Friday, May 13, 2022

The Continuing Improvement of the National Balance Sheet

Ireland’s national balance sheet has gross amounts and a volatility that is not seen in the figures for most other countries.  The gross amounts are due to the impact of MNCs and the IFSC but do largely net out.  The volatility is partly due to the roller-coaster house prices have taken in recent decades.  When worked through this is what emerges for net worth per capita.

Net Worth Per Capita 2001-20

Housing plays a role but does not fully account for the changes shown.  The per capita value of the stock of dwellings (excluding site value) went from €35k in 2001 to €67k in 2006 and then fell to €43k in 2010 before rising back to €60k in 2020.

There are some items not included in the figures published by the CSO.  Not only is the site value for dwellings excluded but the value of all land is excluded.  The CSO does not provide figures for the stock of non-produced, non-financial assets.

The inclusion of such figures would certainly change the level in the chart and also perhaps some of the changes.  Land is the most significant non-produced, non financial asset but there are others.  This useful note from the CSO sets them out.

Most non-produced, non financial assets such as land and natural resources can’t be traded across borders.  All that can change is their ownership.  But there can be trade in non-produced assets like brand names, trademarks, logos, domain names and other marketing assets.  The IP onshoring to Ireland in recent years has included significant amounts of these.

Net Acquisition of Non Produced Assets 2001-20

In 2018, net acquisitions of non-produced assets exceeded €50 billion.  These acquisitions will have reduced financial net worth through either the reduction of financial assets to pay for them or, more likely, an increase in financial liabilities if debt is used to buy them.  In per capita terms, the amount is around €10,000 per person so goes someway to explaining the reduction in total economy net worth per capita shown for 2018 in the first chart.

There is a growing list of countries who provide figures for non-produced assets to Eurostat but it remains a minority.  Czechia and France provide the most comprehensive figures but all Germany, Estonia, Croatia, The Netherlands, Austria, Slovakia, Finland and Sweden now provide figures for the value of land. 

For produced assets Ireland has a fairly comprehensive figures for fixed assets (some suppression issues aside) but no figures for inventories or valuables.  Most countries provide figures for inventories to Eurostat but only a small minority do so for valuables.

The following table shows the gross amounts that give rise to the per capita figures in the first chart.

National Balance Sheet 2001-2020 Table

The financial figures can be counted in trillions.  At the end of 2020, financial assets on the national balance sheet summed to €9.0 trillion with liabilities of €9.7 billion.  This negative net financial worth was offset by the €1.1 trillion of non-financial assets included in the figures.  That gives the total economy net worth of €464.7 billion which translates to €93,400 in per capita terms.

As set out above the inclusion of other non-financial assets such as non-produced assets like land, natural resources and brands and other things like inventories or valuables would increase the net worth figure.  In most cases this would just be a change in level and the trend in net worth per capita would be largely the same.  As discussed above the inclusion of the non-produced assets purchased from abroad would impact both changes and levels.

The figures that are provided for produced fixed assets have a breakdown by type of asset.

National Balance Sheet by Fixed Asset 2001-2020 Table

The total stock of fixed assets has increased significantly in recent years but the largest contributors to this increase are the suppressed categories of IP and transport equipment.  When last broken out individually, for 2014, their combined value was €117 billion.  For 2020 the equivalent figure is €630 billion.  Turmoil in the aircraft leasing sector may have an impact of the 2022 figure.

We can do a sectoral breakdown of financial net worth:

National Balance Sheet by Sector 2001-2020 Table

This highlights that while the gross amounts for the financial sector are enormous, running into the trillions, the net amounts are relatively modest.  Non-financial corporations have built up a large negative net worth position in recent years.  This is linked to acquisition of assets such as IP and aircraft.

The government sector also has a significant negative position but did not lead to an equivalent increase in fixed assets as much of the debt was used to cover current spending. 

There has been a remarkable improvement in the net worth position of the household sector in recent years.  In the last two years shown in the above table the financial position of the household sector improved by €70 billion. 

Figures from the Central Bank suggest there was a further improvement of almost €50 billion in the financial position of the household sector in 2021.  This was achieved through a continued rise in deposits (+€16.2 billion) and also a large increase in life assurance and pension entitlements from private schemes (combined + €22.5 billion).  The contribution of debt reduction was relatively modest (€1.5 billion).

When housing assets are included (and the Central Bank include site value) the net position of the household sector is said to have improved by €140 billion in 2021, or €28,000 per capita.

The opening chart shows net worth per capita peaking in 2006 at €104,500.  The trend, and recent data from the Central Bank, suggest a new peak will be set in 2021. Hopefully it won’t go over a cliff this time.

To conclude, here are comparable figures for the EU15.  As discussed above some countries have more comprehensive figures available but there are presented here in a like-for-like basis.

EU15 Net Worth Per Capita 2001-2020

No comments:

Post a Comment