18/12/2012: QNA Q3 2012: Q1-Q3 cumulated results

Some positive news today on a major front with the release of Q3 2012 preliminary QNA estimates. Headlines are good, predominantly. Here is a post covering cumulated Q1-Q3 data for 2007-2012. More detailed analysis of dynamics in QNA components later tonight.

In Q1-Q3 (9 months) cumulated period:

• Irish GDP in Constant Market Prices rose from €119.261 billion in 2011 to €120.246 billion, implying y/y growth rate of 0.826%.
• Irish GNP also increased, from €94,721 million in 2011 to €97,557 million in 2012 yielding a y/y growth rate of 2.99%.
• In nominal terms (current market prices), Irish GDP was up from €119.123 billion to €123.299 billion (+3.506% y/y), while Irish GNP increased from €94.493 billion to €99.645 billion (+5.452% y/y).

Two charts to illustrate the above:

Here's for those who feel relaxing at today's reading:

• Compared to peak, Irish GDP in constant prices terms is still 5.37% below the level attained for Q1-Q3 2007, while in current terms it is 12.15% down on the peak.
• Compared to peak, Irish GNP in constant prices terms is down 7.96% and in current market prices terms it is down a massive 17.04%.

Domestic demand has continued deterioration over the first 9 months of 2012, so domestic economy is still contracting overall:

• Final Domestic Demand in constant prices terms fell in the nine months from January 2012 from €90.515 billion in 2011 to €88.987 billion (-1.69% y/y).
• Final Domestic Demand in current prices terms also fell in the nine months from January 2012 from €91.188 billion in 2011 to €90.991 billion (-0.21% y/y).
• Final Domestic Demand in constant terms is currently down 22.02% on 2007 (Q1-Q3) cumulative levels and is down 27.83% in current prices terms.

More on sub-series dynamics later tonight.

14/12/2012: Irish external trade in goods: October 2012

Irish trade in goods stats are out for October 2012 and here are the core highlights (aal seasonally adjusted):

• Imports of goods in value have fallen from €4.482bn in September to €4.188 billion in October, a m/m decline of €294mln (-6.56%) and y/y increase of €327mln (+8.47%). Compared to October 2010, imports are up 16.43%
• Imports were running close to historical average of €4.404bn in October, but below pre-crisis average of €4.673bn and ahead of crisis-period average of €4.126bn. Year-to-date average through October was €4.109, so October imports were relatively average.
• Exports increased from €7.349bn in September to €7.468bn in October (up €119mln or +1.62%). Year on year, however, exports are up only €7 million or +0.09% and compared to October 2010 Irish exports of goods are down 1.48%.
• Year-to-date average exports are at monthly €7.687bn which means October exports were below this, although October exports were very close to the crisis period average of €7.433bn.

• Overall, the rise of €423mln in trade surplus can be attributed as follows: 71.2% of trade surplus increase came from shrinking imports, while 28.8% came from rising exports. Not exactly robust performance, especially given exports are up only 0.09% y/y.
• Trade surplus expanded by 14.4% m/m after a rather significant drop off in September. However, october trade surplus at €3.28bn was still the second lowest reading in 7 months.
• Year on year, trade surplus in October actually fell €321 million or -8.91% and compared to October 2010 trade suplus is down 17.65%. These are massive declines and worrying.
• Trade surplus in October 2012 stood ahead of the historical average of €2.903bn and ahead of pre-crisis average of €2.513bn - both heavily influenced by much more robust domestic consumption in years before the crisis. Crisis period average of €3.307 is slightly ahead of October 2012 reading. However, average monthly trade surplus for 12 months through October was more robust (€3.578bn) than that for October 2012.

Here are some charts on the relationship between exports, imports and trade balance:

Accordingly with the above, imports intensity of exports rose slightly in October on foot of a steep fall-off in imports, rising 8.75% m/m. However, the metric of 'productivity' of irish exporting sectors is now down 7.72% y/y and down 15.38% on October 2010. During crisis period, Exports/Imports ratio averages 182.4%, while YTD the ratio averages 188.0%. In October 2012 it stood at 178.3% well behind both longer term trend metrics.

