Latest GDP/BOP data Post author By Philip Lane Post date March 24, 2011 The GDP release is here. The BOP release is here. Categories In Uncategorized 88 Comments on Latest GDP/BOP data ← 2010 Q4 GDP → NI Corporation Tax 88 replies on “Latest GDP/BOP data” the bust is getting bustier How realistic does this leave the latest DoF forecast for 2011 (GDP + 1.75 GNP + 1.0) or indeed the Central Bank of Ireland’s forecast, sorry baseline scenario, for 2011 (GDP + 0.9 GNP – 1.5 ) – all figs in % These figures confirm what many already feared. The banking resolution mechanisms proposed on this website and elsewhere assume banks are necessary for growth. All the healthy banks in the world won’t help us if there is no demand in the economy. Richard Koo and others have already pointed this out in what happened to Japan. Excessive focus on bank resolution. No focus on where the demand is going to come from. Table 5: Current market prices seasonally adjusted: GDP -6.6% QoQ GNP -2.5% QoQ I’ll wait a quarter before I get really alarmed, but on the face of it, those are pretty shockingly bad figures. I was expecting a continuation of the current price improvement. The BOP figures are more cause for cheer, though it is not clear to me how much of the capital account (if any) involves EU/IMF funding? Table 4b of the BOP gives, I believe, a picture of the scale of deposit flight – look at “Other Investment: Liabilities”. No? @ Hogan dont think any EU/IMF funding arrived until January. The figures generated by IFSC enterprises (in the BOP) are awesome and perhaps should be troubing at a time when the rest of the EU is taking a jaundiced view of Ireland’s tax regime. How does Ireland plead the case for kinder bailout terms with the IFSC seemingly roaring ahead and BOP surplus? ‘Cake’ and ‘eating it’ come to mind. GNP is up on last year quarter 4 at constant prices, is it not? better than i thought given the weather and the IMF Don’t underestimate the noise in some of these numbers – which will translate into a series of random spin from the government support mechanism during the next year, ranging from “what can be expected since the Germans are such bad Europeans” to “we have picked the right balance with our policies and the results are thare in the data for all to see”. In about 12 to 18 months FG and Lab will just own the situation. BTW more downbeat US real estate figs out yesterday – and thats without ECB hard-money guys running things. I think that economists should make up their minds whether it is the GDP figures or the GNP figures that are most reflective of the real economy. In Q1, GDP rose by +1.7% and GNP fell by -1.2%. The almost unanimous view then was that we should focus on GNP. I’m sure if I searched back to this site or various newspaper articles in June last, when the Q1 figures came out, I could find lots and lots of comments along the lies of “its the GNP figures that matter, the GDP figures are irrelevant because they exclude multi-national companies profits”. But, since Q1, GNP has outperformed GDP for 3 successive quarters. Not a single economist forecast that. I won’t criticise them for it, as neither did I. But, I expect now that some of those same people will be saying that it is GDP we need to focus on. The GDP changes since Q1 have been: Q2 -1.1% Q3 +0.6% Q4 -1.6% The GNP changes since Q1 have been: Q2 +0.5% Q3 +1.5% Q4 +2.0% Cumulatively, between Q1 and Q4: GDP fell by -2.2% GNP rose by +4.0% Again, no one (including me) predicted that. So, the bottom line is that since Q1, GNP (most economists preferred measure of economic activity) has risen by 4.0%, recording 3 successive increases, each one larger than the previous one. One’s interpretation of the figures simply depends on one’s psychological outlook. A pessimist will focus on the GDP figures, an optimist on the GNP figures (the reverse of what was the case in Q1). If we focused only on the GNP figures, they are spectacularly good and the Irish economy would be seen to be one of the fastest-growing in the EU since Q1. But, clearly not the case if we focus on the GDP figures. Looking at the GNP figures, one factor is the increasing amount of profits being returned to Ireland from investments abroad. And this is linked to the fact that the balance-of-payments is moving into heavy surplus. The CSO say it was the highest recorded. When a country moves into balance-of-payments surplus, net profit flows to and from abroad start to turn favourable. This makes nonsense of claims that Ireland is becoming more and more indebted to foreign countries. It isn’t. If it were, GNP would be continuing to do worse than GDP. Government debt is increasing, but Ireland as a country is moving into surplus and, entirely in line with what is to be expected, the net profit flows are turning more favourable. For more information on this, read some of the posts that John Fitzgerald put on the site a few months ago. Looking at the GDP figures, it seems that the entire fall was the result of a fall in stocks. Destocking is a well-known symptom of deflation. When prices are falling, companies run down stocks as they are losing value. It is to be hoped that, as we move into an era of inflation, there will be a one-off boost to GDP (and GNP) as destocking ends. It has to end sometim, of course, regardless of inflation, otherwise shops would ressemble Moscow shops circa 1985. When it does so, then that one-off boost to GDP will occur. @JTO Time to notify the CSO they have GDP at -1% and GNP @ -2.1% Statistics great stuff, just like lego and ably demonstrated by JTO – you can make anything out of them and just like a spin junkies creation – they end up in bits Readers might find these pictures informative (Google Docs). https://docs.google.com/viewer?a=v&pid=explorer&chrome=true&srcid=0BzPiIoPVJ2alYzIzNDZmMjktODg1Mi00Y2Q5LWI0YTktYTJiZGM1ZDQ2YjU0&hl=en Is the graph on the first page of the Output figures