Patterns of Investment

For the past four years domestic economy has been in freefall, which has resulted in nominal domestic demand falling from €172 billion in 2007 to €126 billion last year.  This massive drop has been spread unevenly across the three components of domestic demand:  consumption expenditure is down €11 billion; government expenditure on goods and services is down €2 billion while investment in fixed capital is down €30 billion.

The fall in the domestic economy has been led by the fall in investment, which in just four years has fallen 63% from €48 billion to €18 billion in nominal terms.  The real decrease has been 52%.  There is nothing in this snapshot that we don’t already know.  The pattern of the four components of nominal GDP since are shown here.


Investment rose strongly up to 2006.  It was largely unchanged in 2007 but the rapid fall since then is clearly shown.  Table 15 in the National Income and Expenditure Accounts provides a breakdown of the investment by type.

In 2006, investment was €48.3 billion and €38.0 billion of that was accounted for by the construction and property sectors; dwellings (€22.6 billion), roads (€2.0 billion), other construction (€8.8 billion) and also costs associated with transfer of land and buildings (€4.5 billion) which makes up the bulk of the ‘other’ category in the above graph.  By 2010 these four categories made up €10.7 billion of the €18 billion total. 

The domestic economy has seen a nominal fall of around €46 billion – unsurprisingly 60% of this is due to the collapse of the construction and property sectors. 

The Non-Financial Institution Sector Accounts gives an insight into the breakdown of investment by sector.

The household sector has gone from the largest source of investment as recently as 2008 to the smallest in 2010.   If we use the figure for Consumption of Fixed Capital as provided in the Non-Financial Accounts we can get a measure that could be considered a form of Net Investment.

For the economy as a whole gross fixed capital investment exceeded consumption of fixed capital by less than €2 billion in 2010, with firms having an outturn of negative €2 billion. 

We will get revised macroeconomic projections from the DoF as part of the forthcoming budgetary process.  Their most recent projections are from April’s Stability Programme Update.  Investment is expected to continue to decline in 2011 with a real drop of 11.5%, but minor growth is forecast for 2012.  This growth is expected to quickly accelerate with real growth in investment of 4.5% projected for 2013 increasing to more than 5% for both 2014 and 2015.

There is little sign of this.  The Q2 National Accounts show that real investment in the first half of 2011 was down 11% on the same period last year.  This is in line with DoF projections but there is little to indicate that a turnaround in investment will occur in 2012.  The collapse in household investment has eased but that was all that could occur as the overall drop now exceeds 80%.

The scope for further declines in investment is limited but absent both a willingness to borrow and a willingness to lend the scope for a return to 5% growth rates also appears limited.

22 replies on “Patterns of Investment”

@ Seamus

As always, massive kudos for getting good graphs on the IE blog.

Take a look at pages 68 and 69 of this PDF file. Ireland will have the lowest investment share of GDP this year by about 3 percentage points and is way below the European average. I agree that this is so low that it may not fall much further — the construction sector is pretty much out of action and those firms that have survived probably need to invest to replace old machinery.

Great graphs – but I am slightly chessed off with the post millenium housing bubble meme – could we look back to at least 92/ 93 if at all possible ?
Things became instantly mad here with regard housing when we got a bit of the European dole in the 70s – with the banks then using farmers savings.
But I can remember it going completly crazy in 94/95 – with near total destruction of the countryside & spatial commonsense by 1999….. after that it became a sick joke.

Slea Head was the poster child of destruction – if we were prepared to destroy that geographical Mona Lisa we were capable of anything – and indeed we were.

The term investment carries so much baggage, is the construction of houses that nobody will ever need really an investment? And the roads, sewers, gas mains and telephone lines that serve them, is that investment too?

These graphs are excellent as they show how unbalanced the Irish economy was in 2006 and 2007. In every bubble economy, over spending was always classified as “investment” when it was really just a foreign funded lending bubble that needed cover.

I’ve added quite a few more grey hairs since I first started making the case on this board for re-structuring and re-financing (and, potentially and subsequently, privatisation) of public and semi-state infrastructure and utility activities to enhance the efficiency and reduce the costs of service delivery and to release funds to invest in activities that would demonstrably lift economic activity, compensate for households’ and firms’ de-leveraging and boost future economic performance.

