26/3/2012: QNA Q4 2011 - Part 4

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.

In this post, let's consider the decomposition of the GDP and GNP on the basis of expenditure lines, as measured in current market prices.

Headline numbers:

• In Q4 2011 personal consumption of goods and services rose 0.9% qoq to €20,319mln, but declined 0.8% yoy. Compared with the same period of 2007 personal consumption is now dow 15.3%. YOY -0.8% contraction in Q4 2011 followed on 2.96% contraction in Q3 2011. In Q4 2011 personal consumption accounted for 52.45% of quarterly GDP, this is actually higher than the share of GDPit took in Q4 2007 (49.89%) - so much for 'unsustainable consumption binge' back at the peak of the Celtic Tiger period.
• Q4 2011 net expenditure by central and local government stood at €5,991mln which was 5.1% down qoq and down 8.1% yoy. This follows on 2.32% contraction in yoy terms in Q3 2011. Relative to Q4 2007 net expenditure by central and local government now stands at -17.1%. However, the share of net government expenditure in overall GDP rose from 15.04% in Q4 2007 to 15.46% in Q4 2011.
• Gross domestic capital formation at Q4 2011 stood at €3,923mln which was up 12.7% qoq, but down 1.9% yoy and the annual decline in Q4 2011 came in after an 18.3% contraction in Q3 2011. Fixed capital formation was down 66.8% in Q4 2011 compared to Q4 2007. In Q4 2007 gross fixed capital formation accounted for 24.56% of GDP, while inQ4 2011 this share fell to 10.13%.

Chart below illustrates the above changes

• Exports of goods and services hit another historic record at €41,766mln in Q4 2011 - a rise of 0.4% qoq and 6.2% yoy. In Q3 2011 exports rose 1.7% yoy. Q4 2011 exports were 8.3% ahead of Q4 2007 and if in 2007 exports accounted for 80.24% of our GDP, in Q4 2011 this share was 107.8% of quarterly GDP. This is a remarkable performance.
• Imports rose 0.4% in qoq terms to €332,904mln in Q4 2011. Q4 2011 imports are up also 0.4% yoy and this follows on a 0.35% contraction in Q3 2011. Relative to Q4 2007 imports are down 5.2%. Back in Q4 2007 imports stood at the level of 72.23% of quarterly GDP. In Q4 2011 this share was 84.93%.
• Net trade surplus hit a record of €8,862mln - third consecutive quarterly record and third consecutive quarter with trade surpluses in excess of €8 billion. Trade surplus was up 0.3% qoq and 34.8% up yoy inQ4 2011, which comes on foot of a 10.60% yoy increase inQ3 2011. Stellar performance. In Q4 2011 trade surplus was 22.88% of GDP and this is up from 8.01% of Q4 2007 GDP. Compared to Q4 2007 trade surplus in Q4 2011 rose massive 130.2%.
• Once again, trade figures confirm the simple reality that exports-led growth is not capable of sustaining economic recovery. Average quarterly trade surplus in 2007 stood at €4,295mln and 2005-2007 average quarterly trade surplus was €4,467mln. In 2009 average quarterly trade surplus rose to €6,234mln, followed by €7,467mln in 2010 and €8,408mln in 2011. In other words, Ireland experienced a massive exports boom for the last 3 years in a row, and yet we are continuing to remain in a recession.

• GDP at current market prices stood at €38,743 in Q4 2011 which is 0.9 below Q3 2011, marking the second consecutive qoq decline, which is consistent with Ireland officially entering a new recession. 
• GDP actually rose in yoy terms by 3.4% inQ4 2011 which comes on foot of a 0.79% contraction in Q3 2011. relative to Q4 2007, GDP in current market prices is now down 19.4%.
• Net factor income from the rest of the world rose 10.8% qoq to -€9,017mln, which marks the first quarter since Q1 2010 when outflows of payments abroad exceeded trade surplus. This attests to the extreme levels of transfer pricing deployed by the MNCs in the Irish economy. Net factor income losses in Irish economy in Q4 2011 were up65.3% year on year, following a 19.5% rise in yoy terms in Q3 2011. Transfer payments abroad rose 28.3 on Q4 2007. Overall, an equivalent of some 23.27% of Irish GDP was paid out in factor payments to foreigners in Q4 2011 which is up from 14.62% in Q4 2007.
• As the result, GNP fell to €30,051mln in Q4 2011 down 2.8% qoq marking the fifth consecutive quarter of qoq declines. Yoy, GNP in current market prices was down a massive 5.4% in Q4 2011 which comes on foot of an equally large 5.16% contraction in Q3 2011. These figures reflect deep recession continuing to ravage the Irish economy. It is incorrect to attribute the entire GNP to solely domestic activity as it includes net exports (trade balance) activity that is not expatriated abroad.
• Overall, Irish GNP in current market price in Q4 2011 stood at 26.5% below the levels attained in Q4 2007. This means that more than 1/4 of the overall domestic and non-transfer pricing MNCs' activity has been wiped off the Irish national accounts during the current crisis.

