Update on Current-Year Macroeconomic Projections

The Department of Finance has released an interim update of its macroeconomic projections: you can find it here.   While the upgrade to the real GDP forecast has been well publicised, this release also notes that the decline in the GDP deflator is sharper than expected –  but it does not provide a number for nominal GDP growth.

A more elaborate revision of its forecasts will be published in the Autumn.

29 replies on “Update on Current-Year Macroeconomic Projections”

Something I have been wondering about in recent days, and which I cant seem to find and answer to, is if GDP will be higher than expected will that impact on the 2011 budget? Budget deficits are merged, for EU purposes at least, as a percentage of GDP. Larger GDP means we can take a higher level of debt, which means less ‘adjustments’ required.

Can anyone answer this? Lenihan is still saying €3bn adjustments, so I’m confused.

Implications for Tax Revenues
It is interesting that the DoF believes that the economy will be stronger than it originally forecast but tax revenues are only in line with forecast. Maybe that extra growth is expected towards the end of the year and therefore wouldn’t be expected to surface yet in actual tax data?

Split Economy
The problem seems to be that we have a split economy with only one set of data. The Dof data covers (i) the general domestic economy and (ii) the multinational island within an island we have here. The domestic economy, suffering debt deflation, continues to weaken while the multinational island is prospering.

Deepening Deflation
Deflationary forces appear stronger than originally anticipated with unemployment worse (13.5% v 13.2%) and deflation deeper (HICP inflation -1.5% v -1.2%). Recent steep falls in the Euro would have been expected to send the revisions in the other direction.

Bottom line: Ireland remains in the grip of the forces of debt deflation.


the problem with your “stronger deflationary forces ” line is that the needle is beginning to swing in the other direction. Harmonised Inflation troughed at -3% in Sept 09 has is now back at -2% and the annualised rate over the last 3 months is about plus 1%.

It is a bit early to see the Eur depreciation show up in the numbers just yet.

In reality, whether the economy recovers or not is outside our control. Hawkish ECB monetary policy WILL lead to debt deflation and sovereign default. But we are not alone in this boat.

One hopes the esteemed governor of the CB is forcefullyputting the IMF argument for more stimulus to his fellow council members.

Without boasting, I think I can honestly and truthfully say that I was the first to predict that GDP in Ireland would increase in 2010. Back in August or September last, I posted on this very site (if anyone cares to check back) my prediction that GDP in Ireland would increase by 2.8 per cent in 2010. At the time, my forecast was laughed at and I was dismissed as a ‘Pollyanna’ by one prominent academic economist. At the time, the Dept of Finance, Central Bank, ESRI et al were predicting that GDP in Ireland would fall by approximately 3 per cent in 2010. Lots of posters on this august website, as well as on idiot websites like P.ie and Property Pin, derided even these forecasts as far too optimistic and the product of the said organisations being controlled by Fianna Fail (which indicates the level of paranoia in certain secots in Ireland). Now, these official organisations are all swinging round towards predictions of GDP growth of 1 per cent in 2010. So, they are moving in my direction, but not quite there yet. However, I’m sticking to my forecast of GDP growth of 2.8 per cent in 2010. I believe the other forecasters are still underestimating growth in 2010, and here’s why:


The Dept of Finance are now forecasting growth in exports of 4.5 per cent in 2010. At budget time, they forecast 0.4 per cent growth, so its hardly as if their forecasts were set in concrete. But, exports in 2010 Q1 (seasonally-adjusted) were 5.8 per cent higher than their average 2009 level. In other words, even if exports did not increase in Q2, Q3 and Q4 from their 2010 Q1 level (very unlikely), year-on-year growth in the volume of exports would still be 5.8 per cent higher in 2010 than in 2009. I think an increase in exports in 2010 in the region of 8 to 10 per cent is much more likely than the 4.5 per cent contained in this forecast.


Ditto as for exports.

The Dept are forecasting a fall in imports of 0.25 per cent in 2010. But, even if imports did not increase in Q2, Q3 and Q4 from their 2010 Q1 level, the fall in 2010 would only be 0.3 per cent. But, we allready know from the April trade figures, that exports shot up in April. Even if part of this was just monthly volatility, I think it is extremely likely that imports will rise during the remainder of 2010. So, I forecast that imports will increase by a modest amount in 2010 over 2009, rather than fall by 0.25 per cent as the Dept now predict.