What we’re getting now is a modified version of FG’s NewERA proposal which, in part, sprang from an earlier ICTU proposal on a state holding company for the semi-states. (Even at that time a future cohabitation in government with the ‘bearded brethern’ was envisaged and concessions were being made.) This first saw the light of day on 26 Nov. 2009, but I can’t find a post on it here. It is now becoming flesh and is, belatedly and justifiably, attracting the ire of those who who should have been expressing it then.

It s all far too late now. Some costly and unproductive economic activity will be generated and those who have been deprived recently of the capture of the fulsome economic rents to which they had become accustomed – and to which they still feel entitled – will have an opportunity to regain some lost ground.

‘Business-as-uusal’ beckons. Same as it ever was.

What the figures show is the urgent need to rev up the number of new houses built annually in Ireland to about 45,000 to 50,000. The census results showed an increase in the number of households in Ireland between 2006 and 2011 of some 200,000, or 40,000 annually, and that occurred during a recession. All past experience (eg after the 1955-58 and 1982-86 recessions) indicates that this will pick up as growth returns. Add in second homes and obsolesence of old houses and the annual requirement for new houses climbs towards 50,000. Yet, it looks like the number of new houses built in Ireland in 2011 will be only around 10,000.

The number of houses being built in Ireland is now so low that the housing surplus is dwindling rapidly. It never was the 300k claimed. The Department of the Environment report a couple of weeks ago showed the number of ’empties’ down about 25% in a year (from around 24k to 18k). In addition, according to CSO inflation figures published last week, residential rents are now rising at an accelerating rate. How does this tie in with Morgan Kelly’s claims of 300k new-built ’empties’ lying around?

Similarily, Ireland’s GDP was never remotely as dependent on construction as the likes of Morgan Kelly claimed. It was never the 25% of GDP that he said repeatedly it was. The true figures are in here:

At its peak, in Q1 2007, construction output accounted for about 6.5% of GDP. By Q2 2011, it had fallen to just 2.5% of GDP. The EU average is around 6%. It needs to be brought up the EU average as quickly as possible. Then, beyond the EU average as Ireland’s natural population growth is far higher.

The reality is that, no matter how much the Dublin 4 academia and media classes hate builders and developers, the builders and developers are essential for full employment. Over the past few years, they have been treated like pariahs in Ireland and demonised. The media have revelled in their misfortune and cheered on every fall in building and construction output. The myth has been propagated that a country can get along without a prosperous and expanding building and development sector. However, the surge for Sean Gallagher in the Presidential polls shows that the people do not share Dublin 4’s loathing of builders and developers. Assuming that he survives the inevitable academia/media character-assassination attempts on him in the next couple of days, the election of President Gallagher should be used as the catalyst to bringing builders and developers in from the cold and get them to start building and developing again.

“the election of President Gallagher should be used as the catalyst to bringing builders and developers in from the cold and get them to start building and developing again.”

The only catalyst the election of President Gallagher is going to provide is to convince me to finally get that ticket to Melbourne Iv been dreaming after these past three years.


An excellent post with salient facts that ends on a pessimistic note in relation to growth prospects for the construction industry.

There is little sign of this. The Q2 National Accounts show that real investment in the first half of 2011 was down 11% on the same period last year…..

This begs the questions. Why and what can be done about this.

The why is simple.

The construction industry is no longer in slow down mode. It is in lock down mode. And NAMA has has thrown away the key.

NAMA now controls directly or indirectly the entrie construction industry. But it will not spend money. It has no interest in spending money. It has no interest in jobs. It has no ‘entrepreneurial’ brief. It does not look for opportunities.
It simply wants to sell completed buildings, bring in money and rush back to the ECB with that money.

A program to complete the semi-finished ghost estates would provide approx 45,000 for each of the next two and possibly three years. But NAMA thinks it is better to do nothing than to do this.

NAMA is now a disaster for the Irish construction industry, for jobs in that industry and for the country generally.

The result is outlined in the figures above.
The real problem is that unless the NAMA policy/brief is changed, these are the kind of figures we woill be looking at for the next ten years.

Welcome to the next decade Irish construction industry.
It a new kind of construction industry, an accountant driven locked down debt collection agency

++++ RF
Its the official return of the rednecks……..