The chart below highlights the evolution of transfers abroad relative to GDP, GNP and to trade balance. Transfers of income to the rest of the world from ireland has hit 101.75% of the trade surplus in Q4 2011 - rising above 100% for the first times since Q1 2010 when it stood at 101.80%. We are still well behind the levels of 2005-2009 when it averaged 138.74%. Which, given the negative sign with which transfers of income abroad enter the national accounts means that we have loads of room more for reductions in GNP on the back of 'exports recovery'.

25/3/2012: QNA Q4 2011 - Part 3

In part 1 of the QNA analysis we covered annual results for annual GDP and GNP in constant prices terms. Part 2 analysis focused on GDP/GNP gap and losses in national income compared to pre-crisis trend. Here, we cover some quarterly trends for GDP and GNP based on constant prices data.

Let's consider changes by sector:

• Agriculture, forestry and fishing sector output fell 5.1% yoy in Q4 2011 following a 9.34% rise yoy in Q3 2011. In Q4 2011 the sector accounted for just 1.26% of the total quarterly GDP. Compared to Q4 2007 the sector output is now down 6.0%.
• Industry output rose 2.3% yoy in Q4 2011 after rising 6.25% in Q3 2011. The sector is now accounting for 28.34% of the quarterly domestic output. Sector output is now down 3.3% when compared against Q4 2007.
• Building & Construction sub-sector of Industry sector posted yoy decline of 6.7% inQ4 2011 that follows on 39.32% drop in Q3 2011. The sub-sector is now accounting for just 2.62% of total output and is down 55.0% on Q4 2007.
• Distribution transport and communications sector shrunk 0.6% yoy in Q4 2011 which follows 4.99% drop in Q3 2011. The sector accounts for 13.23% of total output and is down 17.3% on Q4 2007.
• Public administration and defence sector shrunk 3.8% yoy in Q4 2011 which follows on a 6.53% contraction in Q3 2011. The sector now accounts for 3.58% of the domestic output and is down 6.5% on Q4 2007.
• Other services including rents output contracted 3.1% yoy in Q4 2011 following on a 5.14% contraction in Q3 2011. The sector accounts for 42.37% of the economy and is down 12.5% on Q4 2007.
• As the result of this, GDPat constant factor cost expanded in Q4 2011 by 1.1% yoy and this follows on a rise of 0.88% in Q3 2011. This metric of domestic output is now dow 10.6% on Q4 2007.
• Taxes net of subsidies are down 2.3% yoy in Q4 2011 and this follows a 2.76% drop in Q3 2011. This accounts for 9.70% of GDP and the category is now down 30.0% compared to Q4 2007.
• Headline GDP at constant market prices rose 0.7% yoy after expanding 0.52% in Q3 2011. The GDP at constant prices in Q4 2011 was 12.8 below that in Q4 2007.
• Net factor income from the rest of the world (aka largely transfer pricing net of receipts by Irish corporates and individuals on their foreign investments) grew 59.9% yoy in Q4 2011 which follows on 7.41% growth in Q3 2007. These transfers now account for 18.51% of our GDP and were running 10.0% ahead of the levels recorded in Q4 2007.
• Headline GNP in constant prices in Q4 2011 fell 7.1% yoy following a 1.18% contraction in Q3 2011. National income in constant prices is now 16.6% below that attained in Q4 2007.
• GDP/GNP gap stood at 18.51% in Q4 2011 slightly down on 20.18% in Q3 2011.

Charts:

More sectoral analysis to follow in the next post.

23/06/2011: Quarterly National Accounts Q1 2011

QNA results for Q1 2011 are in today. Some are expected, some are not. Her's a quick snapshot of the core data. Keep in mind - these are initial estimates subject to future revisions.

Seasonally adjusted GDP rose 1.3% qoq. Surprised? You shouldn't be - in 2010 the same Q1 rise was 1.0%.

