Nominal GDP

Since debt contracts are written in nominal terms,  nominal GDP matters for debt dynamics.  It is worth noting that the projected path for nominal GDP during 2011-2013 in the new CB QB is substantially higher than in the April 2012 Stability Programme Update.

In the SPU,   nominal GDP values are 156.5 bn in 2011, 158.9 bn in 2012, 164.2 bn in 2013

In the CB QB,  these are 158.9 bn in 2011, 163.4 bn in 2012, 168.3 bn in 2013

The 4.1 bn difference in the projected 2013 values will influence the plans for the December budget.

8 replies on “Nominal GDP”

Nations like the US and Britain did not formally default to get rid of their debt overhangs after WWII – they inflated their way out of the problem.
I predict the same will happen in the US and Europe in the years ahead.


‘Since debt contracts are written in nominal terms, nominal GDP matters for debt dynamics’.

Nominal GDP does not matter very much for (I presume you mean sovereign) debt dynamics. What matters is the path of the nominal tax base. This may or may not follow the path of nominal GDP.

There are (almost) no taxes on output. We all use debt/GDP ratios, perhaps because the EU does, but there is no sensible reason to do so in Ireland. Forecasts of the tax base (income of domestic agents, domestic expenditure, a small bit of expatriated profits) would be far more helpful in assessing debt sustainability than forecasts of GDP. Irish debt sustainability does not look so plausible when the denominator is taxable capacity, and GDP is a flatterring measure of taxable capacity.

Hmm, so nominal GDP in 2011 of 158.9bn

Real GDP growth in 2012 of 0.5% giving you 159.7bn

Suggesting inflation of 2.3% to give you 163.4bn

Inflation running presently at 2.0% but we will have a 9% gas hike this month and electricity seems set to rise (on this side of the Border, it’s falling in NI)

But does the Central Bank know something about mortgage interest rates which comprise 6% of the CPI weighting? The outlook for ECB rates is neutral or a reduction, so are standard variable rates set to rise further? Are we going to see a migration in the Irish banking sector from relatively low EU mortgage interest rates to rates more comparable with the EU average?

@Jagdip Singh

“so are standard variable rates set to rise further?”

Yep. Been working on the spin around that one since the spring. Drip, drip, drip. Seems to be going quite well so far – a few basis points here, a few there a couple of months later. Haven’t seen anyone out on the streets. It wouldn’t have worked in Spain/France/Greece/etc. of course but you can get away with all sorts where the Irish population are concerned…… as old Lenny Lenihan used to say, “If this had been France….” The Irish just grumble then change channels.

And don’t think the lenders have given up on being able to do something about those loss-making trackers either. M’learned friends are constantly kept in fees running their beady eyes over one proposal or another. Potential changes are constantly being tested.

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