is wrong? Look at the GNP turn around! The Celtic Lazarus! So we have been in recession for 3 years and 9 months…surely that is the record beaten and we can stop now. @John McHale Those graphs are very clear and useful — thanks for the link. @JohnMcHale Second Gregory Connor. We’ve still some way to go to close the gap between GDP and GNP, a gap that has widened substantially since the turn of the century. It remains to be seen if we can continue to raise GNP faster than GDP. On the domestic demand side, it is unfortunate that so much of domestic demand is tied to activity surrounding imported goods. A revival of domestic demand would see an end to the BOP surplus, no? @Jarlath “So we have been in recession for 3 years and 9 months…surely that is the record beaten and we can stop now.” Not sure what the record is for the longest duration of economic falls is but we are quite likely to break into the top 10 by size of falls since the great depression. http://media.economist.com/sites/default/files/images/20090103/CFN620.gif @John McHale Are these in 2005 Euro’s? @ D_E thanks, thats informative. average duration of these drops seems to be about 2-3 years, bar Russia, so we are well and truly beyond that. I think our position of note in future economics text books is safely assured. Jarlath, Take a look at gold and silver prices today. It is quite an achievement that in the face of the message that bubbles will be blown to whatever extent necessary in response to deleveraging pressure – that Ireland may still be able to economically implode. The ECB will probably join in properly in a year or so. Regarding the length of the recession, it all depends on whether or not one uses GDP or GNP as the measure. As I always like to defer to my Dublin 4 betters, I will take the advice of the UCD economist/sociologist/marxist, Dr Kieran Allen in this regard. This is what he says. http://www.swp.ie/editorial/fianna-fail-s-financial-devastation-ireland/3633 Fianna Fail’s Financial Devastation of Ireland 01/10/2010 Author: Kieran Allen Fianna Fail is talking as if there is an economic ‘recovery’. Is there any basis for this? The only evidence Fianna Fail spokespersons use for recovery is a projected rise in GDP by 1 per cent. Yet this is a SINGULARLY FAKE measure because it does not take account of repatriated profits. Ireland functions as a major tax haven so corporations often artificially declare high profits in Ireland – and then later repatriate them back to the US. So this distorts GDP. A MORE RELIABLE measure of economic health is GNP. Oh Dear! I expect this article is now being hastily rewritten with GDP and GNP doing a flip-flop, not an unusual occurrence in marxist circles. If his advice is taken and GNP is used, the recession lasted 8 quarters, from 2008 Q2 to 2010 Q1. Since then, GNP has increased by 4%. If it hadn’t been for the arctic weather in December, that would be closer to 5%. @ Grumpy Gold prices are probably only that high because JTO bought it all. Given we’ve had such a long recession and fall, is it not wise to consider this alongside the default debate…if we’ve had a sustained 13 % drop already, what would various forms of default do…would we end up being top of D_E’s table, above even the mighty Russia @John McHale From your knowledge of economic history, do you know of any cases of a country defaulting when it was running a balance-of-payments surplus (let alone one of the size Ireland is likely to have in 2013 if present trends continue)? I have been googling for the past hour trying to find one, but to no avail. And I have never heard of one either. However, I am not an economic historian, so I can’t say that there have never been any. But, I’d guess there have been very few. @JTO – you can twist this any way you like, but real GNP is down 13.5% since peak (Q4 2007) and real GNP for Q4 2010 is 6% lower than Q4 2008. Of course you can randomly pick any other intervening quarter and show that we had phenomenal growth. In any case regardless of whether we are looking at GDP or GNP until we had a few quarters in the right direction I would not get to excited – chances are we are bouncing at the bottom! This is fun. Seeing one’s opponents condemned out of their own mouths: From David McWilliams blog – 15 September 2010. Forget GDP – As Constantin Gurdgiev points out – it is GNP that actually matters because that is a more realsitic figure of the income that is kept accumulated. Oh Dear! How embarassing! No doubt next week, he’ll be writing: Forget GNP – As Constantin Gurdgiev points out – it is GDP that actually matters because that is a more realsitic figure of the wealth that is created. @JTO – who exactly has said on this thread that GDP is the best measure? Looks like you are now fighting windmills. Of course as usual you ignore any comment you do not like, but that is what we have come to expect from Comical JTO. At last, a Morgan Kelly pronouncement on the matter, courtesy of Finfacts. http://www.finfacts.ie/irishfinancenews/article_1019701.shtml Our great leader, Morgan, says: “Gross National Product (GNP) is a better measure than GDP (gross domestic product) of the value added accruing to residents of the country.” I have the very distinct feeling that there is going to be a run on paper shredders in Dublin in the next few days. As bad as the figures are with GDP at €153,939m and GNP at €124,863m in current prices, with a population of 4,479,000 at April 2010 our per capita GDP is €34,369 and per capita GNP is €27,855 (at €1=USD1.4, per capita GDP of USD 48,116 and per capita GNP of USD 39,028) so pleading poverty is still gonna be difficult in Europe – the latest estimates for Germany are GDP (USD 40,670) and GNP (USD 36,672) and France GDP (USD 42,320) and GNP (USD 34,974) @Jto Sorry you lost £100 on your bet. Do you have a new forecast for GDP and GNP in 2011? @ JTO When has David Mcwilliams been on here opposing