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.

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.