The latest national accounts data

I have been waiting for someone else to post on the national accounts data for 2013, available here, but no-one has yet, and it deserves a thread.

Real GDP, which as we know is mis-measured as a result of transfer pricing, declined 0.3% in 2013. Real GNP, which we learned last year has its problems too, was up by 3.4%. Nominal GDP rose by just 0.1%, which is not good for the debt to GDP ratio. Nominal GNP rose by 4%.

I guess that a marketing problem the government faces is that if it plays up the GNP numbers too much as being clearly superior, which I suppose we still believe they are (?), someone out there may start dividing our debt by GNP.

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14 thoughts on “The latest national accounts data”

  1. Thanks for the posting.

    Yes, Minister Noonan did highlight GNP and in the first statement from the Department of Finance, the growth was put at 4.5%. It was corrected on Thursday evening to 3.4%.

    There is a recovery but it’s not as strong as the employment data suggested.

    Despite PMI (purchasing managers’ index) surveys, industrial production and the CSO’s services index fell in 2013.

    Income tax also fell compared with the Dec 2012 budget target.

    The real jobs gain is likely about 30,000 – a still impressive total.

    Zero growth in 2012 and then like manna from the god, 5,000 jobs per month are being created??

    Employee numbers are up 22,000 from 2010 and data that self-employment is back to boom times, should be viewed with caution.

    Irish adjusted GNP in 2013 estimated at 1% compared with official level of 3.4%

    The rise in services exports resulted from an increase in tax-related virtual exports of €4bn net of royalties, the value is €2bn (indigenous services exports in the relevant categories are very low).
    Eliminating that would shave about 1.5% from GNP.

    Last year John FitzGerald estimated the impact of headquarter companies domiciled in Ireland on GNP in 2012 was +1%.

    I have assumed 1% is the impact in 2013 – it is likely higher as the addition of Eaton and Actavis alone in 2013, which have combined market caps of $70bn, 3.5 times that of CRH, would be material.

    So the resultant adjusted GNP is about 1%.

    Seamus Coffey in 2 tweets commented:

    GNP is odd but not because of Google. Microsoft etc as their profits excluded through net factor income flows. Impact GDP though.

    The small locally reported profit in the incremental exports is not material.

    Also, Apple figures do not distort exports as their tax arbitrage companies are non-resident! Do not appear in Irish stats.

    I cited a number of companies and left out others such as Oracle with annual revenues of about €7bn. eBay’s PayPal is rapidly expanding business services and so on.

    Apple does report some revenues and profits for Ireland and in 2004, Apple Inc reported global operating income of $326m; Apple Cork reported an operating profit of $393m.

    Cork revenues in 2004 were $3.3bn compared with Apple’s global revenues of $8.3bn.

    This is what was filed in the Companies Office before becoming unlimited.

    The key issue here is that the additional €3bn in computer services and €1bn in business services likely came from tax-related revenue diversions.

  2. The economy is in a better condition than it was largely due to some pent up domestic demand. However we are still extremely vulnerable to any downturn in the disfunctional EZ. While the US and UK have probably reached escape velocity, the EZ is heading nowhere very slowly.
    We need another existential crisis and soon.

  3. I did this in a letter published in the IT a few months ago:

    So, having used GDP as a key economic index throughout the boom, the ESRI appears to have switched to GNP because multinational profits are faltering.

    Does that mean that, to be consistent, we should also use Debt/GNP (currently 151%) rather than Debt/GDP (124%) as a key index and do we start measuring per capita prosperity using GNP (€29,600) rather than GDP (€36,900) ?

  4. The relevant debt/income ratio should take the whole tax base into account. The GDP GNP gap is mostly due to net factor income paid to non-residents. This is taxed in Ireland.

