Friday, December 18, 2009

They think it's all is not

The CSO have released the National Accounts for the third quarter of 2009. The figures reveal that seasonally adjusted GDP rose by 0.3% in the quarter and that technically Ireland is now out of recession.

The first issue to note is that these are provisional estimates. When the GDP figure for Q2 was first released in September the published change was zero. The revised figures indicate that GDP in the second quarter GDP fell by 0.6%. The Q3 figure from yesterday may also be revised downwards. Here is a graph of the quarterly GDP figures for the last five years.

Undoubtedly the recession is "bottoming out" but it is still too early to call it over and we still may have a bit of falling to go. Why? All the elements that make up the GDP figure are declining. All that has changed is the relative pace of these declines that gives the anomaly of a GDP increase.

GDP in make up of private consumption expenditure, firm investment expenditure, government expenditure and the balance of exports and imports. We have

GDP = C + I + G + (X - M)

The following table has the quarterly growth rates for the components of GDP for the past four quarters (table taken from here).

All of the components of GDP are falling and all of these declines have accelerated since the second quarter. The reason GDP has risen on aggregate is because this change has been much greater in Imports than in the other sectors. Imports entail sending money abroad to buy goods from abroad and does not add to economic activity or income here. The Irish economy did not grow in the last quarter, we simply sent less of our money abroad to buy foreign goods. In fact the aggregate of C + I + G (if Ireland was a "closed economy) declined by 2.6% quarter on quarter.

Looking at the GDP figures by sector we do not see much upswing. Click to enlarge.

A minor increase in Transportable Goods Industries and Utilities aside, the trend in most sectors is still downward. There were quarterly decreases in Agriculture, Construction, Transport and Communications, Public Administration and Other Services.

Of course, if you want a measure of national income in Ireland GDP is not appropriate. GNP which takes account of net factor income from abroad is a far better measure. How did that do in the last quarter? Down 1.4% and is now down in eight of the last ten quarters including the last six in a row.

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