|Source: CSO |
The first estimates of Irish Gross Domestic Product (GDP) and Gross National Product (GNP) for the year 2009 as a whole indicate that GDP was 7.1 per cent lower than in 2008 while GNP was 11.3 per cent lower than in 2008. This is the largest decline in output ever recorded in a single year since at least 1950, when the Central Statistics Office (CSO) began the current national accounts data series.
The CSO says initial estimates for the fourth quarter of 2009 show a decline, on a seasonally adjusted basis, of 2.3 per cent in both GDP and GNP compared with the previous quarter. In comparison with the corresponding quarter of 2008, GDP at constant prices was 5.1 per cent lower while GNP was 10.4 per cent lower.
Some of the main features of the results are: Consumer spending (personal consumption of goods and services) in volume terms was 5.2 per cent lower in Q4 2009 compared with the same period of the previous year, while Capital investment, in constant prices, declined by 28.2 per cent in Q4 2009 compared with Q4 2008. Net Exports (exports minus imports) in constant prices were €2.04bn higher in Q4 2009 compared with Q4 2008 (see breakdown by merchandise/services categories below).
The volume of output of Industry (incl. Construction) decreased by 6 per cent in Q4 2009 compared with Q4 2008. Within this the output of the Construction sector fell by 32.3 per cent over the same period. Output of Distribution, Transport and Communications was down 7.0 per cent, while Output of Other Services was 2.3 per cent lower in the fourth 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 €858m between Q4 2008 and Q4 2009. The increase, in this quarter, in the net factor income flows is also affected by (a) reduced credits (inward flows), compared to Q4 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.
|Source: CSO |
2009 current account deficit lowest in five years
The CSO also reported today that 4th Quarter 2009 Balance of Payments current account deficit fell to €166m giving a deficit of €4,814m for the year as a whole. This was €4.6bn lower than the previous year and the lowest annual deficit since 2004. The 4th quarter merchandise surplus of €7,158m was €1bn lower than the previous quarter and down almost €600m on the same quarter one year earlier. The invisibles deficit of €7,324m was €1.7bn lower than the previous quarter and €739m lower than a year earlier. Within this aggregate, the services deficit of €379m was €109m higher than the previous quarter while the net income outflow of €7,771m was €655m lower.
For the year 2009, the merchandise surplus of €32,647m was €8.8bn higher than in 2008 due to the fall in imports of €12.4bn exceeding a €3.5bn fall in exports; the services deficit of €4,958m was €412m lower than in 2008. Net factor income outflows increased from €26,770m in 2008 to €31,582m, up €4.8bn. Other points of note in the 4th Quarter 2009 results are:
Merchandise exports of €18,099m were down €427m on the previous quarter, while imports increased by almost €600m.
Services exports at €18,956m in the 4th quarter were €830m higher than the same quarter last year, with increases in computer services (up €400m) and business services (up €1.1bn) being partly offset by decreases in insurance services (down €500m) and financial services (down €144m). Services imports at €19,335m were down €1.2bn due mainly to decreases in royalties/licences (down €546m to €6,216m in Q4), insurance (down €300m) and travel (down €200m).
Direct investment income outflows of €8,772m increased by almost €900m compared to the 4th quarter 2008 while inflows of €2,054m were €254m lower.
Direct investment abroad showed further acquisitions of €2,975m in the 4th quarter. Inward FDI showed a net inflow of €9,959m due mainly to increased equity investment (€3,911m) and reinvested earnings of €4,648m.
Foreign portfolio investors invested €21bn in Irish equities, largely units/shares in IFSC investment funds.
Other investment liabilities decreased by €46,569m in the quarter due to a reduction in deposit liabilities of the banking sector allied with a reduction in borrowing by other financial intermediaries. Government foreign borrowing increased by €1.2bn in the 4th quarter while it’s foreign assets decreased by €2.6bn.
The Minister for Finance Brian Lenihan commented: “I note that GDP declined by 7.1 per cent last year, which is marginally better than my Department’s Budget day 2010 estimate of a 7.5 per cent decline.
Today's figures show that the annual pace of decline in GDP slowed considerably as the year progressed. There was a fall in GDP of 2.3 per cent between the third and fourth quarters. Excluding the impact of the ongoing decline in new house building, GDP was roughly unchanged in the fourth quarter.
Today’s figures are consistent with my Budget Day projections for this year and as I outlined, I expect that the economy will resume growing in the second half of the year. Internationally in many of our trading partners, there are tentative signs that a modest recovery is underway. The Government have taken actions to ensure the economy is positioned to take advantage of this recovery.”
Goodbody's chief economist Dermot O'Leary said: "This morning's GDP/GNP data confirm the record decline in the economy in 2009, but they fail to alter our view of the prospects for the Irish economy in 2010 and 2011."
Big GDP decline was expected - Today’s Q4 GDP/GNP data confirms the annus horribilis that was the Irish economic performance in 2009. GDP declined by 7.1 per cent in 2009, better than our forecast of a 7.5 per cent drop. However, GNP, which excludes multi-national profits, fell by a more severe 11.3 per cent last year, worse than our -10.5 per cent projection. Taking the two together, the numbers are in line with our expectations.
Economy shrank again in Q4 2009 - the Irish economy remained in recession in Q4 2009. On a seasonally-adjusted basis, GDP and GNP both declined by 2.3 per cent qoq in Q4. From the peak, GDP has declined by 13 per cent, with GNP falling by 17 per cent, putting the Irish downturn among the worst historically in any developed economy.