Lastly, the above relatively poor performance of exporting sector came amidst two forces, both representing adverse headwinds for Irish exporters:

1. Global trade slowdown
2. Term of trade deterioration.

October 2012 on October 2011, saw decreases in the value of exports of Chemicals and related
products - down -€253 million (or -6%), and a decrease of €513 million in Organic chemicals, "partially offset by an increase of €208 million in Medical and pharmaceutical products" per CSO. Further per CSO: "The value of exports increased for Miscellaneous manufactured articles (up €91 million), Mineral fuels (up €54 million), Machinery and transport equipment (up €47 million) and Food and live animals (up €39 million)... The larger increases were for imports of Food and live
animals (up €116 million), Mineral fuels (up €96 million) and Machinery and transport equipment (up €92 million)."

So to summarize: headline rise in tarde surplus is driven more than 3/4 by drop off in imports, with exports performing poorly on y/y basis and m/m basis. However, we have to be cognizant of the adverse headwinds experienced by irish exporters in global markets and by the continued effect of pharma patent cliff.

20/9/2012: Is 'Johnny the Foreigner' at fault? Q2 Irish trade results

In the real world, confronted with the unpleasant truth, we usually react with a denial of the facts and a desperate search for someone else, other than ourselves, to blame for the misfortune. Today's QNA data release triggered exactly this basic psychological reaction. With no reason for it, other than 'let's get Johnny the Foreigner out to blame', some of the favorite economists of our Minister for Finance decided that 'Irish economic growth is suffering from the slowdown impacting our main trading partners'.

Right... and Lehmans caused Irish banks collapse and bungalows prices deflation... that sort of malarky.

Now, that is either an uninformed error of judgement, or an outright lie, folks. In reality, exactly the opposite is happening - our external trade is still booming, while our internal, home-made depression is still raging.

I wrote about the domestic activity collapse already earlier (here's the link). Now, let's take a look at the activity arising from the allegedly falling demand from our trade partners.

First in current prices terms:

• Exports of goods & services from Ireland to the rest of the world hit €45.01 bn in Q2 2012, up 6.21% y/y. This marks a slowdown in growth from 7.4% y/y growth in Q1 2012, but nonetheless, in Q1 2012, Irish exports of goods and services hit an absolute record since Q1 2006. I wouldn't be going around saying that a historic record is... err... a drag on our growth.
• Exports of goods alone rose 1.26% y/y in Q2 2012, down on the 4.02% rate of annual growth in Q1 2012, but still posting an absolute record for any quarter since Q1 2006.
• Exports of services rose 11.46% y/y in Q2 2012, faster than already blistering growth of 11.11% y/y in Q1 2012. Again, volume of exports of services hit an absolute record level for any quarter since Q1 2006.

But maybe the 'Johnny the Foreigner' baddy is pushing down Ireland's growth in real terms? Ok, in constant terms:

• Exports of goods & services from ireland rose 2.06% y/y in Q2 2012, posting, yep, you know this much already, an absolute record in level terms for any quarter since Q1 2006.
• Exports of goods did fall off y/y - declining 4.42%. Which amounts to a drop of €973 million which is less than €3bn plus lost to patent cliff. So, err... the demand from US, UK and EA has nothing to do with this, but rather patents expiration in pharma sector drives the decline.
• Meanwhile exports of services grew, in constant prices terms, by a massive 9.05% in Q2 2012 compared to the same period of 2011.

As the result of these gains and also as a function of our own (not US, UK, EA, etc) demand collapse (marked by the decline in imports), our trade balance (the net positive contributor to our GDP and GNP) has actually expanded. 

Irish trade surplus has grown by a massive 18.98% in Q2 2012 in current prices terms and by impressive 14.47% in constant prices terms. Things are actually so good when it comes to 'Johnny the Foreigner Demanding Irish Exports' that our services sector posted an absolute historical record surplus in Q2 2012 of €1,387mln - for only the third time in the series history since Q1 2006. Our total trade balance surplus reached €11.391bn in Q2 2012 - by far the largest surplus reading in any quarter since Q1 2006. This is 14.1% higher than the previous quarterly record attained in Q3 2011.