If your GDP figures are true whats really striking is the huge amount of debt needed to push GDP up by such a modest amount.
Any nation can push up aggregate demand if it takes wealth from the future via debt – but if this “investment” is in consumption sinks then it will subtract wealth from the country over the longer term – whats the point of this unless you want to make a short term killing on other peoples stupidity ?
These investments should be reclassified somehow as consumer durables rather then real capital increasing projects.


I wouldn’t buy the ticket just yet, rf. You might be wasting your money. The Dublin 4 media/academia classes are in full panic mode at the weekend poll results and will have their character-assassination squads out in force over the next few days. They could still succeed. However, whatever the outcome, it is clear that the public do not share Dublin 4’s revulsion at the thought of a buisnessman involved in the property business being in the Aras. Interesting to note that three nationalists from Ulster are getting almost 60 per cent of the vote vetween them in both weekend polls, despite all three being demonised for different reasons by the Dublin 4 set.

Stay to pay off JTO’s bonds. Will be good for you. It’s amazing how many ways you can say the same simple thing: The country’s f*****d


I think you may find that the outcome of the Presidential election and the ‘Abbeylara’ amendment referendum will reverse the outcome of a similar combination of votes in 1959. (It is incredible that the judiciary – the ‘L’Oreal generation’ (Because we’re worth it) – has pushed its formal rejection of an imposition imposed on all those paid from the public purse at a time of severe fiscal constraint so far.)

In 1959 the people installed the then government’s nominee in the Park, but rejected FF’s proposal to change the voting system to its advantage. Now it seems the people wish to install a non-government nominee in the Park to discourage the Government from taking them for granted and to warn them not to abuse the overwhelming Dail majority it enjoys. On the other hand, although voters have punished severely those who were elected to govern when the wheels came off, they seem to be intent, at least to some extent, on identifying and punishing those who actually caused the wheels to come off. It chimes with the Government’s desire to craft a stake to the heart that may be used to bury FF, once and for all, as a political force challenging to be a dominant force in government.

But it is very dangerous to change the Constitution to secure a naked political end, even if it were to end up, eventually (when the current Coalition partners go their separate ways – as they inevitably will), with two competing right-of-centre and left-of-centre blocs. Focusing political debate on the boundaries and responsibilities of the state would be healthy and productive, but this isn’t the way to do it.

However, on your more general (earlier) points about the construction sector, I’m inclined to agree. But it needs co-ordination with a changed functioning of NAMA (as Joseph Ryan points out), a write-down of the ECB ‘liquidity support’ (a sneaky EZ means of avoiding solvency issues), a programme to enhance the quality and energy efficiency of the existing housing stock and re-direction, re-skilling and re-training of many unemployed consruction workers.


What the figures show is the urgent need to rev up the number of new houses built annually in Ireland to about 45,000 to 50,000. The census results showed an increase in the number of households in Ireland between 2006 and 2011 of some 200,000, or 40,000 annually, and that occurred during a recession.

Isn’t it impossible to say how many houses will need to be built in the future without looking at what has been built in the recent past?

Over the period 2006 to 2011 you correctly say that the population increased by 200k. However over this same period 264,192 houses were built. Even including obsolesence that must be enough to house 500,000 individuals.

You are 100% correct, and well done on the prediction, that the population increased from 2006 to 2011 however I think it could be a stretch to say that the population will continue to increases until the next census. We are still not even sure how much, if at all, the population has declined from the peak sometime probably in 2008.

The number of houses being built in Ireland is now so low that the housing surplus is dwindling rapidly. It never was the 300k claimed. The Department of the Environment report a couple of weeks ago showed the number of ‘empties’ down about 25% in a year (from around 24k to 18k

The 300k empties I believe is from the Census JtO. What do you think is the flaw in their methodology that is so vastly over stating the number of vacant properties?

The DoE numbers are number of empties in ghost estates and there are many vacant properties that are not in ghost estates.

At its peak, in Q1 2007, construction output accounted for about 6.5% of GDP.

How does this time in with the numbers provided by Seamus Coffey, which show that construction realted activity was €38bn in an economy of approximately €170bn. I calculate that as over 20%

@ Paul Hunt

I was interested to see your take on the upcoming referendums, potentially in response to Colm Macs Sunday article, as I dont know much about either.
A lot of the “analysis” Iv seen has struck me as typically myopic with little or no recognition of what the Governments motives might be.
Not wanting to divert the thread perhaps someone could put up Colms Sunday article and see where the back and forth takes us?
I need a good reason to throw my lot in with Peter Sutherland (Id need a lobotomy to do so with President Gallagher jto (; )

How somebody could wish tor a revival of the construction industry and an increase of the inventory of empty buildings at this time is hard to understand.


