5 replies on “The structure of Irish economic activity during the boom”
The CSO figures make nonsense of the frequent characterisation of the Irish economy as a ‘Bob-The-Builder’ economy. It is frequently claimed by the likes of David McWilliams and Morgan Kelly that construction accounts for a quarter of Ireland’s GDP, in contrast to the 7% to 8% common in most EU15 countries and that, as a result, there was something artificial or flaky about Ireland’s economic boom.
However, a quick study of the CSO figures shows this to be false. The key figures are those for value added at factor cost. These show that in 2006 value added at factor cost for the whole Irish economy came to 155,395 million euros and for the construction sector to 15,924 million euros. So, in 2006 construction output accounted for 10.2% of the total economic output in Ireland, just 2% to 3% more than the norm in most EU15 countries.
That was in 2006, the peak year of the construction boom. I’d be surprised if construction output in 2009 accounts for more than 5% of total economic output in Ireland and is very likely now well below the EU15 average.
@John,
There are a number of ways of skinning this particular cat (tiger). An alternative of course within the national income framework is to measure capital expenditure on construction, rather than output (and its variants) and look at its share in GDP.
Taking capital expenditure on dwellings, roads and other construction together, from another CSO series some shares of capital expenditure on construction in GDP are
1995: 9.2%
2000: 14.1%
2007: 18.6%
I’ve used the current prices numbers for capital expenditure and GDP, but one could play around with real shares, which seem much more stable over the time period in question, I guess driven by the relative price patterns.
More detail on the above from the CSO databank direct section on National Income and Expenditure series 2007, in particular Tables 5 and 5 here
EU15 construction industry value added was 6.2% of total in 2006. The average from 1999 to 2006 was 5.8% (Eurostat). So the gap with the EU15 norm was 4%+ rather than 2-3%.
The direct employment impact of unwinding that is bigger than 4% (more like 5% to 6%) because construction is relatively labour intensive. On top of this, there is a significant associated loss of employment in construction related services (like architecture), distribution of construction products, manufacture of construction products and “real estate activities”.
There is also a big indirect impact. As construction and some associated industries are labour intensive, loss of employment in these areas has a sizeable impact on consumer spending, and through them on employment in retail, restaurants, pubs etc.
The QNHS shows employment in Construction as a proportion of total employment rising from 8.3% in 1997 to 13.6% at the beginning of 2007. At the end of 2008 it was back down to 11.4%.
The inequality is just as skewed in Ireland, hence the social contract is just as broken. The low tax rates, boom, massive credit are all the same. Revolt in the streets anyone? No wonder tha public service embargo does not apply to the Gardai ….. promotions!
This may all end in tears before bed time.
Bring back Richie Ruin! A pleasant man by all accounts! A rising tide lifts all boats but then the tide ebbs again……and some of us have motor yachts to escape to the sea! Ahhh, yes! The RISING TIDE!
5 replies on “The structure of Irish economic activity during the boom”
The CSO figures make nonsense of the frequent characterisation of the Irish economy as a ‘Bob-The-Builder’ economy. It is frequently claimed by the likes of David McWilliams and Morgan Kelly that construction accounts for a quarter of Ireland’s GDP, in contrast to the 7% to 8% common in most EU15 countries and that, as a result, there was something artificial or flaky about Ireland’s economic boom.
However, a quick study of the CSO figures shows this to be false. The key figures are those for value added at factor cost. These show that in 2006 value added at factor cost for the whole Irish economy came to 155,395 million euros and for the construction sector to 15,924 million euros. So, in 2006 construction output accounted for 10.2% of the total economic output in Ireland, just 2% to 3% more than the norm in most EU15 countries.
That was in 2006, the peak year of the construction boom. I’d be surprised if construction output in 2009 accounts for more than 5% of total economic output in Ireland and is very likely now well below the EU15 average.
@John,
There are a number of ways of skinning this particular cat (tiger). An alternative of course within the national income framework is to measure capital expenditure on construction, rather than output (and its variants) and look at its share in GDP.
Taking capital expenditure on dwellings, roads and other construction together, from another CSO series some shares of capital expenditure on construction in GDP are
1995: 9.2%
2000: 14.1%
2007: 18.6%
I’ve used the current prices numbers for capital expenditure and GDP, but one could play around with real shares, which seem much more stable over the time period in question, I guess driven by the relative price patterns.
More detail on the above from the CSO databank direct section on National Income and Expenditure series 2007, in particular Tables 5 and 5 here
EU15 construction industry value added was 6.2% of total in 2006. The average from 1999 to 2006 was 5.8% (Eurostat). So the gap with the EU15 norm was 4%+ rather than 2-3%.
The direct employment impact of unwinding that is bigger than 4% (more like 5% to 6%) because construction is relatively labour intensive. On top of this, there is a significant associated loss of employment in construction related services (like architecture), distribution of construction products, manufacture of construction products and “real estate activities”.
There is also a big indirect impact. As construction and some associated industries are labour intensive, loss of employment in these areas has a sizeable impact on consumer spending, and through them on employment in retail, restaurants, pubs etc.
The QNHS shows employment in Construction as a proportion of total employment rising from 8.3% in 1997 to 13.6% at the beginning of 2007. At the end of 2008 it was back down to 11.4%.
http://animalspiritspage.blogspot.com/2009/05/income-inequality-debt-crisis-and.html
The inequality is just as skewed in Ireland, hence the social contract is just as broken. The low tax rates, boom, massive credit are all the same. Revolt in the streets anyone? No wonder tha public service embargo does not apply to the Gardai ….. promotions!
This may all end in tears before bed time.
Bring back Richie Ruin! A pleasant man by all accounts! A rising tide lifts all boats but then the tide ebbs again……and some of us have motor yachts to escape to the sea! Ahhh, yes! The RISING TIDE!