Last week the CSO published the Q4 update of the
(non-financial) Institutional Sector Accounts. These are a great source of information
on what is happening in the economy but are terribly difficult to navigate.
Here is a summary of the aggregated current account (Q1 to Q4 2018) by sector. Click to enlarge.
The starting point is the first estimate of nominal GDP for 2018
which is €318.5 billion. Looking across by sector we can see where this
is generated and the clear domination of the non-financial corporate sector in
Ireland’s GDP figure (which in turn is dominated by foreign-owned MNCs). The
final column gives the flows with the rest of the world. Figures in parenthesis
are amounts paid by the relevant sector.
Deducting wages paid and adjusting for taxes paid and subsidies
received on products and production gets us to Gross Operating Surplus/Mixed
Income. For the household sector, mixed income is a combination of the
earnings of independent traders (the self-employed) and the rent that
owner-occupied are imputed to pay themselves (this income is deducted as
consumption later down the table so the bottom line is unchanged). As
with GDP, the main generator of GOS in the economy is the NFC sector.
Adding wages received, adjusting for taxes received and
subsidies paid on products and production, and accounting for property income
paid and received (mainly interest and dividends among others) gets is to Gross
National Income.
The move from Gross National Income to Gross Disposable Income
is done by adjusting for taxes and transfers. Most of this are
inter-sector flows with payments by one sector being receipts of another.
For example, income taxes paid by households and companies go to the government
sector (some minor cross-border flows notwithstanding).
GDI is a couple of billion lower than GNI because of some
cross-border transfer flows. The rest of the world received about €5
billion more under "Other Current Transfers" from Ireland than Ireland
receives from abroad under this heading - €9.5 billion out versus €4.5 billion
in.
Some of this has to do with Ireland’s foreign-aid budget and
other transfers. A large part of it is made up of Ireland’s contribution
to the EU budget but it should be noted that earlier in the table the €1.6
billion of "Subsides Paid" from the rest of the word mainly come from the EU
and these make up the bulk of the €1.5 billion of "Subsidies Received" by the
household sector (agriculture).
Anyway, by this point we have a total economy Gross Disposable
Income of €248 billion, of which we use “only" €136 billion on
consumption. That leaves us with Gross Savings of €112 billion and the
breakdown by sector can be seen in the bottom row.
To see what we did with this we turn to the capital account. Again click to enlarge.
The first panel of the table gives the change in net worth by
taking into account capital taxes and transfers and consumption of fixed
capital (depreciation on existing assets).
The second panel shows what happened to gross savings and it can
be seen that we did €82.8 billion of gross capital formation on produced
capital assets and had net purchases of €22.5 billion of non-produced assets
(such as marketing assets and customer lists). That left the economy in a
net lending position of €6.6 billion for 2018 (with this €6.6 billion being
borrowed by the rest of the world).
The continued deleveraging of the household sector is evident in
its net lending position of €5.5 billion. This will have been, in part,
used to repay debt and the household sector has significantly reduced its
outstanding debt over the past decade. The government sector had close to
a balanced position in 2018 so, unlike the household sector, did not have a
surplus to reduce its debt.
The big figures are again in the NFC sector with €83 billion of
Gross Savings fully offset by €62 billion of investment in produced capital
assets (gross capital formation) and €22 billion of net acquisitions of
non-produced assets giving a net borrowing position of €1 billion.
This relatively modest outcome at an aggregate level probably
belies significant changes within the sector. It is highly unlikely that
the companies with the €83 billion of Gross Savings were the companies that
invested €84 billion in assets. The companies with the savings would have
used that to reduce their debts (built up when acquiring assets, including
intangible assets, in earlier years) while those acquiring assets in 2018 would
have funded that by new borrowing of their own. So while the accounts
might show €112 billion of Gross Savings most of it is the result of MNC
activities and is not ours to spend.
It is probably a little more than a coincidence that the numbers
in the NFC sector were so close in 2018 giving a net outcome of "just" minus
€1 billion. And, it should be noted, that these are just the first
estimates. Things could be very different when the National Income and
Expenditure results are published during the summer. We saw this for the
2015 results though such changes are largely limited to the NFC sector.
The previous compositional issue is also true for the household
sector, though on a smaller scale. While the household sector had net
lending of €5.5 billion, repayments against existing debt would have been much
larger than this, possibly twice as large. Those in the household sector
who undertook investment (which is mainly on houses) could have funded this
with new borrowing. The balance of repayments on existing debt and new
borrowing for investment gives the overall net lending position of €5.5
billion.
This is a Gross Saving that is ours to spend. Eventually
the deleveraging will stop. Whether that leads to an increase in
consumption or investment is hard to tell. The vulnerable position of the
government sector probably means that some caution in the household sector is
warranted but whether this caution will persist remains to be seen.
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