Thank you. It would probably be unwise to pursue this ‘political’ issue too far here, but Colm McCarthy has been very vocal for some time on the ‘political economy’ of a full banking inquiry. He believes that sufficient popular consent for the major fiscal adjustments and structural reforms required will not be secured until such an inquiry is conducted.

This is certainly relevant here – along with his equally trenchant views on the demand for public investment.

The voters certainly exacted some ‘vingince’ on those elected to govern on 25 Feb, and it is possible there is some pent-up demand to exact some more from the unelected who were probably more directly culpable.

From my perspective, those elected to govern received their drubbing and those appointed to supervise the banks and to regulate the financial sector had been replaced prior to this by internationally respected persons. As I understand it the senior and middle levels of the CBI and the financial regulatory body are being strengthened significantly. And EU-wide structures and procedures are being put in place.

I’m not too sure what a detailed banking inquiry – that named and shamed – would achieve. One can’t blame people under loose supervision, governance and regulation, with every political and policy encouragement, from seizing every opportunity to enrich themselves. It’s a little like blaming a lion for killing a zebra or a fox for stealing a chicken. I suspect the long drawn out ‘criminal’ investigations are finding it difficult to distinguish between what was actually illegal and what was some how ‘wrong’ but permitted by default under a lax supervisory, governance and regulatory regime.

It might be far more beneficial to examine the supervision, governance and regulation in other sectors. The ‘creepy crawlies’ have been revealed and largely eliminated in the domestic banking and financial sectors; they’re still growing fat in many other sectors. Exposing these might do far more to strengthen popular resolve to consent to the reforms required than any further harrying of bankers and developers.


Thanks for your excellent figures and graphs which are very clear and probably also worrying.

Food/Drink industry and commercial entities are just dragging their feet. For example the milk processing companies know that the milk quotas go in 2013 so there will be substantial amounts of extra milk to be processed. In fact to date this year farmers are over quota on milk production as they have already geared up and nationally all farmers face a milk superlevy in 2011/12. The processing companies have done damn all to get production facilities in place but instead they are investing in the USA etc . If they started to invest in capital equipment, buildings etc in Ireland this would have a big trickle down effect to the national economy. The same applies to the drinks, meat, grain sectors but unhappily a lot of food and drink companies would prefer to do nothing. One of our largest drink companies has a major capital programme on hold but it knows that they still need to do it because existing facilities are unsatisfactory. The consequence is that farmers will also be screwed because there will be insufficient facilities to process their product output as quotas are removed. The D of Ag are away with the fairies the last few years and the overall result is that all of these grandiose targets for Agriculture output will be scuppered.

At the height of the insanity, BoI were trying to paper over the cracks by pointing out that the massive and sustained rise in borrowing wasn’t marked by a deterioration in household balance sheets. The ESRI picked up on this spin later.

BoI informed readers in 2007, at a time when it was advising large clients against investing in Irish property, that “the household balance sheet is still in very good health with the asset base dwarfing household liabilities”. ESRI chimed in a year later, stating that while “much of the focus in recent years has been on the indebtedness of the household sector, particularly given the growth in private sector credit and borrowing for housing purposes […] another perspective is provided by CSO institutional accounts data. These data provide a more comprehensive
picture by presenting a household balance sheet, which shows household assets as well as household debt.”

It was all smoke and mirrors. All it meant is that people were buying property for the most part instead of increasing consumption. So private borrowing rose massively, but the country’s current account deficit was only ever modest. The current account figures, which I’m sure in the light of the East-Asian crisis were carefully watched abroad, lied on this occasion however. The implicit assumption was that borrowed money is invested productively but in Ireland’s case the investments were very poor, and a great deal of it was almost worthless. So I suppose this partly explains the misplaced confidence in Ireland abroad prior to 2008.