Here are two charts to summarize trade balance changes:

The problem, of course, that our Green Jersey folks are not too keen on acknowledging is that overall, Johnny The Foreigner thirst for Irish goods and services has preciously little connection to our GDP activity. But that, illustrated below, is a different story.

24/3/2012: QNA 2011 - Part 1

With some delay, the next few posts will deal with the latest release of QNA data - Q4 2011 and annual data for national accounts 2011.

This first post in the series will deal with annual aggregates in constant prices terms.

There are overall two headlines to consider in the constant prices (real) data. The first one is that annual data shows continuation of the trend underlying weakness in the GDP in 2010-2011 and the second on is the precipitous contraction in GNP in 2011.

Let us start with Sector of Origin data (Table 1 in CSO release):

• Agriculture, Forestry and Fishing sector output rose from €3,081mln in 2010 to €3,092mln in 2011 a rise of 1.98%. This follows sector expansion of 0.7% in 2010. The sector is now 21.78% below its peak output attained in 2005. There was contraction in the sector real output of 2.84% back in 2009, so overall growth has accelerated in 2011, compared to both 2010 and to every year since 2007. Alas, in absolute terms, the sector is comparatively small and levels of activity increases have been underwhelming. Sector output remains well below 2007 and even below 2008 levels.
• Industry, including construction, activity rose to €45,639mln from €44,420 in 2010 - a gain of 2.74%. Back in 2010, the sector grew by 5.17% yoy, an that growth marked a reversal from a contraction of 4.03% in 2009. The sector activity in real terms remains 2.68% below its peak attained in 2004 when Industry (including Construction) yielded output of €46,895mln.
• Building &Construction component of Industry output continued uninterrupted contraction for the fourth year in a row. 2011 output in the sub-sector stood at €3,753mln, down 13.51% on €4,339mln in 2010, which follows contraction of 30.08% in 2010 and 27.49% fall in 2009. Relative to peak attained in 2004, Building and Construction activity is now down 72.46%. Assuming 8% amortization & depreciation in the stock of capital, current rate of Building and Construction activity barely covers 60% of the O&M expenditure required to maintain the stock of capital accumulated in 2003-2010.
• Distribution Transport and Communications sector activity fell in 2011 to €20,932mln - a decline of 1.58% yoy, that follows on a 2.04% drop in 2010 and 9.81% contraction in 2009. Relative to peak in 2007, the sector is now turning out 16.63% less output on an annual basis.
• Public Administration and Defence sector posted a decline of 3.30% yoy in 2011 to €5,602mln, marking the third year of declines. Relative to peak, attained in 2008 at €6,199mln, the sector ctivity is now down 5.67%.
• Other services (including rents) sector posted a sizable 2.15% contraction in 2011 to €67,578mln marking the 4th year of uninterrupted declines, with 2010 yoy decline of 2.29% and 2009 decline of  2.34%. The sector activity in 2011 was 7.89% below its peak attained in 2007.

Few charts:

Overall, not a single sector has managed so far to regain pre-crisis peaks after 4 years of the crisis. Only two sectors - Agriculture and Industry - posted growth in 2011, and the combined rate of expansion for these two sectors was shallower in 2011 (+2.7%) than in 2010 (+4.9%). In other words, if 2011 was a 'recovery' year as the Government is claiming, the rate of recovery in sectoral activity was shallower, implying that by the same Government 'metric' we had a boom in 2010.

Headline numbers for GDP & GNP are exceptionally weak:

