| Source: CSO
Irish Gross Domestic Product (GDP) and Gross National Product (GNP) for the first quarter of 2009 fell sharply according to data today from the CSO. Compared with the corresponding quarter of 2008, GDP at constant prices was 8.5 per cent lower while GNP - - which excludes profits from multi-national companies - - was 12.0 per cent lower. The seasonally adjusted estimates show that, compared with the previous quarter, GDP fell by 1.5 per cent and GNP by 4.5 per cent. Service exports at €16,050m fell €360m largely due to insurance and financial services. Service imports rose. Ireland’s External Debt increased to €1.69 trillion at end March 2009.
Some of the main features of the results are:
Consumer spending (personal consumption of goods and services) in volume terms was 9.1 per cent lower in Q1 2009 compared with the same period of the previous year.
Capital investment, in constant prices, declined by 34.1 per cent in Q1 2009 compared with Q1 2008.
Net Exports (exports minus imports) in constant prices were €2,814 million higher in Q1 2009 compared with Q1 2008.
The volume of output of Industry (incl. Construction) decreased by 10.5 per cent in Q1 2009 compared with Q1 2008. Within this the output of the Construction sector fell by 31.4 per cent over the same period.
Output of Distribution, Transport and Communications was down 10.9 per cent while Output of Other Services was 3.5 per cent lower in the first quarter of 2009 compared with the same period of last year.
The CSO says the estimate of GNP is derived by adjusting GDP for income flows between residents and non-residents. The timing of these flows can be variable. They include, in particular, the profits of foreign owned enterprises which increased by some €713m between Q1 2008 and Q1 2009. The increase, in this quarter, in the net factor income flows is also affected by (a) reduced credits (inward flows), compared to Q1 2008, to Irish outward direct investment enterprises and (b) increased interest payments on government debt. As a result, the decline in GNP was more severe than that in GDP.
GNP is a more useful measure of Irish economic performance because of the significant presence of multinationals in Ireland.
€2.5bn current account deficit 1st Quarter 2009
The CSO also reported that the Balance of Payments current account deficit for the 1st Quarter 2009 was €2,530m, over €1.6bn lower than that of €4,175m for the same period in 2008. Due mainly to much lower imports, the first quarter merchandise surplus of €8,020m
was over €3.7bn higher year on year while the invisibles deficit increased by almost €2.1bn to €10,550m. Similarly, the deficits on services (€2,180m) and income (€7,586m) were both about €1bn higher .
| Source: CSO
Total service exports at €16,050m dropped €360m largely due to insurance and financial services.
Service imports at €18,230m were up over €600m due mainly to higher royalties/licences and miscellaneous business services. Over the same period tourism and travel receipts (€640m) and expenditure abroad (€1,324m) were down. The higher income deficit results largely from reduced profits and interest earnings by Irish-owned businesses abroad (€1,808m) along with increased outflows of profits and interest from foreign-owned enterprises in Ireland (€8,631m) - see Table 2a. Interest outflows on Government External Debt also
increased. In the financial account, Irish (mostly IFSC) residents redeemed €40bn of foreign portfolio assets and repaid €27.8bn of portfolio liabilities. Inward direct investment was low at €794m and was similar to outflows.
Ireland’s External Debt increases to €1.69 trillion at end March 2009
Additionally, the CSO reported that at 31 March 2009, the gross external debt of all resident sectors (i.e. general government, the monetary authority, financial and non-financial corporations and households) amounted to €1,693bn, an increase of €32bn on the level at the end of the previous quarter. The increase arose from a combination of exchange rate effects and the availability of new data. The CSO said it should be noted that much of this external debt is offset by holdings of foreign financial assets by Irish residents.
Other points of note in the latest results are:
The liabilities - mostly loans - of monetary financial institutions (i.e. credit institutions and money market funds) amounted to €723bn. This was €56bn lower than for end-December and, at 43% of the total debt, was a smaller share than in the previous quarter. The decrease was due to a large reduction in debt liabilities, particularly short-term loans, and is to an extent reflected by an increase of over €50bn in Monetary Authority liabilities to the European System of Central Banks (ESCB) including balances in the TARGET 2 settlement system of the ESCB.
The liabilities of other sectors increased by €28bn from the end-December position and at €621bn represented 37% of the overall debt for the end-March quarter, slightly higher than in the previous quarter. The CSO say the bulk of this increase results from new data included in the Balance of Payments revisions for 2007 and 2008 published today and which will also feature in the International Investment Position figures for 2008 due for release in Autumn of this year.
As a result of new and updated information, direct investment debt liabilities of €194bn showed an increase of almost €7bn from the level shown for end-December. General government liabilities increased further to €60bn. The increase was driven by long-term bond issues more than offsetting a reduction in short-term money market instrument issues during the 1st Quarter of this year.
IBEC, the business lobby group said that the latest National Accounts data confirm a fall in output unprecedented in the history of the State.
Commenting on the data, IBEC Economist Reetta Suonperä said:“The brutal 8.5% fall in GDP in the first quarter of 2009 demonstrates the magnitude of the adjustment that the Irish economy must undergo. We must trade our way of the current situation, and to do this we need to improve competitiveness. We must act decisively and act now, so that we are ready when the global upturn comes.