It doesn’t explain the blatant sophistry from BoI and ESRI, however, both of which were fully aware of the dire condition of the country. A bubble was widely claimed to exist; BoI and ESRI’s response was to take the unsustainable and unrealistic asset prices, balance them against the money borrowed to pay for them, and point out that they unsurprisingly matched up. In the context, this was circular reasoning of a very obvious sort.

The bottom line is that when bubbles are inflating, an economy can dig a giant hole for itself without ever ringing obvious current account alarm bells.


The figures for construction as a percentage of GDP are given in the Quarterly National Accounts – these are the latest:

They show:

2007 Q1: construction output at factor cost 2,401bn euros – GDP output at factor cost = 38,916bn euros , construction percentage = 6.2%

2011 Q4: construction output at factor cost 930bn euros – GDP output at factor cost = 36,980bn euros , construction percentage = 2.5%

I can not find where Seamus Coffey published the figures you quote, although I vaguely recall that he did do so. If you provide me with a link, I will look at them. Perhaps Seamus could dig out the current value of construction output as a percentage of GDP in Ireland, and compare it with the corresponding figure for other EU countries. I will be amazed if it isn’t by far the lowest.

It wasn’t the population that rose 200k between 2006 and 2011, but the number of households that rose 200k. The population rose by 341,421 between 2006 and 2011, by miles the fastest rate of population growth in the EU.

Contrary to what you say, there is no indication whatever that the population peaked in 2008 and has been in decline since. Even the more pessimistic pre-census CSO population estimates show the population rising every year, although by smaller amounts than before. However, these annual increases will very likely be revised sharply up by the CSO once they incorporate the census results. It is not possible to predict the future with certainty, of course, but all past experience of recessions (late 1950s, mid 1980s) indicates that population growth in Ireland will re-accelerate as economic growth returns.

The CSO do not (or, at least up to now, haven’t) published any statistics on the nature of the ’empties’. Ireland has had lots of ’empties’ for several decades now, following the flight from the land and the abandonment of the abysmal-quality housing which rural Ireland had to put up with until relatively recently. If you live in Dublin, you may not be so aware of that. As late as the 1970s, the majority of houses in rural Ireland lacked indoor toilets, indoor baths, mains water supply. These have all been abandoned in recent decades as the house-building boom at last brought proper housing to rural Ireland. That’s the source of most of the ’empties’. The Dept of Environment figures confirm that the number of ’empties’ among newly-built houses is but a fraction of this, and now falling quite rapidly.

We have been subject to two inaccurate pieces of information in recent years. We were told by ESRI that net emigration was 70k annually and that the population was falling rapidly as a result. We told by various economists that there were 300k ’empty’ newly-built houses. The census disproved the first. The Dept of Environment investigation disproved the second.

The proof of the pudding is residential rents. These are now clearly rising. Both the CSO and Daft confirm this. But, if the population is falling, as ESRI have claimed, and there are 300k ’empty’ newly-built houses, as various economists have claimed, then how on earth are residential rents rising? They should be plummetting if these claims were true.

A factual summary of the situation re house-building in Ireland over the past couple of decades, which is in marked contrast to the dumbed-down Morgan Kelly fantasy version that sees the entire thing as a plot by FF and the developers to enrich themselves, is as follows:

(a) Ireland’s economic boom from the late 1980s on led to a population boom on a scale that few countries have ever experienced. The population rose by 30 per cent in a decade, and continues to rise. The source of this population boom was an extremly high rate of natural population growth (by far the highest in the EU) and an unprecedented level of net immigration (initially returning Irish or Irish-descended emigrants, and latterly foreign nationals with no previous connection with Ireland).

(b) Allied to rapidly-falling household size, this population growth led to an increase in the number of households in Ireland that is off the Richter scale. There were 600k households in Ireland in the 1960s, 700k in the 1970s, but by 2011 there were 1,700k, almost 3 times as many.

(c) This growth in the number of households led to a requirement to increase the building of new houses that has no parallel in modern economic history. Until the early 2000s, despite increasing the number of nw houses built virtually every year, the construction industry was failing to keep up with rocketing demand. Back in the late 1990s the main complaint against the construction industry from media/academia was that they were failing to build enough houses, and some even claimed that they were doing that to keep prices up (read various left-wing tracts from that time). In 2002 ESRI published a report highlighting the ‘shortage of new houses’ as one of the main constraints on growth and advised the government to bring in measures to accelerate the building of new houses. I think John Fitzgerald was one of the contributors to the report.