Decline in domestic demand easing somewhat - There was some easing in the rate of decline in domestic demand in Q4, falling by 10 per cent, relative to -13 per cent in Q3 2009. An easing in the rate of decline in consumer spending is the main reason for this performance. Consumer spending fell by 5.2 per cent yoy in Q4, improving from -9.5 per cent in the first quarter, which was heavily influenced by the collapse in car sales. We would expect this easing trend to continue into 2010, but we are still sceptical that the Irish consumer can eke out growth in spending given the headwinds that they have to face, particularly in terms of the labour market.
The investment-led downturn - Investment, led by the collapse in the construction sector, continues to be the main drag on the Irish economy. In Q4, investment declined by 28per cent yoy, leaving the decline from the peak in Q1 2007 at over 50per cent. From that 2007 peak, this has meant that investment has subtracted over 14 per cent from the volume of GDP, with net exports actually making a positive contribution over that time period.
Forecasts will be little changed - Although these numbers starkly highlight the scale of the drop in output, they do little to alter the view about Ireland going forward. Ireland is still in the process of engineering a real devaluation and is addressing head-on the problems in the public finances in the banking sector. We expect an export-led recovery to commence in the second half of 2010, before domestic growth returns again in 2011. On first glance, our -1.1 per cent and +2.5 per cent GDP forecasts for 2010 and 2011, respectively, are only likely to be tweaked marginally.
NCB economist Brian Devine commented: "The story remains the same; net job creation is not expected to return until 2011 with the consequent drag on consumption; construction investment will be severely curtailed due to oversupply, and government spending will be retrenching in response to the fiscal situation. In short, in 2010 expect extremely weak domestic demand to counterbalance a large contribution from net exports on the back of global reflation.
The good news was that the current account deficit continued to narrow and now stands at 0.5 per cent of GNP. We have been continually making the point that the key difference between Ireland and the Mediterranean economies will be Ireland’s ability to run current account surpluses post-2010.
If Ireland is running a current account surplus and the government is running a deficit the private sector must be running a surplus which exceeds the government deficit (CA=PSB + GSB). In other words if a country is running a current account surplus there are sufficient funds in the country to fund the government deficit but more importantly the economy as a whole is no longer accumulating debt. It is difficult to see the southern European economies particularly Spain, Greece and Portugal running current account surpluses in the near future; as such they will continue to accumulate debt.
Domestic part of the economy is causing a large drag: The domestic part of the economy continues to be a large drag with consumption, investment and government spending collectively declining by -2.3 per cent q/q. Consumption declined by - 0.3 per cent q/q, while investment declined by -9.7 per cent q/q driven primarily by a fall in construction related investment."
Despite record decline in 2009, recession will end this year – IBEC
IBEC senior economist Fergal O'Brien said:“ Although the economy was still shrinking at a worrying pace towards the end of 2009, we remain confident that it will emerge from recession over the coming months. This is down to improved trading conditions for exporters and a modest recovery in consumer spending.
"The recovery will be fairly muted initially, and it will be 2011 before we see annual growth re-emerge. Many businesses remain under serious pressure and additional Government measures to support enterprise and employment are urgently required.
“The 7.1 per cent drop in GDP and 11.3 per cent fall in GNP last year were largely as we had expected. Unfortunately, there is yet no hard evidence of a turning point for the Irish economy, as output contracted again in the final quarter of 2009. The construction sector remains the largest drag on economic growth, and consumer spending also ended the year in decline.
“The export sector is beginning to benefit from the pick-up in the global economy and services exports in particular are likely to perform strongly during 2010. Ireland's export sector held up reasonably well last year, falling by 2.3 per cent compared with a 12 per cent decline in global trade. Services exports grew by about 1per cent last year, while merchandise exports fell by 5.4 per cent.
“The National Accounts also highlight the diverging trends faced by the traditional and modern sectors of manufacturing. The modern, predominantly multinational, sector of manufacturing grew in 2009 while the traditional sector, which is more exposed to the currency difficulties associated with the weak sterling, experienced a difficult year.”
The story of the Irish export sector in 2009, was the out-performance by the mainly US- owned chemical sector but it had no impact on jobs.
Davy chief economist, Rossa White, commented: GNP still shrinking fast at the end of 2009, but certain sectors stabilising.
GNP down 2.3 per cent quarter-on-quarter in Q4; -17 per cent from peak
- The volume of GNP fell 2.3 per cent quarter-on-quarter (qoq) in Q4. That was the fastest pace of decline since Q1 2009 and followed falls of 1.8 per cent and 1.6 per cent in the two prior quarters. The Irish economy has been in recession since Q1 2008 and will probably not emerge from this until Q2 2010. GNP has fallen by 17.2 per cent from peak, shrinking the size of the economy to where it stood in the second half of 2003.
Investment collapse still doing most of the damage
- Investment has collapsed to a ten-year low. Fixed investment dropped another 9.7 per cent following the slide of 10.3 per cent in Q3. That trend will become worse yet as private housing starts slide towards 5,000 annualised and private non-residential activity dips much lower.
- But consumer spending seems to be stabilising. It fell only 0.3 per cent in Q4. That followed a gain and a slight drop in Q2 and Q3 respectively; overall, the volume of spending is only 0.4 per cent down on Q1 2009.
- Exports are holding up. They increased 0.1 per cent qoq in volume in Q4 and were all but flat intra-year. The good news is that service exports are growing again, as has been flagged by the new orders components of the surveys. Merchandise exports (which account for the other half of the total) are not faring as well. Indigenous companies are struggling, whereas multinationals are benefitting from global recovery.
- Imports have dived during the recession, while exports are resilient. That has helped close the current account deficit to its smallest since 2004. Ireland is not living beyond its means as much as it was.
Stabilisation in certain sectors evident in Q4
- Agriculture returned to growth in Q4, as did the civil service. The private service sector (except for distribution, transport and communications) also experienced a slower pace of decline of only 0.2 per cent.