you The international criteria is 2 quarters of GDP. If we’re discussing ourselves in the context of other countries, thats what we have to use. Even if it is an ill-fit at times and maybe not best suited to Ireland. @ Scorpio: G*Ps are a pair of meaningless means. What I find irritating is that the clutch of econs we have on this site have not got their collective neurons aggregated together to devise a less un-meaningful metric (or more likely a set of metrics) for economic growth. I’m reminded of the novice engineer (1st Class Hons – of course!) who asserted that the correct height above roadway level for a motorway bridge was 3.5 m – ’cause that was the ‘average’ height of vehicles that would be on the motorway! Should I hope or pray? BpW So basically, NOBODY has argued GDP is a better measure. One thing on exports: The last merchandise trade figures estimate exports at around €90bn for 2010. http://www.cso.ie/releasespublications/documents/external_trade/current/extrade.pdf P3 Yet in the QNA has good exports down as €83bn. @ The GDP v GNP argument: Textbooks point out that the former is a better measure of the value of the economic activity taking place in a country. The latter is a better measure of living standards and is close to national income. The Irish GNP/GDP ratio is unusually – uniquely? – low. But it has also been quite volatile. In the 1990s the ratio was typically about 88% but in 2001 it was down to 82%. It rose to 87% in 2006 and has now (2010) fallen to 81.1%. There is evidence of procyclicality – the importance of the less than GDP but in . in Ireland @JTO I will agree that GNP is the value to look for the local economy at but lets take a closer look at 4Q GNP. First, this +4.0% is just the first estimate. Second, you can spout about inventory reductions and it was significant to 3Q but that is a blip on the overall numbers. What I’m trying to get my head around is how did “Net Factor Income from FDI” drop 38% or almost 3 billion Euro!! If 4Q values were any where close to 3Q values , 4Q GNP would have been negative. looking back at past years of Net Factor Income from FDI” the 4Q 2010 is the lowest since 2005. ooops – pressed the button too early! What I wanted to say is that the cyclical behaviour of the GNP/GDP ratio reflects the greater importance of the FDI sector during recessions. One further point: It is worth bearing in mind tha the level of employment has fallen substantially. The decline in GNP/Employment was 11.9% (2007 to 2010), while GDP/Employment fell by 6.6%. @all Could someone please put all this in a sentence that the humble illiterate serfs can understand – One sentence, not more than a baker’s dozen words. JTO – a couple of points. First of all, and most importantly, Kieran Allen is no more an economist than Darina Allen. Second of all, to clear things up, you are right: GNP is a better measure of national income of Ireland than GDP. GDP is not redundant though. There are some cases where it is arguably better to use GDP, e.g. corporation tax/GDP makes more sense than corp/GNP because we tax profits before they leave the country. @John McHale Aesthetic turnings +1 I’m not surprised by these figures. I’m not terribly economically literate but I do know that Irelands economy is solid. We have skills goods etc we can trade. We are robust enough to survive debt restructuring – this strengthens our hand. The next thing we’ve got coming are the stress tests though. They will be shocking methinks. But Germany should know we have a healthy economy. If it wasn’t for their dumb bankers inflating our property prices with cheap credit to our banks we would have been fine. Time to get that message out @Enda H I wouldn’t disagree with your points. I am not quite sure that I deserve the “you are right” in relation to what I wrote. I don’t think I argued that GNP was a better measure (although one types so fast on here while doing other things that I might have). I can see the arguments for both. My posts weren’t intended to argue the case for GNP over GDP. Rather, they were intended to highlight the fact that the most prominent media economists, who have been saying for 3 years that the economy is destroyed and that GNP is a better measure of this destruction than GDP, can’t now turn around and continue to claim that it is destroyed when GNP has risen by 4% in 9 months. If Ireland France and Germany all have GDP greater than GNP where does all the GNP go? Do they no have to balance in the aggregate? For a change, I’m with JtO on this. Three consecutive quarters of increasing GNP, smoothly following a much longer trend in the first derivative looks good to me. I’d even guess that we may have that elusive beast, an expansionary fiscal contraction, on our hands. Ireland should be one of the best places in the world to look for such a thing. The openness of the economy should damp out a lot of the unfavourable feedback that results from reduced public spending, while amplifying the impact of competitiveness gains. Well, the GNP series and its opposition to the GDP series through 2010 is interesting. Nicely aligned through 2009, then in 2010 they’re opposites in every quarter bar 1. The big change in Q4 is certainly the decrease in the negative net factor income which bumps GNP up, or reduces its reduction perhaps. Table 1 doesn’t seem to show anything else terribly interesting for the quarterly or annual numbers, except for that. If the net factor income number reverts to a mean in Q1 the number for GNP would go into reverse again. Here’s hoping there’s no reversion. @jagdip Singh Sorry you (JTO) lost £100 on your bet. Do you have a new forecast for GDP and GNP in 2011? JTO again: It is by no means certain that I have lost my bet. The bet was that “the Irish economy would be growing faster than the UK economy (on a y-o-y basis between quarters) by the end of 2010 at the latest”. The bet was made in a noisy