|Source: CSO |
No exit from recession in Q1 2010 as GNP fell in quarter while GDP rose
2.7%. Initial estimates for the first quarter of 2010
show an increase, on a seasonally adjusted basis, of 2.7 per cent in GDP and a
decline of 0.5 per cent in GNP compared with the previous quarter. In comparison
with the corresponding quarter of 2009, GDP at constant prices was 0.7 per cent
lower while GNP was 4.2 per cent lower.
GNP (gross national product) which is about 18% below GDP in an economy that is more dominated by multinationals than any other, is a better measure of economic output than GDP and Finfacts accordingly says the economy we were still in recession in Q1 2010. The estimate of GNP is derived by
adjusting GDP for income flows between residents and non-residents. The CSO says
the timing of these flows can be variable. They include, in particular, the
profits of foreign owned enterprises which increased by €2.01bn between Q1 2009
and Q1 2010. As a result, the decline in GNP was more severe than that in GDP
(gross domestic product).
The Central Statistics Office reported that some of the main
features of the results in comparison with Q1 09 are: Consumer spending
(personal consumption of goods and services) in volume terms was 0.8 per cent
lower in Q1 2010 compared with the same period of the previous year. Capital
investment, in constant prices, declined by 30 per cent in Q1 2010 compared
with Q1 2009.
Net Exports (exports minus
imports) in constant prices were €2.61bn higher in Q1 2010 compared
with Q1 2009. The volume of output of Industry (incl. Construction)
increased by 7.7 per cent in Q1 2010 compared with Q1 2009. Within this the
output of the Construction sector fell by 35.0 per cent over the same period.
Output of Distribution, Transport and Communications was down 1.4 per
cent, while Output of Other Services was 3.3 per cent lower in the first
quarter of 2010 compared with the same period of last year.
First Quarter current account deficit of €1.6bn
The CSO said the Balance of Payments current account deficit for
the 1st Quarter 2010 was €1.62bn, over €1.1bn lower than that of €2.74bn for the
same period in 2009. The first quarter merchandise surplus of
€9.38bn was almost €1.3bn higher year on year, due to lower imports. The
decrease of €800m in the services deficit (€2.06bn) was more than offset
by the €1bn increase in the income deficit resulting in the invisibles
deficit increase of €171m to €11,004m .
Total service exports at €16.630bn
increased by €1.1bn largely due to computer services, up €555m,
business services, up €300m, and insurance services, up €200m. With
increases for royalties/licences (€220m) and insurance services
(€106m) and decreases for tourism and travel (€73m), total service
imports at €18.67bn were up almost €280m.
The higher income deficit is
a result of increased direct and other investment income outflows. Profits and
interest earnings of Irish-owned businesses abroad increased to €2.48m while
profit outflows of foreign-owned enterprises increased to €10,527m .
In the financial account,
direct investment abroad showed acquisitions of €5bn with inward investment
of almost €4.3bn. Irish residents acquired €3bn of foreign portfolio assets
while additions to liabilities were €24.7bn.
|Source: CSO |
Davy chief economist, Rossa White, says Ireland is a
GDP back to growth, powered by exports, but GNP down
Real GDP increased by 2.7%
quarter-on-quarter (qoq) in Q1. That was the first quarter of expansion
since Q4 2007. It was led by a 6.9% surge in exports.
But GNP (or national income)
disappointed, slipping by 0.5% compared with Q4 2009. That was the eighth
straight quarter of decline, although there was some consolation in the fact
that it was the smallest drop in that period. That trend continues to
reflect contraction in the domestic-influenced economy.
Consumer spending was down
slightly (-0.2%), albeit that "core" retail sales rose in the
quarter. This seems to suggest that spending on services was down as car
sales also rose sequentially. That looks bizarre to us.
Government spending (-0.9%) and
investment (-13.8%) both declined qoq as expected. Imports rose the most
since Q3 2007, in line with better exports.
Foreign-owned part of the economy has recovered while the
rest of the economy lags behind
Both the sectoral split of the
economy and the nominal data illuminate underlying trends in the economy. In
Q1, nominal GDP jumped 2.9% but nominal GNP fell 3.2%. The cash value of GNP
has been declining for three years and is now 25% below peak. It highlights
the (necessary) deflation across domestic-focused parts of the economy.
The improvement is concentrated
in export sectors, also benefitting from a weaker euro. Agriculture
(generally firmer milk prices); industry (improving external demand); and
distribution/transport/communication (global demand) all exited recession.
The rest of the private service sector was exactly flat: the internationally
traded part grew while domestic-focused activity may have declined.
Construction and the public sector continued to shrink.
GDP set to rise for full year, but GNP will fall
The Minister for Finance,
Brian Lenihan, commented:“These economic
figures show that Ireland is out of recession with GDP expanding by 2.7% between
the final quarter of last year and the first quarter of this year, which is the
fastest growth rate in the OECD. This provides concrete evidence that the
coordinated measures taken by Government to address competitiveness, the public
finances, and the banking system are paying off with improved confidence and
clear evidence of a return to economic growth. Economic growth is an essential
driver of jobs growth.
“In the December budget, my
Department projected a GDP decline of 1¼ per cent. Today’s figures suggest the
prospects for growth this year are somewhat better than previously assumed.
Today’s figures also show that exports are performing strongly, while consumer
spending has stabilised. This, coupled with the figures for consumer confidence
since April, bode well for the remainder of the year.”
The Minister said that
although there continues to be additions to the Live Register, we know that
employment growth inevitably follows with some time lag growth in economic
activity. “Of course, unemployment is unacceptably
high. But the best way to create and protect jobs is to return to economic
growth. Every measure the government has taken over the last two years is aimed
at getting those who have lost their jobs back to work. The Government has
introduced targeted measures to assist job creation in different sectors of the
economy. Continued economic growth is the best way to grow employment. Today’s
figures show that the policies we have been pursuing are the right ones and that
we must continue with our plan.”