• GDPat constant factor costs - the metric that reflects real value added in the economy - rose from €144.51bn in 2010 to €145.95bn in 2011 - an increase of 1.0% yoy that followed on the contraction of 0.07% in 2010 and a fall of 5.41% in 2009. This marked the first year of expanding factor cost-based activity since 2008. However, overall activity is down 6.21% on its peak attained in 2007.
• Taxes net of subsidies fell to €15,082mln down 2.05% yoy compared to 2010. In 2010 these declined 3.71% and in 2009 they were down 19.80% on 2008. Overall, taxes net of subsidies are now down 33.26% on the peak attained in 2007 (see chart above).
• Headline GDP in constant prices is now at €161,034mln or 0.71% ahead of 2010 levels. This follows on a contraction of 0.43% in 2010 and 6.99% decline in 2009. Relative to the peak of €177,963mln attained in 2007, our GDP in constant market prices terms is down 9.51%, standing just over €1bn ahead of 2004 levels. In effect, in real GDP terms, assuming long-term growth rate potential of 2% pa, Ireland has lost 16% of its output by the end of 2011. If Irish economy continued to grow at 2% pa in real terms through 2011, our GDP would have stood at €192.6bn instead of €161bn today.
• Net factor income from the rest of the world (effectively payments received from abroad less payments paid out to foreigners) have reached -€31,801mln in 2011 - up a massive 16.39% yoy, following a contraction of 3.67% in 2010 and an expansion of 10.38% in 2009. These, of course, reflect massive transfer activity ramp-up in exports sectors (to be discussed in subsequent post). Transfers abroad are now at a record high, running 18.62% ahead of pre-crisis levels in 2007. The boom town has arrived for MNCs.
• As the result of accelerated transfers of profits out of Ireland, our GNP in constant market prices terms has shrunk 2.53% to €129,232mln. This is the real income of the Irish economy and the contraction of 2.53% is the real masure of our 'recovery'. 2011 yoy fall-off follows on growth of 0.27% attained in 2010.The Government claim that in 2011 Irish economy has finally posted a recovery is wholly bogus. In fact, according to real metric of Irish economic activity, our economy grew in 2010 and contracted in 2011. Irish GNP is now 14.33% below its pre-crisis peak of €150.86bn attained in 2007.

To conclude, let's plot the relative importance of each sector in overall economic activity:

 Chart above clearly shows that

• Agriculture retained relatively modest increase in its output share, rising from 2.3% of total economic output in 2010 to 2.4% in 2011. Agriculture contribution to overall economic activity is still below its pre-crisis 2003-2005 levels.
• Industry, including Construction share of total output rose to 35.3% in 2011 from 33.5% in 2010 and is now more important to the economy than in any other year since 2003.
• Building and Construction used to account for 9.9% of overall economic activity in the country back in 2004 and now accounts for just 2.9%
• Distribution Transport and Communications sector share of overall activity remained within 16.5-15.5 percent range of 2003-2011 period at 16.2% in 2011.
• Public Administration and Defence, despite all the austerity is still running slightly ahead of 2003-2007 average. In 2003-2007 the sector accounted, on average for 4% of economic activity in the country. In 2011 this share was 4.3%. In 2007 - last year before crisis - the share was 3.9%. So austerity years to-date average is 4.4% while pre-crisis is 3.996%. Drastic cut-backs?
• Other services are running at 52.3% of economic activity in 2011, compared to 52.1% in 2010 and 53.5% in 2009. Back in 2003-2007 these averaged 47%

In the following post we will look at evolution of GDP/GNP gap and the overall share of the economy shipped out in form of profits by the MNCs.

16/12/2011: QNA for Q3 2011: 'exports-led recovery' myth

In the first post on Q3 Quarterly National Accounts, we looked at the data on real rates of growth in the Irish economy based on sectoral decomposition (linked here). Now, let's take a look at the expenditure-based data. Please keep in mind - Q3 2011 was the record-busting quarter in terms of exports growth for Ireland, with the latest data pointing to falling growth rates in Irish external trade for Q4 2011 (see here). In addition, keep in mind that unlike the DofF that projects Irish GDP growth to be 1.3-1.6% in 2012, most of the euro zone is factoring in contractions for H1 2012 (see details here).

So down to data now.

In nominal terms,

• Personal consumption continued its precipitous fall in Q3 2011, declining €291mln (-1.4%) qoq and €283mln (-1.4%) yoy. Relative to Q3 2007, personal consumption is now down €3,085mln or 13.3%.
• Net expenditure by central and local government, is down €61mln (-1.0%) qoq and €110mln (-1.7%) yoy. Compared to Q3 2007, net government spending is down 12.1% or €869mln.
• Exports of goods and services are up €373mln (+0.9%) qoq and €1,025mln (+2.5%) yoy. Exports are also up on Q3 2007 by some €3,849mln (+10.2%)
• Imports of goods and services are down €192mln (-0.6%) qoq but up €1,033mln (+3.3%) yoy.

