Irish Economy: A three-speed recovery in 2010; The recovery in the Irish economy is underway, but to date, officially for only one of the three key indicators  -- GDP, GNP and employment - -  according to NCB Stockbrokers. GDP (gross domestic product) expanded by 2.7% quarter on quarter (q/q) in Q1 on the back of a huge contribution from net exports. This was primarily driven by the multinational sector. As such, payments abroad to the owners of the capital were large and when subtracted from GDP lead to GNP (gross national product), which actually declined by -0.5% q/q in Q1.

The mainly US-owned pharmaceutical/medical devices sector is responsible for over 50% of merchandise exports and in the five years to 2009, exports grew by 26% but employment  in the sector remained within a narrow range at around 40,000. Total full-time employment in the foreign sector is back to 1998 levels. Employment in the manufacturing and internationally traded services sectors amounted to 272,053 in 2009. It was 276,287 in 1998. Employment in foreign-owned firms was 132,596 in 2009 and 140,281 in 1998.

NCB economist, Brian Devine, says the broker's proprietary economic activity index, based on hard data, showed that in the 3 months to May that the economy expanded robustly and NCB expects GNP to have expanded in Q2 2010 (Chart A above). The timelier PMI (Purchasing Managers' Index) based growth indicator signaled that in the 3 months to July the economy continued to expand (Chart B below). The pace of expansion is likely to slow in Q3 relative to Q2. Devine says GNP will contract by -1.0% in 2010 and expand by 2.8% in 2011. GDP is expected to increase by 0.8% and 3.1% in 2010 and 2011 respectively.

Devine says GNP is the best measure of “Irish” output, but GDP is also extremely important. Expanding GDP is a sign that the multinationals resident in the economy are doing well, which ultimately filters through to the domestic economy. A study by Indecon consultants on behalf of the IDA Ireland (Industrial Development Authority), the State inward direct investment promotion agency, has shown that for every euro spent by IDA sponsored companies in the economy it generated approximately an extra 50 cent of spending elsewhere in the economy. Similarly, for every 10 jobs created by IDA sponsored companies it led to approximately a further 7 jobs to be created elsewhere in the economy.

These type of claims should be treated with caution or even a pinch of salt, as in the absence of rigorous research, there is inevitably a lot of guesswork involved. Besides, as outlined above, employment in the foreign-owned sector has been static.

Irish GNP is about 18% less than GDP. However, the difference is not all related to the adjustment for the profits of multinationals. Interest payments to holders of Irish public debt is another factor  - - See article by economist, Mary Everett, in the July issue of the Central Bank's Quarterly Bulletin.

Labour market remains extremely weak …

NCB says while GDP has officially bottomed and it believes GNP has bottomed, it is quite clear that the labour market has not bottomed. If anything there has been a further deterioration in labour market conditions over the last three months after a period of stabilisation.

The Live Register data issued on Thursday, showed an increase in the seasonally adjusted amount of 8,500 in July, compared to an increase of 5,100 in June. This compares to an average increase of 2,283 in the first 6 months of the year.

Irish Live Register rose 8,500 to 452,500 in July; 83% are Irish; Citizens from non-EU countries over 14,000; 3,000 Nigerians and 700 Americans

Brian Devine says although not seasonally adjusted (which would bias the numbers upward) the inflow data reveal that the new signings on to the Live Register has risen to its highest level since January 2010. New signings on totaled 60,187 versus an outflow of 46,245 for a seasonally unadjusted increase of 13,942. The inflow in January was 64,765.

The standardized unemployment rate rose from 13.4% in June to stand at 13.7% in July. The NCB forecast is for the unemployment rate to average 13.4% in 2010, but that now looks more likely to average closer to 13.6%.

The number of redundancies dipped by almost 16% in July, compared with a year earlier, the Department of Enterprise, Trade and Innovation said on Thursday.

Data on redundancies showed 5,298 jobs were lost in July compared with 6,285 in July 2009, and 5,326 in June.

However, while the rate of losses has slowed, claims in respect of 39,105 redundancies were submitted to the Department, in the first seven months of 2010.

Irish Economy Monitor (pdf)