pub at half-time in the England v Germany match last summer, so it is not as if there were lots of lawyers around writing down precisely whether GDP or GNP should be the measure. That was rather glossed over, I’m afraid. I think I have a good case for saying that I won my bet. I can see a legal saga running and running. If it goes to the House of Lords, I may well call Morgan Kelly, David McWilliams, Constantin Gurgdiev and Kieran Allen to support my claim that GNP is the better measure. Regarding future forecasting, I think short-term forecasting is a mug’s game. Who forecast that GDP would fall by 1.6% and GNP rise by 2.0% in Q4? I didn’t. No one did. Long-term forecasting is actually easier. I think that the omens are very good that Ireland will have a high-growth rate over this decade, which would be good news for FG and bad news for FF. In a complete reversal of 1987, it may well be that FG came to power at exactly the right time. The wealth-producing sectors are now extremely competitive and are growing at their fastest since the late 90s (and that is very fast), while the balance-of-payments is in surplus. Overall growth is still being held back because (a) construction output has collapsed (down over 30% for 2 years in a row and 75% down since 2007) and (b) very heavy de-stocking. By definition, these can’t continue for much longer. Construction output is now barely 3% of GDP. In most countries, its 7-8% or so. Without implying that it is certain, it is not difficult to imagine a favourable combination of factor resulting in very high growth rates in mid-decade. These would be (a) the wealth-producing sectors maintain their recent gain in competitiveness and continue to grow strongly (b) starting in a year or two, construction rebounds up to 7-8% of GDP by 2015/16 (c) de-stocking ends (d) the accumulation of large balance-of-payments surpluses in the next 2 or 3 years leads to an improvement in net profit flows, even after taking into account government debt interest payments. This isn’t certain, of course, but (a) has clearly allready started, (b) and (c) must start sometime, although I can’t be certain when, while (d) might have allready started, although given the volatility in the figures, it might splutter a bit. Would it be possible to speculate as to the relationship between these figures and the last budget, or would that be too speculative? Perhaps this debate can be recast so that the matter du jour can be placed front and centre. Are tax receipts more or less sensitive to GNP than GDP? Will growth in GNP raise employment by more or less than growth in GDP? If GNP keeps growing and GDP does not, will we still be stuck in a debt trap? Comments from economists and JtO welcome. @ Simpleton I bet there’ll be no agreement on that. But stand to be corrected. GNP has to be more closely correlated as it is unaffected by accountancy fluctuations in the Mulitnational sector – doesn’t it.? But GNP in itself isn’t enough when the economic effect from growth is being siphoned off from the domestic economy to pay bank debts. @hoganmahew. Table 5: Current market prices seasonally adjusted: GDP -6.6% QoQ GNP -2.5% QoQ I’ll wait a quarter before I get really alarmed, but on the face of it, those are pretty shockingly bad figures. I was expecting a continuation of the current price improvement. Could you elaborate on this for the benefit of somebody (myself), not familiar with the nuances of measuring at constant prices. Can I assume that if were not for deflation since 2008, the figures you quote would be the reported figures? @JTO Thanks for the helpful analysis both pre and post release. On your question: “From your knowledge of economic history, do you know of any cases of a country defaulting when it was running a balance-of-payments surplus (let alone one of the size Ireland is likely to have in 2013 if present trends continue)? I have been googling for the past hour trying to find one, but to no avail. And I have never heard of one either. However, I am not an economic historian, so I can’t say that there have never been any. But, I’d guess there have been very few.” I think you are heading in the wrong direction on this one. Crises are often associated with a “sudden stop” of capital inflows (e.g. the Asian crisis); the flip side of a shift from a net inflow to a net outflow is a shift from a current account deficit to a current account surplus. It is not always the case that the turnaround requires a shift from deficit to surplus, but it is not unusual. A classic case is Mexico, which ran large current account deficits in the early 1980s, but had a suprlus in 4 our of 5 years between 1983 and 1988 — the heart of its debt crisis. (see Boom, Crisis and Adjustment, by Little et al., Oxford University Press.) Ireland’s case is a bit different given that the turnaround is in significant part due to the large increase in private-sector saving, so I understand where you are coming from. In principle, one might think that these savings are available as a relatively cheap source of funding for the government’s budget deficit. But given the absence of capital controls, and the relatively weak home market effect, I wouldn’t exaggerate the potential here. Unfortunately, I think it is quite possible for a country without capital controls — and even for a country with them but experiencing uncontrolable capital flight — to run a current account surplus and for the government to default on its debt. (I am probably at the more optimistic end of the spectrum when its comes to default, but largely for other reasons.) The government’s introduction of 30-year bonds and associated sovereign annuities can be viewed as an attempt to tap the increased domestic savings. While I understand the motivation, I think this is misguided, as it seems to depend on the idea that the government does not intend to default. See link below from today’s Irish