Thus, GDP at current market prices is now down €703mln qoq in Q3 2011 (-1.8%) and down €1,011mln (-2.5%) yoy. Compared to Q3 2007, GDP is down €7,030mln (-15.4%) in current market prices.

In current market prices, value of profits expatriated abroad net of profits inflowing from abroad has risen €189mln (+2.4%) qoq and is up €1,076mln (+15.5%) yoy.

As the result, GNP is now down €612mln (-1.9%) qoq and down €2,063mln (-6.3%) yoy. GNP in current market prices is down €9,092mln or 22.8% on Q3 2007.

Personal consumption in nominal terms now stands close to the level of Q3-Q4 2005. Fixed capital formation is at the level roughly 1/3 of the Q1 2005.

Things are pretty dire in constant market prices terms as well:

• Personal consumption fell €182mln (-0.9%) qoq and €822mln (-3.9%) yoy. Relative to Q3 2007, personal consumption is now down €2,744mln or 12.1%.
• Net expenditure by central and local government, is down €88mln (-1.4%) qoq and €259mln (-3.9%) yoy. Compared to Q3 2007, net government spending is down 13.9% or €1,035mln.
• Gross domestic capital formation also continued falling in Q3 2011, with qoq decline of €1,234mln (-27.1%) and yoy fall of €955mln (-22.2%). Relative to pre-crisis level in Q3 2007, Q3 2011 investment in this economy came in at €5,754mln less (a decline of 63.2%).
• Value of stocks of goods and services has contracted €173mln in Q3 2011 qoq (-26.7%). 
• Exports of goods and services are up €786mln (-1.9%) qoq and €947mln (+2.4%) yoy. Exports are also up on Q3 2007 by some €2,650mln (+7.0%)
• Imports of goods and services are down €1,865mln (+5.9%) qoq but up €997mln (+3.3%) yoy.

GDP at constant market prices is now down €836mln qoq in Q3 2011 (-2.0%) and down €57mln (-0.1%) yoy. Compared to Q3 2007, GDP is down €3,318mln (-7.6%) in constant market prices.

Value of profits expatriated abroad net of profits inflowing from abroad has fallen €262mln (-3.1%) qoq but is up €1,347mln (+19.8%) yoy.

As the result, real GNP is now down €574mln (-1.8%) qoq and down €1,404mln (-4.2%) yoy. GNP in current market prices is down €5,398mln or 14.4% on Q3 2007.

So once again, that 'exports-led recovery' is, predictably not enough to keep economy above the waterline. And this is the case for Q3 2011, when "net exports (exports minus imports) grew by

21.8% at constant 2009 prices compared with the same quarter of last year." Record growth in exports before the slowdown hit in Q4 2011, and still recession in the overall economy.

16/12/2011: QNA for Q3 2011 - that R-thing again

Initial estimates for Q3 2011 released by CSO today show that seasonally adjusted, GDP fell 1.9% qoq  and GNP declined 2.2% qoq. Year on year, GDP is down 0.1% and GNP is down a whopping 4.2%.

In constant prices terms, real GDP fell €836mln qoq in Q3 2011 (-2.0%) and €57mln yoy (-0.1%). Relative to the peak in 2007, real GDP is now down €3,318mln or -7.6%. In constant prices terms, real GNP is now down €574mln (-1.8%) qoq and €1,404mln (-4.2%) yoy. Compared to peak 2007, GNP is down €5,398mln (-14.4%).

Output in Agriculture, Forestry and Fishing has fallen (in constant market prices and seasonally adjusted) €348mln (-30.2%) qoq, but is up 15% or €105mln in yoy terms. Relative to pre-crisis 2007 levels, sector output is up €104mln (+14.8%).

Industrial production declined €1,036mln (-8.7%) qoq and is up €419mln (+4%) yoy, while registering an increase of €227mln (+2.1%) on Q3 2007. These figures combine booming exporting sectors and collapsing building and construction sector. In building & construction, output grew €16mln (+1.9%) qoq, but is down €224mln (-20.4%) yoy and is down €1,423mln (-62%) on Q3 2007.

Distribution, transport & communications sector - a brighter spot last quarter, shrunk €129mln (-2.4%) qoq and is down €¡37mln (-2.6%) yoy. Compared to Q3 2007, the sector is down €1,064mln (-17.1%).