  5. GDP is the international standard for the comparison of national incomes and is also the denominator used in fiscal deficit and debt ratios. Nominal Irish GDP came in at €164bn, largely flat on the previous year and some €2bn shy of the official estimate, which means the debt ratio in 2013 will be a little higher than previously thought.
    The consensus expected real GDP in q4 to be around 2% higher than a year earlier but in the event it fell 0.7%. That makes it less likely that annual growth will average 2% this year, as per the Budget assumption (the consensus is slightly higher). Moreover, nominal GDP will have to rise by 4% to get to the €170bn projected in the Budget for 2014, which means the debt ratio may well end the year higher than anticipated.
    The Patent cliff obviously affected GDP, with the corollary that multinational profits were weaker ( down by €4bn last year with total factor outflows down by €7bn) which boosted GNP growth but consumer spending fell by over 1% last year despite the rise in employment. Deleveraging is proving a very significant drag on spending and no one knows when it will end.

  6. We have turned the corner and with continuing structural reforms and austerity I think that the plain people of Ireland know now this trend is set to continue. No more wasted money on public services. No more nonsense about fiscal multipliers. Just common sense policies.

    Congratulations to everyone involved.

    Of course these positive numbers were actually quite important, with even more fiscal tightening ahead and vast debts from the financial crisis (in what is effectively a foreign currency) negative year on year growth could easily undermine public and international confidence in the economy and hinder the important work of regaining competitiveness and living within our steadily diminishing means.

    Wait, did you say declined?

  7. @Kevin

    Gavin Kostick has gone AWOL and his jacket pocket is the repository for the legendary Irish Economy Blog Envelope, scrawled on the back of which are the forecasts generated by the Bullshit Defying Formula of Cynicism.

    I think an update is required.

  8. @ Kevin,

    The income gap between GDP and GNP is taxed. OK, the 12.5% CT rate might be ‘low’ but it is collected.

    From 2000 to 2009 the G*P gap averaged €23 billion. One-eighth of that is close to €3 billion. Keith Walsh has shown that the amount of Corporation Tax paid just by US companies over the same period averaged €1.7 billion per year. The profits earned here by non-residents are taxed at 12.5%.

    Ireland is willing to tax profits that are earned here, albeit at a low rate. Ireland is unable to tax profits that are not earned here.

    Yesterday’s BOP showed that the outflow of direct investment income on equity in 2013 was €35 billion. I would venture that will account for most of the Corporation Tax paid on 2013 profits in Ireland.

  9. @ Seamus Coffey

    Ireland is willing to tax profits that are earned here, albeit at a low rate. Ireland is unable to tax profits that are not earned here.

    When revenues are diverted to Ireland and booked as exports and output, huge intercompany charges to reduce reported profit in Ireland are not likely not seriously investigated by the Revenue.

    The fact is that Ireland doesn’t want to tax some of what flows through the system.

    International flows are a hodge podge and outward FDI is greater than inward FDI.

  10. @ MH,

    As such charges exist the income doesn’t accrue in Ireland.

    I agree that international flows are a hodge podge but how much would you pay for Google’s global rights? I would sign a contract at 95% of revenue in a flash. How much would you bid?

  11. @grumpy

    Gavin Kostick has gone AWOL and his jacket pocket is the repository for the legendary Irish Economy Blog Envelope, scrawled on the back of which are the forecasts generated by the Bullshit Defying Formula of Cynicism.

    While no one can replace Gavin the budget projection for GDP growth in 2013 was 1.5% in 2013 and -0.3 in reality. If the growth projections for 2014 show the same degree of Kosticity we will be looking at 0.3% growth in 2014.

    http://budget.gov.ie/budgets/2013/Documents/Budget%202013%20-%20Economic%20and%20Fiscal%20Outlook.pdf

    Pretty serious…stuff.

  12. In retrospect, high GDP growth was not a good indicator of economic wellbeing in Ireland from 2000-2007. So why do we still think this metric is the ultimate arbiter of national economic policy success?

    GDP growth figures say nothing of the longevity or harmfulness of that growth. A country that produces one million euros of electricity from solar panels is measured the same as a country that produces one millions euros of electricity through burning coal, ignoring the pollution and depletion of a finite resource.

    GDP is boosted when countries borrow and spend, so profligacy becomes a virtue. According to this logic, the faster we consume our resources, the richer we become. Am I missing something here?

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