Independent. While I think the market may well be overestimating the risk of default, I think this approach by the government is not an appropriate in the making of pensions policy. http://www.independent.ie/business/personal-finance/pensions/use-of-30year-bonds-will-help-cut-cost-of-pension-funding-2592510.html “ @John Putting your historical economist hat on again, can you think of a country defaulting when their per capita GDP is more than their creditors – I ask because I’m fed up of getting an earful from Germans, French and Hungarians (!) who demand to know why we should get an easing of our bailout terms when we are richer than our creditors, in per capita GDP terms and possibly in per capita GNP terms also. Do you consider our still relative wealth to be an obstacle in negotiating better terms? @Jto Thanks for reply. “While I think the market may well be overestimating the risk of default, I think this approach by the government is not an appropriate in the making of pensions policy.” +1 Those numbers at constant market prices are great. Back below 2005. Are they at 2002 yet ? Will it go all the way back to 1997 and wipe out everything FF did ? @Joseph Ryan I’m an economic illiterate, not an economist, so take anything I say with a large pinch. My concern is that deflation has goosed real GDP and GNP in a way that shouldn’t happen. In the normal inflation environment, an inflator will reduce the GDP figure to get to a ‘real’ level. In a deflationary environment, I presume that a negative deflator increases GDP to get to a ‘real’ level. I don’t think this is a credible position, even though it is mathematically correct. Just because there is a lower level of economic activity and prices are dropping, we are not suddenly richer as a country. The lower prices are the result of lower economic activity, of less wealth, not the other way round. As I say, economic illiterate. Jeez Yoga, I certainly didn’t have you in mind.. @JohnMcHale Thanks for the link re the new fangled bonds the NTMA propose to issue. A number of issues arises if the reported remarks are correct. No secondary market will exist so you are locked in for 30 years. This will have the effect of excluding many trustees of all types of organizations. Secondly a rate of 4.8 will be less than 50% of the current available rate on ten year sovereigns. How does this offering separate the State bond market from the bank bonds? How can Mr Whelan assert that no risk of default arise. As for the coupon only version – who in their right mind would buy these – in fact who in their right mind would buy any of them. @all good show on primetime … daniel gros again that it is a banking problem … guy from die zeit that german popular opinion very ill-informed … guy from portugal on their little ‘liquidity problem’ … reformed Pat the x-PD coming to the real consensus …. constantin, dropping all the randite illusions of his miscreant youth, and delivering pragmatic realism on debt restructuring, and a reminder from the portugese lad that spain will be next [and moods downgraded 30 caja banks today] …. and as I expected – a general fudge at the main brussells meeting on the Big Issue …. good news that Irish gov did not really agree to anything …. we are still cozy in the quarantined experimental glass jar … for a little while … days, weeks …. only constantin gets an invitation to thomond park and a pint afterwards in a flannery pub where one might meet the neu minister – and nothing hartigans about this one … limerick lads want to know if he can maul as well as he bites … Emerging option: team up with the Spanish and FORCE the isssue of Bank Restructuring EZ-wide – a bilateral nuclear_unilaterally delivered should do it. Restructuring soon or full Sovereign_D in 2013 or earlier. Economic Illiterates RFC. Another one for John 🙂 Can you think of one historic example where a country without its own country has repaid a debt burden that will be approximately 150% of the economy. Based on €210bn debt and €140bn GNP (€125bn GNP growing at 5%pa until 2013 and assuming no more money for banks). I think you can look at the Irish situation in many different ways and not come up with a single other similar country. There will be text books written on Ireland in the future, we are truly unique. @ceteris, J McH “As for the coupon only version – who in their right mind would buy these – in fact who in their right mind would buy any of them.” Answer in the article: “All will be available through all the stockbrokers in the Irish market. The bonds will be issued on a demand-only basis as buy and hold investments, with no secondary market.” There was a time when self respecting stockbrokers would be able to look beyond the incentive of a fee for acting as salesman for a product with no market price to reveal to clients its shortcomings. This one – described as being without default risk – appears to be pre-mis-sold in any case. Ireland has obviously changed its financial regulatory spots less than might have been expected. @Grumpy Agree I could hardly believe what I was reading. Lots of other issues including legal must surely arise. Are these things approved by the FR and is a prospectus issued. I would love to read the disclaimers in any prospectus. On another note – From CNBC “Warren Buffett told CNBC Thursday that the collapse of the euro zone’s single currency is far from “unthinkable.” “I know some people think it’s unthinkable…I don’t think it’s unthinkable,” Buffett said in an interview. Still, Buffett said he believes there will be “huge efforts” put forth to preserve the euro. In the meantime, struggling peripheral countries like Portugal must find a way to resolve fiscal crises. “You can’t have three or four or five countries that are in effect free-riding on the other countries. That won’t work over time—they have to get their fiscal houses in reasonable harmony,” he said. Not much sympathy