If a base year chosen for real variables adjustment was 2008 as before Q1 2011, year on year the increase in Q1 2011 was just 0.04%, so annualized growth extrapolated from Q1 result is effectively zero. At the same time, as predicted in my analysis of Q4 2010 results, GNP crashed on the back of strong outflows of net factor income. GNP is now down 4.32% qoq and down 0.65% yoy. The GNP decline was, as I mentioned before, predictable. In Q4 2010 many MNCs parked their profits in Ireland in hope of getting a new repatriation deal out of the US administration in 2011. Thus, they forward-loaded profits into Q1 2011, pushing transfers up and GNP down. Net factor outflows abroad rose to €7,712mln (constant prices seasonally adjusted terms) up 34.3% qoq.

Of course, CSO re-based their data to 2009 for the main series, which means that in constant prices terms, seasonally adjusted:

• Agriculture, Forestry & Fishing sectors output in GVA terms fell 2.2% qoq and rose 4.3% yoy, while still posting a 5.4% decline on the peak
• Industry GVA fell 0.4% qoq and 0.9% yoy to post -4.5% contraction on the peak quarterly performance
• Building & Construction sub-sector of Industry posted a 15.4% contraction qoq and 18.7% fall yoy, to end Q1 2011 at 75.7% below its quarterly historical peak
• Distribution, Transport & Communications sector grew 1.3% qoq, but still down 0.9% yoy and 15.7% below peak
• Public Administration and Defence shrunk 0.7% qoq and 2.2% yoy - not exactly what you'd expect in the age of severe austerity. The sector GVA is now 8.2% below its peak
• Other Services, including rents show 0.7% increase qoq and 1.7% decline yoy and are 8.3% below the peak
• Taxes net of subsidies were 2.2% down qoq and 2.2% down yoy, showing overall decline of 36.6% on the peak, implying that savings from austerity are not catching up with declines in taxes net of subsidies
• GDP in constant market prices and seasonally adjusted terms, based on GVA, had risen 1.3% qoq and is flat at +0.04% yoy and down 11.5% on peak
• GNP based on GVA is down 4.3% qoq, down 0.65% yoy and is 15.4% below its quarterly peak
  

Thus, the GDP/GNP gap has widened once again. On GVA basis (constant prices seasonally adjusted) the gap is now 19.62% up from 14.93% in Q4 2010 and 19.07% in Q1 2010. This is the record quarterly GDP/GNP gap in the history of the series.
So on the basis of GVA (Gross Value Added), Irish economy (GDP) grew solely on the back of Distribution, Transport & Communications sector expansion (qoq) and Other Services, including rents (qoq). For all the boom in manufacturing we are experiencing, industry still contracted qoq. Year-on-Year, the only positive contributor to GDP was Agriculture, Forestry and Fishing sector. Not exactly a boom time, folks.

Now, take a look at the expenditure basis of GDP calculations. Chart below illustrates:

Let's take a closer look. In constant market prices, seasonally adjusted:

• Personal consumption of goods and services fell 1.88% qoq and 2.72% yoy. This was the first time since Q2 2005 that personal consumption fell below €21 billion in any quarter. Relative to peak quarter performance, Q1 2011 consumption stands at -12%
• Net expenditure by central and local government has declined 1.93% qoq and 4.16% yoy, reaching -10.3% decline on peak historical quarterly performance. If you think that this austerity, then let's put it into euro value terms. Q1 2011 net government expenditure was just €131mln below Q4 2010 and €290mln below Q1 2010. Relative to the peak quarterly expenditure, Q1 2011 spending was down just €765mln or annualized savings of less than €3.1 billion. Not to say this is not a painful correction, but hardly a sign of severe austerity and certainly not enough to undo our €17 billion-odd annual deficit
• Gross domestic fixed capital formation improved - at last, posting 1.08% gain qoq, although still 8.85% below Q1 2010. Relative to peak, investment in fixed capital is now 59.2% below historical quarterly high
• Exports of goods and services boomed once again, rising 3.79% qoq and 6.85% yoy (an annual rate consistent with the IMF forecasts, but well behind the projections by the DofF and ESRI). Relative to historical peak Q1 2011 exports were 0.9% above historical high
• Imports have fallen 0.34% qoq providing positive contribution to GDP, but are up 3.79% yoy. Imports are now 10.6% below quarterly historical high
• Thus, GDP at constant market prices was 1.26% above Q4 2010 and 0.04% above Q1 2010, while GNP was 4.32% below Q4 2010 and 0.65% below Q1 2010.
  

In other words, GDP was supported in growth by Gross domestic fixed capital investment, smaller stocks drawdown, exports increases and imports declines. Qoq, net exports (exports minus imports) grew by €1,557m (20.6%) at constant 2009 prices. Domestic demand, on the other hand, declined by €990m (-3.1%) over the same period with personal consumption down by 2.9%.
Note the line showing trade surplus net of transfers of factor income abroad - after 3 quarters of registering positive net trade surplus, Irish economy has posted another deficit in Q1 2011 of €358mln. In other words, the value of all of our trade, once imports and profits of MNCs are accounted for, is negative, broadly speaking.