The Dept are now forecasting a fall in personal consumption of 0.5 per cent in 2010. But, again, if personal consumption (seasonally-adjusted) only remained at its 2010 Q1 level for the rest of the year, the fall in personal consumption in 2010 would be only 0.6 per cent. So, any significant increase at all in the rest of 2010 would hurl growth in personal consumption into positive territory. But, we know from the retail sales figures published yesterday that the volume of retail sales in April and May 2010 were 7.4 per cent higher than in 2010 Q1. In addition, new car sales are growing strongly. So, its likely in the extreme that the volume of personal consumption will increase in the remainder of 2010 as compared with the Q1 level. As I explained last week in my first post since I returned from USA (and won’t repeat here), there is a clear statistical distortion in the CSO quarterly seasonal-adjustment for retail sales, due to the concentration of car sales in January. The upshot is that consumer spending is under-stated in Q1 but over-stated in Q2, Q3 and Q4. This will add to whatever increase actaully occurs in the volume of personal consumption in Q2, Q3 and Q4. So, I forecast that personal consumption will increase by a modest amount in 2010 over 2009, rather than fall by 0.5 per cent as the Dept now predict.


So far in 2010, this seems in line with the Dept forecast. However, the machinery and equipment component of investment is very volatile and liable to sudden dramatic upswings and down swings. The 2010 Q1 figures were in line with the Dept forecast of a 25 per cent fall in 2010. However, the April trade figures showed a large increase in imports. Too soon to say if this signals an upswing in imports of machinery and equipment, but it might do. We need figures for more than one month and a breakdown by category of imports before we will know.

So, that is why I am sticking to my August/September forecast of 2.8 per cent growth in GDP in 2010. Regarding deflation, this is largely a product of currecny movement. There was a very large appreciation of the euro in 2009 and early 2010. This deflated tjhe value of exports and imports in Ireland. Thats where deflation in the GDP value figures comes frtom. Since 2010 Q1, the euro has fallen by about 10 per cent versus the dollar and sterling. If the euro remains at these levels (and, of course, I have no idea if it will) GDP deflation will be replaced by significant GDP inflation in the second half of 2010.

@JTO – ever heard of ‘downside risks’? There are plenty out there. I wouldn’t start crowing yet as it’s a long way until the end of 2010.

It looks to me as though we are running parallel economies. There’s the Ireland within Ireland that exports and then there’s the real Ireland that I see around me every day with people contemplating the worst as they still can’t find a job and face losing their home (and I am talking about real people I know, not generally).

Don’t get me wrong, optimism is a good thing but let’s not overdo it to the point of rose-tinted glasses.


welcome back, wherehave you been? Hope you are keeping well.

have you ever heard of upside surprises?

“So, any significant increase at all in the rest of 2010 would hurl growth in personal consumption into positive territory.”

Attaboy JtO!

The OECD said yesterday that stockbuilding was the biggest contributor to its G-7 member country growth in Q1.

While the multinational export performance in Ireland in Q1 was welcome, imports remained depressed and employment in the export sector is back to 1998 levels. Exports from the indigenous sector in real terms have hardly changed in 20 years.

So exports are not the engine of of jobs growth. What will be?

In 2000-2008, the ratio of exports as % of goods imports was in the range 140 to 160%.

In 2009, it was 188% and in Q1 185%

So the depressed domestic economy is having a big impact on net exports.

NCB Stockbrokers economist Brian Devine commented this week : “The most significant figure in the national accounts data for us was the downward revision of nominal GDP in 2009 from €163,543mn to €159,647mn. The budget is formulated from a starting base of nominal GDP having been €164,600mn in 2009 (it must be pointed out that this was a reasonable basis for nominal GDP at the time of Budget 2010). We forecast that the Government will still be roughly in line with its underlying nominal deficit target of €18.8bn in 2010 thanks to greater than forecast real GDP growth. However, the lower nominal base has implications for future receipts and also clearly the denominator in debt/deficit to GDP ratios. We therefore forecast that the underlying (excluding interventions in the financials) General Government Deficit to GDP ratio will be 12.0% of GDP in 2010.

The decline in the nominal value of the economy will make it more difficult for the Government to reach its target of reducing the deficit to GDP ratio to below 3% before 2014 without additional measures being implemented.”


Welcome back from California!

I remain an optimist myself: Trust but verify as Ronald Reagan used to say.


We are living in a dual economy, but that particular divvy up tends top obscure the heavy state distortion of economic activity. It begs a question as to how some of the ‘good’ sectors may fare in the not unlikely event of a crisis in our state finances and subsequent overt loss of fiscal autonomy.

The sector which is relatively immune from a state bust is the FDI sector, and it is far smaller than this classifcation suggests. As Michael H consistently points out, it’s not job creating now.