“There is, however, some hope that the worst may now be behind us," continued Suonperä. "Many of the economic indicators are showing tentative improvements. The economy will continue to contract throughout 2009, but the pace at which we are falling appears to have stabilised.”
| Source: Goodbody|
Goodbody chief economist Dermot O'Leary comments:
Record contraction in Q1 -This morning’s National Accounts release for Q1 confirmed the expected rapid contraction in Irish economic output around the turn of the year. GDP declined by 8.5% yoy in Q1, with the less volatile measures of output - GNP (which excludes the large profits generated by foreign multi-nationals here in Ireland) - falling by a more dramatic 12% yoy in the first three months. Needless to say, this represents a record contraction in the Irish economy. All sectors of the economy performed poorly, although this recession very much remains investment-led.
An investment-led recession - Investment declined by 34% yoy, with all subcomponents contributing to this dire performance. Construction output continued to contract rapidly at the start of the year; output overall fell by 33% yoy, with new housing output down by 47% and non-residential output down by 20%. The other main component of investment is in machinery and equipment. Unsurprisingly, businesses had little appetite for committing to investment projects at the start of the year, as reflected in the 33% fall in this area of investment. All of these were in line with our expectations.
Consumer retrenchment - Consumers showed a similar unwillingness to part with cash, with overall consumer spending falling by 9.1%. We knew already the extent to which retail spending had dropped off in Q1 (-15% yoy), but this morning’s data confirm that spending on services, while holding up relatively better than goods, has also started to falter recently (-3%). We have pencilled in a 9% decline in consumer spending in 2009, and these data do nothing to change our mind on this front.
What about the traded sector? - Given the collapse in global trade in the final quarter of 2008 and first quarter of 2009, one would have thought that an economy so dependent on trade as Ireland would be greatly affected. However, the official data indicate that net trade actually made an important contribution to growth in Q1. Exports fell by only 3%, but imports completely imploded as a result of the collapse in domestic demand.
Back to 2005 - While the quarterly seasonally-adjusted data are volatile, they do give us the necessary information to assess the scale of the contraction in the economy thus far. After peaking in Q4 2007, GDP declined by 9.3% up to the first quarter, while GNP declined by 12% (see chart), putting the current Irish downturn already among the biggest in any OECD economy in the post-WWII period (although other countries will enter this unfortunate group in this downturn). We recently left our forecasts for the economy unchanged in our most recent Commentary, and apart from timing issues around the volatile GNP/GDP figures due to multi-national profit flows, the economy, unfortunately, seems to be tracking this path.
| Source: Goodbody|
Davy chief economist Rossa White comments:
GNP falls dramatically quarter-on-quarter, led by consumer spending and investment
Q1 was worst quarter of recession: GNP down 4.5% qoq
The first quarter of 2009 was the worst quarter of the recession. It saw a dramatic decline in consumer spending as unemployment spiked. It also saw a continuation of the adjustment in investment. And it was compounded by a drop in exports, although Ireland performed well versus its trading partners.
The most important comparison is the quarter-on-quarter (qoq) trend. Consumer spending fell 6.2%, bringing the decline since the peak in Q4 2007 to 9.6%. Investment dropped 13.2% to a level not seen since 2002 and is now 43% lower than peak.
Exports slipped only 0.7% qoq while imports fell 3.9%, reflecting the drop in consumer spending and business investment.
Good news is that majority of the huge adjustment is over
By Q1, the economy was 12% smaller in volume than at the peak (based on real GNP) and a massive 16.5% smaller than the peak of Q1 2007 in nominal terms.
That sharp drop in the cash size of the economy reflects a lower volume of activity as well as deflation in the price of investment and consumer expenditure.
The decline in the economy in the first quarter compared with the final quarter of 2008 was slightly bigger than we has expected, driven by non-residential investment and service exports. The good news is that more of the adjustment is out of the way: we expect the economy to decline at most 4-5% in volume from Q1 2009 to the quarterly bottom in Q1 2010.
Two sectors emerged from recession in Q1: agriculture and industry
The sectoral breakdown (i.e. the output side of the National Accounts which equals the expenditure side by definition) is often ignored. But it gives us a much greater idea of what is going on in the different parts of the economy.
In the first quarter, two sectors emerged from recession: industry and agriculture. The multinational sector led industry to a 4.6% qoq gain following recession throughout 2008. Agriculture surged back to life as commodities recovered on global markets. That sector experienced growth of 9.5% following two sequential quarters of decline in the second half of 2008.
But construction was still mired in deep recession. It saw output dive 14.4% qoq for its worst contraction of the cycle yet. That is not surprising in the context of massive layoffs in the sector in January and February.
Meanwhile, the salient service sector was still in recession. It saw another qoq drop in activity in Q1. The worst affected sector was distribution and transport (a good barometer for economic activity), whereas the public sector declined and the rest of the service sector fell at a relatively slower pace.
Current account deficit increased, having narrowed at end-2008
A disappointing aspect was the widening in the current account deficit to 7% in the quarter. This was sparked by lower service exports (of financial services, insurance, tourism and software); a bigger net outflow of transfers (driven by EU contributions and the remittances of non-Irish nationals); and a decline in income earned by Irish residents from overseas assets while income earned by non-residents on their non-IFSC investments here held up. That was disappointing in the context of the near balance on the current account in Q4 2008.
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