Thursday, July 23, 2020

The Modified Current Account in 2019

The CSO have published the details of CA*, Ireland’s current account of the balance of payments modified for some of the effects of MNCs.  The reported outturn for 2019 is pretty remarkable – a surplus of €16.5 billion (8.8% of its sister measure of national income, GNI*).  As the estimates of Fitzgerald and Kenny (2017) show the last time Ireland recorded a surplus of this magnitude was during World War II.

Current Account 1937-2019

If we combine the current account with the sector accounts we can assess the reasons for the increases in recent years.  Here it is since 2009.

Modified Current Account 2009-2019 by Sector

As was the case in 2018, all sectors have the economy in 2019 recorded positive outturns for S – I (gross savings minus gross capital formation).  Both the government and the household sectors increased their surpluses which is in line with expectations.  The negative “non-sectorised” item arises  in Ireland’s national accounts due to the differences between the income and expenditure methods of estimating GDP.  The discrepancy between the approaches is not attributed to any sector.

Of course, the most notable sector in recent years is the non-financial corporate.  In this instance it is the overall NFC sector with all the “star” adjustments applied to it.  Later in the year we will get a more formal split of the NFC sector into domestic, foreign and re-domiciled.

As we pointed out when these figures were released last year there is something going on with domestic non-financial corporates, and particularly the retained earnings of their foreign FDI and maybe some link to their exploding balance sheet.  When the 2019 figures are released we will see if this continued to have an effect in 2019.  The figures above suggest it did.

All-in-all though the figures for the modified current account are a positive indicator for the Irish economy.  It suggests we do have capacity to respond to the crisis.  And even absent a pandemic there might be reason to look for increased spending (more house building perhaps) to reduce the CA* surplus.

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