for us. @all It’s All Over Now! DO’M mentions the D-word. (-; realism must really be breakin out …. Donal O’Mahony, global strategist with Davy, said recent trends in Irish bonds, where shorter-dated debt has been generating higher yields, suggest the market believes there is a risk of either national default or debt restructuring. Behind this, according to Mr O’Mahony, is a combination of worries over next week’s bank stress tests and concern about restructuring measures in the reformed European Stability Mechanism, which will come into being in 2013. He said a better than expected result from the stress tests could provide some relief. http://www.irishtimes.com/newspaper/finance/2011/0325/1224293046090.html & not a mention of Mor-e-ya-Eye-T! Has Denis O’B bought the blog? Given that the FDI sector is responsible for 90% of tradeable exports and there are significant amounts involved in profit shifting, quarterly changes in transactions can have quite an impact. We like to ignore the impact when its suits: on Wednesday, Forfás issued a press statement headed ‘Irish firms outperform most European counterparts in innovation performance’ – – technically correct as the units of US firms in Ireland, such as Microsoft and H-P are Irish companies but this spin is both misleading and stupid, as it doesn’t help in producing credible policies by bragging that ‘Irish’ firms are trumping European counterparts. Since 1970 when inward flows from emigrants became less important, GDP has exceeded GNP. From 1970, the value of exports has increased over twenty times in real terms. The other demand components making up GDP have 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. GNP was until recent times about 82% of the value of GDP. However, the National Recovery Plan 2010-2014 forecasts a level of 73%. Eurostat says that while GDP per inhabitant is often used as an indicator of countries’ level of welfare, it is not necessarily a suitable indicator for households’ actual standard of living. For the latter purpose, a better indicator may be actual individual consumption (AIC) per inhabitant. In national accounts, household final consumption expenditure (HFCE) denotes expenditure on goods and services that are purchased and paid for by households. Actual individual consumption, on the other hand, consists of goods and services actually consumed by individuals, irrespective of whether these goods and services are purchased and paid for by households, by government, or by non-profit institutions. Countries differ as to what services may be publicly or privately paid for. Eurostat says generally, GDP and AIC per inhabitant are highly correlated, because a country with a high level of welfare as measured by GDP will also have a high potential for consumption. However, in some cases, this correlation is not so obvious. For example, while the GDP per inhabitant in the UK was 12% above the EU average in 2009, its AIC per inhabitant was 25% above the average, and thus the second highest in the EU. Conversely, Ireland’s GDP per inhabitant was 27% higher than the average, while its AIC per inhabitant was only marginally above the average EU level. @ Kevin O’Rourke Jeez Yoga, I certainly didn’t have you in mind.. It’s interesting that in Ireland, critics in the media tend to avoid challenging people directly and the reader may be left confused as to who the broadside is directed to. I recall Alan Ahearne in a Sindo article some years ago criticising certain commentators and saying: ‘you know who you are.’ So, I’m open to common abuse, as distinct from a libel, from any named individual but be prepared for an Exocet in return!! @Japdip You ask: “Putting your historical economist hat on again, can you think of a country defaulting when their per capita GDP is more than their creditors – I ask because I’m fed up of getting an earful from Germans, French and Hungarians (!) who demand to know why we should get an easing of our bailout terms when we are richer than our creditors, in per capita GDP terms and possibly in per capita GNP terms also. Do you consider our still relative wealth to be an obstacle in negotiating better terms?” I would think that in most country defaults there are some creditors that are poorer than the defaulter. That said, given that there has not been an industrialised country default since WWII, the direction of assistance has been very much from rich to poor (although even poor countries have quotas at the IMF, so they are formally part of the assistance). On the broader point, I think Karl Whelan makes a valid observation when he says it is not just the level of income but also the required change in that income that determines the degree of hardship involved. Issues such as loss aversion and political economy challenges (e.g. “wars of attrition” between interest groups trying to protect themselves from a disproportionate share of the adjustment burden) come into play. Unfortunately, this reality is more easily appreciated by those looking for adjustment loans — or better! — than the possibly poorer countries being asked for that assistance. It’s not long since the main reasons being advanced for taking EU and IMF money were about: 1) tiding us over a couple of lean years until things got back closer to normal (santa claus); and 2) avoiding a deflationary spiral (the boogyman). If the actual reasons for taking it are to spread wars of attrition between interest groups, and loss aversion responses, more thinly over a longer period of time, it’s valid to ask whether this is a goal worth pursuing even just in Ireland’s interests, let alone in the interests of the international community. A couple of comments were made on the ‘usefulness’ etc., of G*Ps. They are both, totally without any technical merit whatsoever. You cannot massage, macerate and homogenize the complex of an economy into a single pair of metrics. Its statistical