Positive economic news – Irish GDP and GNP up in latest quarterly statistics

Thursday, December, 2010

Today’s publication of the latest quarterly national accounts (16 Dec 2010) bring some much-neeed positive news to the precarious Irish economy.  Both measures of national income – GDP and GNP – registered a modest increase between the second and third quarters of 2010.  While there was an earlier increase in GDP between the last quarter of 2009 and the first quarter of 2010, the significance of today’s results is that it is first time since the fourth quarter of 2007 that both measures of national income have shown a seasonally adjusted quarterly increase.

According to the CSO’s latest estimates, both GDP and GNP seasonally adjusted at constant 2008 prices – basically real GDP and GNP – increased slightly between the second and third quarters of 2010: GDP by 0.5% and GNP by 1.1%.

This is the first time since the fourth quarter of 2007 that both measures of national income have increased on a seasonally adjusted quarterly basis.  Especially noteworthy is the larger quarterly increase in GNP, which many commentators consider to be the more reliable indicator of the performance of the Irish economy.  Generally speaking, GDP measures the value of national output whereas GNP basically captures the share of this output that a country is able to retain for itself.  In Ireland’s case, the gap between GNP and GDP, in favour of the latter, reflects the profit repatriation activities of foreign-owned firms in Ireland, which nevertheless have been, and hopefully will continue to be, a key driver of the Irish economy.

The new CSO figures show that the main contributor to growth was the industrial sector, reflecting the importance of exports to the Irish economy.  Agriculture also showed growth whilst distribution, transport and communications contracted significantly as did the services sector.

However, on an annual basis, according to the CSO, there were declines in GDP and GNP since the same quarter in 2009 (GDP declined by 0.5% and GNP by 1.6% during this period) but bear in mind that the latest data are not the final figures for 2010.

Exports continue to perform robustly and commentators abroad as well as in Ireland are agreed that exports will be the key to Ireland’s recovery.

The November 2010 PMCA Economic Commentary contains the results of time series econometric analysis of the employment impact of exports growth in Ireland based upon historical CSO data.  Read the article.

The new PMCA analysis reveals that exports growth has a statistically significant and quantitatively large effect on employment: across all occupational groups, a 10% increase in the value of exports is associated with a 4% increase in employment, which translates into potentially 76,000+ new jobs.  The relationship is found to be strongest among associate professional and technical workers, where a 10% increase in exports implies a 6.3% increase in employment or potentially 12,000+ new jobs.

The new PMCA econometric analysis implies that rising exports not only serve to maintain jobs but also have the capacity to create appreciable new employment.  The policy implications of the analysis include assisting Irish exporters to diversify as well as to expand into overseas markets, including the newly emerging economies, where growth propsects are likely to be strongest in the coming years and in which Ireland has been doing relatively well.

According to the Minister of Finance in a press statement earlier this morning, “[t]he year-on-year growth rate will likely turn positive during the final quarter of 2010 or early in the new year. Today’s figures show that the economy has stabilised and is now on an export-led growth path.  The budget day forecast for economic growth of 1.7% in 2011, which is in line with the consensus forecast, remains on track”.

These remarks risk under-estimating the problems faced by the Irish economy – some commentators and politicans thought that the recession was over earlier this year when the then CSO figures showed a quarterly increase in GDP between the last quarter of 2009 and the first quarter of 2010.  That ‘recovery’ proved premature.  PMCA also considers that the Minister’s GDP growth forecast for 2011 (1.7%) are still optimistic.

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