014"
- GNP increased by 0.5% on Q2 2014
- GDP rose 3.5% y/y in Q3 2014
- GNP rose 2.5% y/y in Q3 2014.

By sectors and categories of expenditure:
- Other Services increased by 1.7% q/q
- Building and construction increased by 3% q/q
- Distribution, transport, software and communication decreased by 0.2%
- Industry (excluding Building and Construction) decreased by 0.9 per cent
- Public administration and defence also decreased by 5.6%
- Capital Investment decreased by 0.8% y/y
- Net exports made a negative contribution of €55m.
- Government expenditure decreased by 0.9 per cent q/q
- Personal expenditure was unchanged q/q

Overall, a very poor reading compared to previous ones and a poor reading in absolute terms.

More detailed analysis to follow.

26/3/2012: QNA Q4 2011 - Part 5

In the first post on QNA results for 2011 I covered data for annual GDP and GNP in constant prices terms. The second post focused on GDP/GNP gap and the cost of the ongoing Great Recession on the potential GDP and GNP. The third post focused on quarterly sectoral decomposition of GDP and GNP in constant prices terms. And a short digression from QNA results here showed how difficult it is, really, to reach any consensus on some of Ireland's economic performance parameters. Following these, Part 4 of QNA analysis focused on nominal (current prices) quarterly data. 


In this and subsequent posts I will provide some brief snapshots of specific points of interest arising from the QNA data. This post will focus on capital investment decline during the crisis.

As chart above clearly shows, in real terms (controlling for inflation):

• Gross fixed capital formation stood at €16,924 million in 2011, which was 10.87% below the levels of gross investment in 2010 and 57.17% below the levels of investment at the peak of pre-crisis activity in 2007.
• Cumulated gross fixed capital investment in the ten years of 2001-2010 was €311,111mln, which at 8% annual amortization & depreciation rate implies demand for €24,889mln in gross financing to maintain. Thus gross fixed capital formation came in some €7,965mln short of amortization & depreciation requirements of the economy.
• Current level of gross fixed capital formation is consistent with €16,852mln attained in 1996 - remember, these are in constant prices.

In current market prices terms, Gross fixed capital formation in Q4 2011 was 1.9% below that in Q4 2010 and 66.8% below Q4 2007 levels. In Q3 2011, capital investment was down 18.3% yoy.


These figures show that Irish economy is equivalent to a body that consumes itself. It also shows that the alleged 'huge FDI inflows' are not sufficient to offset for domestic capital investment collapse.