gobblydegook – worthy of the Humpty Dumpty Award for Misleading Commentary. So why persist? That’s my question. Or would it just be a problem if delta credit emission and debt levels were also measured and reported, that things would be decidely ‘pear-shaped’? BpW @John McHale Thanks for the reply which makes a lot of sense. Still no harm in understanding what the constituencies of the French and German leaders think – that Ireland is still a relatively rich country, indeed richer on some bases and it is therefore unfair for Ireland to seek an easing in bailout terms. @Kevin O’Rourke But it is true, if unkindly phrased and I too would consider myself a founder of the ‘austerian club’ on here. I’ve argued for raising taxes and cutting spending, but I don’t see many (any?) on here that think that raising taxes is not necessary. Or indeed that it is not going to contract the economy, but cutting the amount borrowed is inevitably going to do that, no? A reduction into the economy = a reduction in the size of the economy. @BeeCeeTee That’s just normal political economy. No one wants to be the sap who ends up making the sacrifices while others go laughing all the way to the bank. I’d have to agree with Jagdip Singh on this issue. Not only is Ireland relatively rich per capta, based on the GNP measure, its growing richer. GNP up 4% between Q1 and Q4, which is a faster rate of growth than any other EU15 country. The argument of those advocating default is that Ireland is so weighed down with debt that it can not grow. I am aware of the GDP/GNP debate, and I don’t wholly come down on one side or the other myself. But, Irish governments of all complexions have repeatedly argued in EU summits that it is GNP that counts as far as Ireland is concerned. So, how can the FG/Lab government flip-flop now? I am also aware of the necessity not to over-egg the GNP pudding. I am among the first to highlight the volatility of quarterly GDP/GNP figures for Ireland. What goes up one quarter can go down the next. What goes down one quarter can come up the next. It wouldn’t surprise me if next quarter saw GDP go up and GNP go down, and then the reverse the next quarter, and so on. But, as of now Q4 2010 is the latest figures we have, and these show 3 successive quarters of accelerating GNP growth, so how can the FG/Lab government credibly claim that the economy is so weighed down with debt that it can not grow? At the very least, they should wait and see if this trend continues. Then, there is the little matter of Ireland’s assets abroad. As the GDP/GNP figures show, Ireland is in balance-of-payments surplus. Ireland Inc (as distinct from the government) is investing more abroad than borrowing abroad. Whether one thinks this is a good thing or a bad thing is a separate issue. As yesterday’s figures show, this investment is now bringing a handsome return. Profits are flowing from that investment into Ireland, cutting the gap with the profits that flow out, which is the main reason that GNP is rising. What happens those investments if the FG/Lab government were to default? Have the default nuts thought of that? Does anybody think that foreign governments, or residents in foreign countries, who would lose out as a result of the FG/Lab government defaulting, will just sit idly by and watch profits from Ireland’s massive investments in those countries flow back into Ireland? I think not. The reality is anybody can default at any time. But, that usually isn’t the end of the matter. Those losing out tend to want their money back, and are quite prepared to hire expensive lawyers to get it back. If the FG/Lab government defaulted, there would be court cases from now to eternity, and Ireland’s hundreds of billions of investments held abroad would be frozen pending the outcome of those court cases. I could default on my mortgage if I wanted to. I could write to the Ulster Bank this morning and tell them that I was not going to pay it, and use the money saved for a Mediterraenean cruise. But, if I did, I’d at least have the intelligence to withdraw the savings I have in other Ulster Bank accounts first, lest, on receipt of the letter announcing my intention to default on the mortgage, the Ulster Bank froze those accounts. @ David O’Donnell re moriarty I saw Primetime on Tuesday and have to say I was very disappointed by 1 panelist in particular. “There was no mention of corruption” sticks in the mind. @ John McH “Issues such as loss aversion and political economy challenges (e.g. “wars of attrition” between interest groups trying to protect themselves from a disproportionate share of the adjustment burden) come into play.” Suggest: “trying to protect themselves from a proportionate share of the adjustment burden” One day someone might invent a mechanism for avoiding this. Oh wait! There is the one state, one currency model. Then there is the more mundane “strong political leadership of an informed electorate”. @John McHale “The reality is anybody can default at any time. But, that usually isn’t the end of the matter. Those losing out tend to want their money back, and are quite prepared to hire expensive lawyers to get it back. If the FG/Lab government defaulted, there would be court cases from now to eternity, and Ireland’s hundreds of billions of investments held abroad would be frozen pending the outcome of those court cases. I could default on my mortgage if I wanted to. I could write to the Ulster Bank this morning and tell them that I was not going to pay it, and use the money saved for a Mediterraenean cruise. But, if I did, I’d at least have the intelligence to withdraw the savings I have in other Ulster Bank accounts first, lest, on receipt of the letter announcing my intention to default on the mortgage, the Ulster Bank froze those accounts” are you saying, for example, that if an Irish citizen owns property in England and Ireland defaults, that a creditor of the