Other services, including rent are up €225mln (+1.3%) qoq, but down €531mln (-3.0%) yoy. The sector is down €1,889mln (-10%) on Q3 2007.

Chart below shows annualized returns by sector using data for the 11 months through November 2011 annualized using historical trends:

And the chart below shows in more detail the plight of Building & Construction sector:

Overall forecast for real GDP and GNP for 2011 based on data through November 2011 is not encouraging:

In the chart above, analysis of the latests data and historical trends suggests that 2011 GDP can come in at 0.7% growth rate, with GNP declining by -0.7% at the same time.

Net factor income from abroad - aka MNCs profits expatriations - declined in Q3 2011 to €8,136mln - or €262mln less than in Q2 2011. MNC's profits expatriation is now running €1,347mln ahead of Q3 2010 and €2,197mln ahead of Q3 2007 as record exports are fueling transfer pricing. So that 'exports-led recovery' thing... oh, it's dead in the water, folks. As predicted, record exports are not enough to sustain the entire economy. But more on this in a follow up post with detailed analysis of expenditure-based QNA.

24/09/2011: Projected trends in economic growth for 2011

In the previous post I covered the current results for Q2 2011 QNA for Ireland. As promised, here, I will focus on forward-looking signals emerging from H1 2011 data.

Please note, though I do use the term 'forecast' below, the results shown here are really more projections than formal forecasts. The difference is very important. I use data through Q2 2011 to estimate what the economy performance is likely to be, assuming no change on the trends established in H1 2011. Of course, this is subject to significant risks (identified below).


Based on Q2 2011 (preliminary - and I stress this) data, chart below shows my forecast for 2011 growth:
Using simple forward forecast based on Q1 20003 - Q2 2011 data, we can now expect:

• Agriculture, Forestry and Fishing sector real output to grow by ca 5.5-5.6% this year, well in excess of 2010 growth of 0.7%, lifting sector output closer to €3.2bn in 2011 or 3.2% ahead of 2007 (the peak year for GDP and GNP).
  
• Industry, including construction, is expected to expand by 5.0-5.1% this year, slightly below 5.2% growth rate achieved in 2009. This will put sector output in real terms 2,9% ahead of the pre-crisis peak of 2007.
• However, industry performance will come against continued double digit contraction in Building & Construction sub-sector, which is expected to shrink 17-18.5% in 2011, compounding an astonishing 30.1% decline in 2010. Bu the end of this year, the sub-sector output can be 61.3% below the level of pre-crisis peak year of 2007. Note, the peak for the sub-sector was back in 2004 and if things continue on trend, 2011 output will be a whooping 74% below that.
• Distribution, transport & communications sector is likely to post another decline this year - shrinking by some 1.1-1.2% against a decline of 2% in 2010. Relative to economy's pre-crisis peak the sector is likely to be down 16.3% in 2011.
  
• Public administration & defence sector will contract 2.4-2.5% in 2011, based on data through Q2 2011, compounding a 2.7% decline in 2010. The sector is likely to fall compounded 4.9% on 2007 and 9% on peak sector contribution in 2008.
• Other services (including rents) - the sector accounting for 51% of our overall economic acitivity (GNP) is likely to post another contraction of -0.6-0.8% this year, compounding a 2.3% fall in 2010 and down 6.6% on 2007 peak.

Hence, GDP is expected to expand by 1.5-1.6% this year on the constant factor basis if we are to use the data from H1 2011, following 0.1% contraction in 2010. This will put our GDP somewhere around 5.6-5.7% below 2007 peak levels.

Taxes, net of subsidies are continuing to fall with 3.5-3.7% decline in 2010 now expected to be followed by 1.8% contraction in 2011. The end of 2011 taxes net of subsidies will likely come in at 32-33% below 2007 levels. This, of course, is driven by the twin forces of rising social welfare costs and continued presence of other substantial transfers, plus a reduced tax take.

With this, overall GDP (in constant market prices) can be expected to rise ca 1.1-1.3% in 2011, based on preliminary data through Q2 2011 (subject to revisions and also reflective of much more robust global economic conditions pre-July 2011 amplification of the crises). This will follow on a 0.4% decrease in 2010, leaving the gross real income 9% below 2007 levels.