Commenting on the data,
IBEC economist Reetta Suonperä said: “In the first
quarter of the year, GDP expanded by a solid 2.7% relative to the final quarter
of 2009, but, disappointingly, GNP slipped back by a further 0.5%. The
trading sector benefitted from the international recovery and export growth in
the first quarter at 6.9% was very strong. While net exports made a positive
contribution in 2009, it was mainly because of falling imports. The solid start
to the year is therefore very welcome and bodes well for a sustained export-led
“Technically, with positive quarterly GDP growth, Ireland exited recession in
the first quarter of the year, but the domestic economy continues to lag the
traded sectors. The quarterly decline in consumer spending at 0.2% was only
marginal, but investment, construction in particular, continues to be a
significant drag on output.
“The weakness in the domestic sector was further highlighted by the
disappointing increase of 5800 in the June Live Register figures. Men accounted
for over 80% of the increase, indicating that job losses in the male-dominated
construction sector continue.
“The weakness in the domestic sectors further highlights the need for
well-targeted public capital investment in projects that represent good value
for money, thereby boosting Ireland’s long-term growth potential and providing
temporary stimulus for jobs and activity the domestic economy."
Ulster Bank chief economist,
Simon Barry, comments:
End of recession heralded
by multi-national driven bounce in Q1 GDP…
"The much anticipated release of first quarter national accounts (QNA) data
confirmed what had been increasingly evident from other indicators in recent
months; namely that the output of the Irish economy has returned to positive
growth, in other words that recession has ended.
Today’s numbers showed a 2.7% jump in real GDP in the first three months of this
year compared with the final quarter of last year. This brings to an end a run
of eight consecutive quarters of economic contraction, as the Q1 expansion was
the first since Q4 2007
Previously released monthly data on industrial production and exports had been
signalling that the internationally traded sectors of the economy had enjoyed a
solid opening few months of the year and this came through very clearly in the
GDP numbers. Total exports jumped by 6.9% q/q in Q1 – the strongest quarter in
The CSO doesn’t release estimates of quarterly changes in goods/services exports
but it does present estimates of the annual changes. These highlight the
increasingly important role of the service sector as a driver of export
performance. While growth in the volume of goods exports has returned to
positive territory in Q1 (2.4%y/y), the acceleration in services has been
considerably more pronounced, with annual growth reaching 9.5% in the March
quarter. Services now account for 46% of total exports, up from 40% five years
The CSO notes that much, though not all, of the export strength was related to the particular buoyancy of multinational driven sectors such as pharma and software. Such buoyancy does have a counterpart, which is very strong profits on such activity. And higher profit outflows contributed to a record level of (negative) net factor income from abroad. his reached €7.9bn in Q1, up from €7.1 in Q4, the result of which is an increasingly large wedge between GDP and GNP. In fact, the extent of the gap in Q1 was such that there was a quarterly decline (of 0.5%) in GNP.
This was something of a disappointment given the strength in the GDP measure and highlights ongoing weakness in domestically-focused areas of the economy. Investment was again a major weak spot, with capital formation down almost 14% on the quarter, and 30% over the past year, with a 50% annual plunge in housing the major drag. Government spending was down for the fifth quarter in a row, though the 0.9% quarterly drop was the smallest over this period.
Meanwhile, total consumer spending also fell, by a modest 0.2%, though we wouldn’t have been surprised to have seen a weaker number here given that total retail sales fell by over 6% in Q1. The relatively small decline in total spending implies that spending on services must have been pretty robust in the early months of the year, perhaps linked to higher consumption of energy over the cold snap at the beginning of the year.
The diverging signals between the competing measures of GNP and GDP leaves something for bulls and bears alike. The ongoing, if diminishing, weakness of GNP serves to act as something of a restraint on the considerably more upbeat messages from the GDP data. But it would be wrong in our view to dismiss the GDP measure. Multinationals are an important component of the Irish economy, even if their relative contribution to exports and output is greater than their contribution to employment. And GDP does arguably provide a better measure of the tax base, as multinationals do pay tax on their profits.
While GNP fell by 0.5% q/q, the bottom line is the economy has assumed a more favourable trajectory
It is worth noting that today’s data are subject to a considerable lag given that their coverage doesn’t extend beyond the first quarter. However, we do have a number of other indicators which are released on a more timely basis and which give us a more up-to-date snapshot. One of our favoured summary indicators is the composite PMI which combines the information from the PMI surveys on services, manufacturing and construction into one pan-economy indicator.
Its well-established upward trend has been clearly signalling the nascent recovery in Irish activity given its strong correlation to y/y GDP growth. Moreover, the April and May results indicate further underlying improvement in the period since Q1. In addition, consumer confidence continues to recover and April retail sales data point to the likelihood of an increase in Q2 consumer spending, while April export numbers are also running higher than the Q1 average. Labour market developments are still very weak of course, with today’s increase in the Live Register estimate of the unemployment rate to a new cycle high of 13.4% acting as a reminder of the inevitable lag between rising activity and an improving jobs picture.
The bottom line is that, leaving
aside the GDP/GNP debate, the Irish economy has assumed a more favourable
trajectory in recent months. The freefall in activity is over and Irish output
and confidence is benefitting from the turnaround in the global economic
environment over the past year. That turnaround isn’t without risks of course,
and it will be critically important from an Irish perspective that a global
double-dip is avoided if the domestic economy is to continue along the recovery
Finfacts: It should be noted that employment in the multinational sector is back to 1998 levels and a 26% rise in pharma/medical device exports in the five years to 2009, coincided with hardly any change in the employment of about 40,000 in the sector.