Some of the ‘successful’ sectors are living state cosseted bubbles. One of our biggest bubbles is professional services. How would medical and nursing employment, for example, be standing up absent the massive revenue poured into the HSE and the state intervention into the health insurance market ? Professional employment prospects elsewhere in the PIIGS are far from rosy.

Our state is a big chunk of our economy, and its future governance is the biggest part of the equation.

Note that DoF has yet to tell us the Eurostat treatment of the 2010 and onwards Anglo and INBS money.

@tull mcadoo – “have you ever heard of upside surprises?”

I’m pleasantly and constantly surprised at some of the things I read about the good things that are allegedly happening in many economies. Like how well the Greek austerity measures are ‘on track’ at the moment…. how Anglo has a future… the predictions for the huge numbers of jobs that are going to be created in Ireland by 2013…… how stress tests on Euro banks will demonstrate their soundness…. how the Irish taxpayer won’t end up forking out mega-€ on NAMA…. and many, many other lies that are being peddled around.

It’s all just fantastic and very upsiding. Life’s a gas. I took the drugs and now I can see the green shoots that the PR companies have been telling me are there since spring 2009. Double-dip? What double-dip?

@ Joesph,

In relation to Greece, that show is not over yet. I was recently in Greece, Crete is in dire straits, no tourists, bars empty, hotels empty, apartments empty and nobody on the ground. Its the same on a lot of the other Greek Islands.

Apparently the Islanders survive by tourism in the summer months and claiming social welfare in the winter months. Both sources of funds have dried up.

The first repayment by Greece in a few months time does not have a snowballs chance in Hell of being paid back.

We are not out of this financial mess yet, not by a long shot.

@Sporthog – I was being sarcastic about the Greek measures being on track (and the other things too). I will turn the ‘spot the sarcasm indicator’ back on.




Slightly off topic. I was thinking of going to the Greek Islands with my wife in September. Would you recommend it given the current economic climate?


It ok to go to Greece. Remember to do your shopping in the morning though when “de workers” are protesting. Be sure to be out of the shops by 2pm though becaus that is when the protests stop and normal life resumes.

Paddy Orwell:

‘I was thinking of going to the Greek Islands with my wife in September. Would you recommend it….’

I would Paddy, I would. If you go with somebody else’s wife, you could get caught.

You may be the first to predict growth on here, but not elsewhere. Others on idiot sites predicted a return to GDP growth in Q3 based on an increase in transfer payments through the Irish economy. I think that is what we are seeing.

Calling these fictions ‘exports’ is only just short of ridiculous. That they flow through the economy without touching the sides is why the DoF is not seeing an increase in revenue.

Further, as Mr. Hennigan points out, last year’s GDP figure has been revised down. Which figure do you base your forecast on?

If you are working from the revised figure, then certainly I think we will see growth from that, but I doubt we will reach the original figure, so anyone who originally said a decline from that figure for the year overall will also be correct…

@ CMcC: Thanks for the laugh! Great tonic!.

as I mentioned recently, our economies (the developed world, that is), are in a Great (economic) Reversion process, not a cyclical recession/depression episode of Permagrowth, hence all prognostications of ‘recovery’ are incorrect. This transition process could take several decades, but the availability of liquid fossil fuels will be the principal determinant.

Keep a very close watch on the monthly oil production figures!

B Peter

@ Paddy Orwell,

Apologies for de delay in getting back to you, I was out all day etc. The trouble if any tends to be on the mainland, in the main cities etc. Generally the population on the islands tend to look inwards to the mainland as a sort of circus act. The Govt has lost all credibility with the population and hence the civil disturbance etc. But if you do go to one of the islands like Zakynthos you will be spoilt for choice, the entire island will be yours.

Where you could get snagged is if the ATC controllers in Athens go on strike you might be delayed in getting back home. But who cares, sunshine, cheap living and a few extra days of relaxation would do anybody good.

There must be unused capacity in the economy after our depression so surely we should have one or two years of good growth coming up, providing the international conditions improve too? How many years though until we see full employment again?


Can you name one economist who, this time last year, was predicting that GDP would increase in 2010. If you can name one, I suggest he be appointed immediately as Minister for Finance, as certainly no one else was.

Your claim that the increase in exports in 2010 is ‘fiction’ and the product of transfer pricing practices is ridiculous. You produce no evidence to back up the claim, nor can you, as none exists. That the increase in exports is real can be easily verified. I’ll deal with merchandise exports and services exports separately.

Long before the CSO figures came out, Dublin Port was announcing that there had been a big increase in the volume of merchandise exports passing through the port in the first few months of 2010. Dublin Port figures are given by tonnage weight, rather than by value, thereby disproving the theory that the increase in such exports was simply the result of accountants in multi-national firms fiddling the figures.