(d) The government did this and the output of new houses rose even further, eventually, by the mid 2000s, surpassing the demand for new houses and the building-up of a modest surplus.

(e) By 2007, it was clear that a reduction in the output of new houses was required, from around 80k to around 50k, to bring supply into line with demand.

(f) This could and should have been done in an orderly manner, but wasn’t. The hostility of the Dublin 4 media/academia set to the construction industry reached such a level that the total destruction of the construction industry was what was sought, not an orderly reduction in output to a level that matched population-growth-driven demand, which, in comparison with other countries, was still high. This destruction was duly achieved, and new house-building in Ireland totally collapsed. The main weapons to achieve this were absurdly exaggerated estimates of falling population and absurdly exaggerated estimates of the number of ’empties’, which, when taken in combination, made it appear as if Ireland wouldn’t need to build any more houses for a decade at least. Indeed, Morgan Kelly himself said exactly that in one of his ‘ex cathedra’ encyclicals.

(g) Since then, builders and developers have been so demonised in Ireland, that no government has dared intoduce any measures designed to revive the construction industry. Had they done so, they would have been crucified by the media and accused of being in the pay of the by now demonised builders and developers.

(h) However, in recent months the ground has shifted. The census results demolished the ‘falling population’ claims abd the Dept of Environment reports showed that the number of ’empties’ was far smaller than claimed and falling. Ireland would soon need to resume house-building after all.

(i) Sean Gallagher’s surge in the polls indicates that the people do not share the Dublin 4 media/academia set’s loathing for builders and developers. That is why Dublin 4 is in a tizzy tonight, unable to believe what the polls tell them, and preparing to pull out all the stops in the next couple of days to demonise him too.

(j) If Sean Gallagher wins, the government should take that as an indication that it is now politically-safe for them to get the construction industry going again. If they do this, they may well actually benefit from the FF man’s victory. They should set targets of (1) bringing the number of new house completions annually up to at least the annual increase in the number of households, plus some more for second homes and obsolescence and (2) bringing construction output as a percentage of GDP up to the EU average as a minimum. It would, of course, take several years to achieve these targets, and I don’t under-estimate the difficulties in doing so, but those should be the targets, and, hopefully, after Thursday, there will no longer be any fear on the government’s part for the political consequences of declaring that these are indeed their targets.


How somebody could wish tor a revival of the construction industry and an increase of the inventory of empty buildings at this time is hard to understand.

How somebody could wish to leave half finished buildings all over the country, while over 200,000 buildings workers are unemployed and while there are 120,000 people on social housing waiting list is even more difficult to understand.

Of course it is not at all difficult to understand if the object of the exercise is to destroy the productive, human and social capital of this country and concentrate the productive resources of Europe in core countries.

In simple economic terms it works like this:
Approx 25% of the cost of houses is already spent.
The remaining 75% can now be ‘purchased’ at less than half the market cost as there will be a large social payment saving given that the workers are now unemployed and in receipt of social payments.

The end result is that this country will install ‘fixed capital’ for approx half the cost (or less) than other European countries, and thus become more competitive. [Just as the economists are ordering]
So it makes perfect sense if one considers the medium and long term rather than the short term.

On the other hand, it makes no sense at all to somebody with a debt collectors mentality, whose only interest is the immediate return of money whcih he considers due to him. [Wrongly due in Ireland’s case].

This is the ECB mentality. Get the money back if one has to tear down the entire continent.
It would not be first time the continent was torn down in a vain effort to get money back regardless of the human and social cost of so doing.
In the words of Oscar Wilde, such people:
‘Know the cost of everything, but the value of nothing’.


Bless you. If only those Dublin 4 malcontents would get out of the way, the future would be prosperous and glorious – and we could re-write the past at our leisure 🙂

@Paul Hunt

Bless you.

JTO again:

Bless you too.

You will have to agree that yet onother of my forecasts has proved uncannily accurate, where I said above:

“The Dublin 4 media/academia classes are in full panic mode at the weekend poll results and will have their character-assassination squads out in force over the next few days.”

They are on the rampage now. A mob, if ever there was one. I will lie low until they pass. Too soon to know if they will get their prey. Possibly explains why Dreaded_Estate has been too busy on other websites today to reply to my points. He has much bigger fish to catch.

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