Net factor income outflows to the rest of the world are likely to continue rising in 2011, growing 2.4-2.6% in 2011 (assuming amplified crisis conditions do not trigger signifcant withdrawals of retained profits), leaving factor outflows up 4.3% on 2007 levels.

With that, we can expect GNP to rise 0.8-1.0% in 2011, following on 0.3% growth in 2010 and national income will be 11.2% below 2007 peak levels.

Sectoral decomposition of national income by source, so far, stands at:

• Agriculture, forestry and fishing - the flagship sector by subsidies received and attention paid to it (remember, RTE and Irish Times are so keen covering ploughing championships) - contribution to GNP will be a whooping 2.4% in 2011 a 'massive' jump on 2.3% in 2008 and 2009, but still below 2.8% average annual contribution in 2003-2005.
• Industry (including Building & Construction) will be contributing 34.9% on GNP, up on 33.5% in 2010. If this materialises, 2011 will be the best year for Industry since 2003, which, incidentally, shows just how significant the growth in MNCs-led exports-oriented manufacturing was over recent years. As Building & Construction subsector contribution shrank from 9.9% at the peak in 2004 to 2.6% in 2011, manufacturing picked up the slack, pushing Industry overall contribution from 34.1% in 2004 to 34.9% - a swing of 8.1 percentage points.
• Distribution, transport & communications sector contribution is currently running at 15.7%, behind 16.0% in 2010, and at the lowest levels since 2005.
• Public administration and defence contribution to GNP is running at 4.2%, down from 4.4% in 2010, but still ahead of 3.9% in 2006 and 2007 and ahead of 4.0% annual average for 2003-2005. In 2003-2007 sector contribution average was also 4.0%, so our austerity so far is, in relative terms, seeing an increase in spending on public administration and defence as the share of the total economic pie. Now, these two functions are not front-line vital services, last time I checked, so you would expect a rational policy would be to shrink these sub-sectors at least at the speed of reduction in GNP. So far, this is not happening. Another alternative would be to reduce them at least at the rate of decline in taxes importance in the economy. This too is not happening, as shown below.
  
• Other services are likely to contract in their importance in the economy in 2011 (to ca 51.1% of GNP) following a contraction from 53.5% in 2009 to 52.1% in 2010. Large share of these services are exportables, which highlights the fact that not all of our exporting activities are booming.
• Taxes net of subsidies are likely to come in at 11.3% of GNP in 2011, down from 11.6% in 2010 and reaching the lowest level on the record since 2003. 2003-2007 average here is 14.5%, 2008-2010 average is 12.4%, so current state of taxes net of subsidies is worse than any recorded sub-period.
  

Again, to stress, one metric for sustainability of public spending would be to have public administration and defence spending contracting faster than the rate of contraction in taxes. And again, this is simply not happening. Since 2007 taxes have fallen from 15.0% of domestic economy to 11.3%. In the same period, public administration & defence contributions have increased from 3.9% to 4.2%.

Again, to stress, these 'forecasts' or rather 'projections' are based solely on preliminary figures for H1 2011. They are not strictly speaking forecasts, but rather annualized reflections of performance between January 2011 and June 2011. The risks to these are to the downside:

• Decreasing rate of growth in the US and the euro area materialising since May-June 2011 is not reflected in the projections above
• Signs of significant slowdown in broad leading economic indicators (PMIs, investment etc) are not reflected in the projections above, and
• Preliminary data can see significant revisions in time - in Q1 2011, preliminary estimate for GNP decline was estimated at 4.3% and it was revised to 3.0% decline in the current release, so the swings can be quite significant.
  

23/09/2011: QNA for Q2 2011: decent growth=welcome news

Second quarter national accounts were published today and came in with a surprise (in my case) on the upside across both GDP and GNP. Here are the details:

In terms of constant prices (real variables):

• Irish Q2 GDP came in at €41,080mln - a rise of €829mln qoq or 2.1% - strong showing. Last time GDP stood at above €41bn was in Q4 2008. YOY real GDP is up €936mln or 2.3% - another strong figure. However, we are still €3.158bn below Q2 2007 levels (-7.1%). This is a benchmark to reach since it represents the pre-crisis peak.
• GNP came in at €32.683bn in Q2 2011, up €354mln (+1.1%) qoq - growth, but anemic given previous quarter sharp fall-off. YOY GNP is also up 1.1% (+€368mln), but relative to Q2 2007 we are still down 11.7%.