Irish state in England is going to seize my property there? That sounds like it lacks any legal basis. and id say that that is just as true for financial assets. If the state itself has assets abroad it may be a different story – there could be complications for international semi states? @seafóid ditto on said panelist (i’m in a charitable mood – but response poor). Did not get to reading the overviews til wed nite …. and last nite’s VBrowne show on ‘meedja ownership’ and ‘who counts, controls’ was useful … Money, Power and Lifeworld: and the cozy crony capitalist relationship between elements of the former 2 has serious consequences for the poor eejits of serfs in the Lifeworld who pick up the bill … direct influence on Sept 08 mad decision as well, and future integrity of business culture Systemic crisis in Irish Governance continues – and worth noting again that all Terms of Reference on All banking reports explicitly excludes ‘naming real people’ ….. unlike the Icelandics … Political Economy … & dodgy political culture, which includes the serfs … @ DoD A lot of heavy incoming fire for mo dhuine on the Letters Page of the IT for 2 days running now. The vehemence led me to the rte player. Have to say Pat Rabbitte was also disappointing. Where was the man who savaged Pat Carey 4 months ago? http://www.rte.ie/player/#v=1094640 Starts @ 17.30 It’s all rotten @seafóid Following – Governance & Corporate Governance are areas that I’m into – largely stopped posting on bank boards many moons ago on this blog – no evidence of any real change – excepting Mr Elderfield’s sound work in setting up new regs …. one example: spectacless still in position after a € billion 3-card trick with Shawn_ee !!!! (what does she know?) Yet Colin Scott’s earlier thread on ‘regulation’ elicited just 7 comments! And the issue of Governance, and its inescapable link to sound economy and society seems to escape most ……………crony kapitalism continues …. To speak of Irish Governance or Irish Corporate Governance abroad at the mo is to risk immediate riducule …. look at the cost when banks etc are included, and the human cost …….. http://www.irisheconomy.ie/index.php/2011/03/07/renewing-the-regulatory-state/#comment-130873 On ‘do dhuine’ – expect a post here surely ……… I’m following … or perchance an Editorship of the Irish Independent (-; €7 billion actually …. young lad in cork today got 42 days in jail for possession of €7 worth of mary-joanna. Strange country … work it out … A country that insists setbacks are temporary will learn slowly, that it cannot lie its way out of poverty. More politicians? They will save you! Investigate, prosecute and confiscate without mercy! Reward those who are in high office and weigh them regularly. Fools that entrust others with wealth will be poor fools ‘ere long! CAB was set up to teach the gutties a lesson….. The have yachts were aghast that their fellow boaties were infra dig! Dead Journo? Speeded up the process. Ireland: a land of Ire? Iceland: a land of the free. 50% Irish blood! @@seafóid Today’s IT Letters Page – Bit of a Schezmozzle between the SCs …… SC: “In particular, there was one letter from Michael McDowell thanking Denis for a £15,000 donation to the Progressive Democrats and saying: ‘I will drink a toast to your health this Christmas’. Here was a £15,000 donation to the PDs that was being kept secret while I was enduring pretty aggressive meetings with the tribunal over £4,000.” Other SC (aka Mick McPD) responds: “In fact, I wrote a short note on December 20th, 1996, to thank Denis O’Brien and another Esat executive for a gift of some bottles of wine which they had sent me in the run-up to Christmas. My note did not refer to any donation to the party.” Musta bin some party! But was it red or white or … er .. rose? Why was this information withheld from the Tribunal? Shurely dere are questions to answer here? ….. will we need another tribunal to investigate the tribunal to investigate the previous tribunal …… ad infinitum ….. ad nauseum …. and nothing or noone is ever ever ever held to be accountable for anything ….. at all at all at all ….. fair play to Mick who in true Schrodigger fashion has out Schrodiggered Schrodigger in being innit, onit, represnentin innit, representin onnit, in chareg offit, commentin onnit, an gettin paid ferit all simultaneously and over time – what a man! What a party! @ DoD I wouldn’t fancy being the target of the wrath of the Rottweiler but on the other hand there is a touch of those parodies that Craig Brown does in Private Eye of the excuse he gives . … #spose he’ll be turnin holy water into wine next – and the serfs could sure do with a few loaves and fishes after the debacle ensuing from his PD ideology of feather-lite regulation and its infestation of the nation in tandem with the other 3 advocates of the Apocalypse D’Other FF Charlie MacPD, Mary Harney & Dig_Out Bowel Bertie …. f’course Mick was never a member of the PDs, he could never join that which he did not found, the PDs never really existed, such is the tenor of his recent epistles in the DinnyO’B press …. as the upper-echelons await the 2nd Coming and the 5th gospel …. mid summer I believe, mid summer madness takes on an entirely predictable pee_dee hue ………. twas the EMUs wot did it, as a previous adviser is wont to put it …. @SC original Get on this blog – make a statement! Guest thread available @Mick Do you blog? @seafoid Craig Brown couldn’t make this stuff up! Slainte to the health of the deficit! @Michael Hennigan Blind Biddy wants to know if you mite hav a few o dem exocets spare lying around … ? I’m hard pressed to keep up with her these days – between all the bazooks and the Sherman Tank; and now exocets – I’m on the verge of calling up Nicky for a loan of his No-Fly_Zone …. but even I have limits! Based on the local election results in France, Nicky is now as popular as PD/Fianna Fail … Comments are closed.