Economics 17/12/10: Q3 2010 National Accounts - part 2

This is the second post on the QNA data for Q3 2010.

Let's take a look at three more dynamic sectoral components of GNP.
Services and industry are now pulling in different directions, which means the proverbial glass on growth is really half-full (or half-empty). Amazingly, construction sector continues to shrink. This is even better illustrated as the sector share of domestic economy:
Now, recall that PMIs for construction sector for November showed continued monthly contraction in sector activity, led by civil engineering (as the rest of the sector has already shrunk by well over 80%). 2011 forecast for new homes completion is now around 9,000 units - and in my view that too is rather optimistic. This means we can expect more bad news out of the sector with a continued knock on effect onto auxiliary services and materials sectors.

Taking a look at GDP and GNP in current prices terms:
For the second quarter in a row, the value of Irish exports was in excess of the value of the country GDP (by 2.94% in Q3 - down from 3.03% in Q2, while in Q3 2009 it was 11% below the level of GDP). Undoubtedly, weakening euro helped here.

Again, in current prices, consumers are still striking, while capital investment has gone even deeper into the negative territory, so that the very partial replacement of amortized stocks that gave it a temporary boost in Q2 before has been exhausted. Government spending is not showing much of a decline.
Take a look at quarterly rates of change in the above components:
We are now an economy that consumes its capital stock, not the one that adds to it for future growth.

Economics 16/12/10: Q3 2010 National Accounts - part 1

This is the first post analysing the latest Quarterly National Accounts data for Q3 2010 released today.

Let's take a big picture view first.
Both the GDP and GNP expanded in Q3, with GNP marking the second quarter of continuous expansion. Real GDP grew +0.5% qoq. Currently, GDP stands at 1.7% higher the lowest point in this recession so far (Q4 2009), but 0.694% below Q3 2009 in current prices. Cumulative Q1-Q3 GDP (seasonally adjusted, constant prices) stands at -1.21% below Q1-Q3 2010 GDP. In other words, year on year we are still in a recession.

Real GNP also rose qoq by 1.1% - a second consecutive quarterly rise following a tiny uplift of 0.1% in Q2. Since GNP measures our actual economy, netting out transfer pricing by the MNCs, it is worth taking a bit of a closer look at the numbers. Net transfers out of this economy, which includes remitted profits, rose 4.573% in Q3 in yoy terms. Over the first three quarters of 2010 this number is up 10.46% relative to 2009. As the result, our GNP was 1.77% below Q3 2009 level and the first three quarters cumulative GNP for 2010 was 3.7% below that of the same period in 2009. By any real metric, this is a raging recession, folks.

The good news from today's figures is that our exports are still growing, and in fact, are still driving economic growth. Total exports grew by 3.6% qoq, though that rate was 7.6% in Q2 2010 and 6.4% in Q1, which implies that Q3 posted a slowdown in exports growth. We now have three consecutive quarters of growth in exports. Which is brilliant news. Year on year, Q3 exports grew by 13.1%, while first three quarters of 2010 posted a rise in exports of 8.9% relative to the same period in 2009.

Irish exporters do deserve some serious praise here. And one other net positive is that we are finally seeing domestic economy benefiting from this exports growth, as evidence by the slight closing of the GDP/GNP gap.

But more on exports later.

As chart above shows, consumer spending and government spending were down, once again.

Consumer spending was down 0.544% qoq - the largest decline in year and a half. In yoy terms, consumer spending was down 1.38% and in Q1-Q3 cumulative terms, personal consumption was down 1.1% on 2009.

Government spending fell 5.053% yoy in Q3 (note that the same yoy decline in Q1 2010 was 6.082%, implying that Government performance on spending side actually worsened during the year), qoq Government spending fell 1.738% in Q3 2010.

Total domestic demand is down 1.7% qoq and 5.1% yoy.

But take a look at the comparatives for the dynamics of private consumption and Government spending since 2005. First, consider both expressed in constant prices:
And next, consider the same expressed in current prices:

In real (inflation-adjusted) terms, Government spending is currently between Q1-Q2 2006, while private consumption is between Q4 2005 and Q1 2006. A close comparison. Once we allow for inflation (in current prices terms), Government spending is currently between Q4 2006 and Q1 2007, while private consumption is between Q4 2005 and Q1 2006. Much less of a match.