With regard to service exports, while obviously these can not be verified by measuring by weight in the same way, I would draw your attention to the fact that almost every day now there are announcements of new jobs and expansions in the services exports sector. Yesterday alone there were two such announcements (119 new jobs in Shannon, 100 in Cork), bringing the total for the week to close to 1,000. This trend has been gathering pace since the start of the year. If the increase in services exports is ‘fiction’, as you claim, then why would firms engaged in the services export sector be announcing new jobs and major expansions almost every day now?

Claims that increases in exports from Ireland are simply the result of transfer pricing are made every time there is an increase in economic growth in Ireland. They said the same thing in the 1990s. It is simply a device the doom industry uses to keep its spirits up when it sees its beloved recession disappearing into the distance.

@John the Optimist

It is indeed a breath of fresh air to get analysis of economic statistics not warped by Political prejudices which some people here feel necessary to spin. Thanks for your insights which are very interesting to Non Academics.

@ Hogan,

so the thousands of people working in the hundreds of facilities around the country earning thousands of euros are all fictitious. I presume the income tax, corporation tax paid are all fictitious as well. Ingenious, we really should do more of this fiction.

Our national peculiarity, the difference between GDP and GNP, means there is a huge amount of transfer pricing. However, increases in exports by multinationals and the maintenance of employment in the sector during such a steep decline in world trade is hugely welcome.

But when, even given a return to steady but non-bubble growth, will we see a return to full employment? Advanced economies are not meant to shrink much and certainly not to collapse like ours did. Growth is welcome but it’s not party time by a long shot.

It’s the unemployment, stupid. And the emigration.

P.S. The doom industry only took off after and because of the bubble burst.
Given what has happened and the downside risks John The Pessimist is as entitled to his views as John The Optimist.

There can be little doubt that we would have an economy at a level similar to the likes of Albania, without an FDI sector.

However, some departures from official spin should be welcome.

There were about 2,500 new agency-supported jobs officially announced in 2010 up to this week. It’s likely that 10,000 may may have been lost in the same period in Irish and foreign-owned firms in the international tradable goods/services sector.

Former Intel CEO Craig Barrett said in Dublin last Feb that the era of external development is over. In the future growth will have to come by supporting entrepreneurs and start-ups.

“The FDI era is over. Real economic investment will be indigenous and growth will come from investment in new ideas.”

Over 90% of firms in the EU are micro firms, employing 9 or less people.

The challenge for Ireland is produce an unprecedented number of start-ups, which will have high failure rates and individually hire only a small number.

Enterprise Ireland said this week that it supported more 800 start-up companies over a 20-year period (1989-2009) has yielded more than €1bn in Irish exports and in excess of 14,000 jobs. Thirty-five spin-out companies emerged from third level research.

EI does not track survival rates. If one applied the US high tech 25% survival rate for high-tech companies by their 7th birthday and 35% for other sectors, the performance is very poor.

On the regular GDP/GNP discussion, according to Forfás, from 1970- 2008, the value of exports increased over twenty times in real terms. The other demand components making up GDP increased to a lesser extent over the same period, e.g. personal consumption over four times, public expenditure about four times and investment about five times.

In 1970, GNP was higher than GDP because of income flows to Irish residents from abroad.

“so the thousands of people working in the hundreds of facilities around the country earning thousands of euros are all fictitious. I presume the income tax, corporation tax paid are all fictitious as well. Ingenious, we really should do more of this fiction.”
Come now Tull, you know that’s not what I’m saying.

The increase in ‘exports’ without an increase in employment or in imports (components, for example) can be put down to financial intermediation or simple transfer payments. It is the idea that this increase is a cause for celebrating the recovery that I am objecting to.

In terms of FDI employment, I’d say the position is roughly balanced with jobs lost and jobs gained heading towards balanced for the first time in a while. That is to be welcomed. But a permanently low plateau is not a recovery 😉

“Can you name one economist who, this time last year, was predicting that GDP would increase in 2010.”
I don’t need to. I wasn’t claiming that for any of them. What I was saying was that 2009 GDP came in under estimates. With that in mind, anyone predicting a decline from the original estimate (164bn) to above the latest revision for 2009 (159.5bn) was essentially predicting an increase.

If one predicted 2010 GDP in the range 160bn to 163bn, one has predicted an increase in GDP, even though at the time of the prediction, one predicted a decrease. The absolute number matters, not just the percentage change.

I’ll ask you again what absolute figures you used to base your prediction on?

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