Due to slower growth in GNP, the GNP/GDP gap has widened in Q2 2011 from 19.7% in Q1 to 20.4% in Q2. We are now at the largest gap point since Q1 2003. Importantly, the gap widening - due to higher outflows of profits expatriated by the MNCs - did not push GNP into negative growth this quarter. This reflects positive activity in non-exporting sectors. Income from the ROW - the category that captures profits expatriation - went from -€7.922bn in Q1 2011 to -€8.397bn in Q2 2011, reaching the highest level since Q1 2003.

Index of sectoral activity shows that:

• Consumption activity declined from 98.5 in Q1 2011 to 97.8 in Q2 2011. Index of consumption activity stood at 100.2 in Q2 2010. Q2 2011 marks the second quarter of index falling below 100 (which marks Q1 2005 level of activity). Prior to the last two quarters, index never dipped below 100 in the series since Q1 2005. In constant prices, Consumption has dropped from Q1 2011 reading of €20.336bn to €20.19bn in Q2 2011. This reflects an 0.7% decline qoq and 2.4% drop yoy. Compared to Q2 2007 we are now spending €4.199bn less on Consumption (-10.7%).
  
• Net Government Expenditure has dropped from €6.708bn in Q1 to €6.484bn in Q2 2011 (-3.3% qoq). Government spending is now 3.3% behind Q2 2010 and 10.7% below Q2 2007 levels. Notice that Government consumption decreases are now catching up with those in private consumption. To see this, consider index movements. Recall that in Q1 2005 the index stood at 100. Current index for Government expenditure reading is 104.3, down from 107.9 in Q1, but still above Q1 2005 levels.
  
• Fixed capital formation improved slightly, in terms of index, rising from 46.5 in Q1 2011 to 46.7 in Q2 2011. However this is the fourth consecutive month that the index is below 50. In absolute terms, Gross fixed capital formation was €4.665bn in Q2 2011, up 0.4% on Q1 2011. Capital investment is, however, still 14.3% below the levels in Q2 2010 and a massive 51% below Q2 2007 levels. My recent research, presented last week at a conference in UCC shows that we are now close to failing to cover amortization and depreciation on existent stock of both private and public capital.
• One of the largest positive contributions to growth in Q2 2011 came from the increases in the value of physical changes in stocks, which rose €760mln qoq and €782mln yoy.
• Exports are booming - as we know, and imports rose much less dramatically than exports Q2 2011, so net trade grew, yielding a net positive contribution to GDP. Exports are now up 5.8% qoq against imports rising 3.4%, while yoy exports are up 4.9% against imports rising just 0.1%. This clearly suggests that we are not running 8%+ growth in exports and also shows that transfer pricing is one of the core drivers of our exports as inputs imports are not exactly dramatic. The 8% growth in exports is what underlies much of the DofF rosy projections for 2011 made back in the Budget 2011 (of course, since then DofF has revised its growth projections down to 0.8% annual rate for 2011 GDP).
  

I will post on detailed breakdown by sectors and annual forecasts for QNA series in my next post.

So to conclude & summarise: we have some good news here - both GDP and GNP expanded, against the backdrop of continued growth in MNCs profits outflows, implying that despite sluggish GNP growth, domestic activity (if only carried out by exporting sectors) is growing. These numbers are, of course, subject to significant uncertainty as preliminary data tends to be revised and sometimes substantially, while overall quarterly series tend to show high volatility. Lastly, there is an ongoing slowdown in all leading indicators for Q3 growth both domestically and internationally. And longer-term view is still bleak - with continued domestic and international crises, dead banking sector, prospect of state-sponsored duopoly in the banking sector in the foreseeable future, forthcoming increases in taxation and further cuts in investment, and importantly, the prospect of rising pressures post-crisis on the interest rates expectations.

Nonetheless, for our battered economy of the last 3 years, we can have a light smile tonight.