Seamus Coffey

Over the past week or so there have been a number of references to the fall in GNP that occurred in late 2011 as reported in the most recent set of Quarterly National Accounts released by the CSO.

Vincent Browne in particular has focused on the 7.1% fall in GNP recorded in Q4 2011 when compared to Q4 2010 as if it is indicative of some of cataclysmic collapse in the economy. The seasonally adjusted quarterly real change was a drop of 2.2% in Q4 but even that may not be reflective of changes in the economy.

GNP is often referred to as a better indicator of the domestic economy than GDP because it “excludes the impact of the multinationals”. That is not necessarily true. GDP includes the net exports of the MNC sector and it is worth noting that in 2009 the top 10 MNCs accounting for one-third of Irish exports and imports (see slide 14).

GNP does not remove the trading performance of the MNCs as a measure of national income; it adds in the effect of Net Factor Income from Abroad. This will, of course, be heavily influenced by the performance of the MNCs and the profits earned from their exports will largely exit in this fashion.

The point is that GNP can move because of a change in the export performance of the MNCs or a change in the profit repatriation decisions of the MNCs. The decisions of the MNCs have two avenues to impact our GNP figures. The assumption may be that one will offset the other but that is not necessarily the case.

If we look at the real seasonally adjusted changes in the components of GNP.

Component	Q4 2010	Q3 2011	Q4 2011	Annual	Quarterly
Consumption	20,983	20,400	20,506	-2.3%	+0.5%
Investment	4,277	3,702	4,221	-1.3%	+14.0%
Government	6,866	6,611	6,389	-6.9%	-3.4%
(C + I + G)	32,126	30,713	31,116	-3.1%	+1.3%
Exports	38,929	40,752	40,287	+3.5%	-1.1%
Imports	(31,397)	(30,639)	(30,319)	-3.4%	-1.0%
(X – M)	7,532	10,113	9,968	+32.3%	-1.4%
GDP	39,721	40,180	40,100	+1.0%	-0.2%
Net Income	(5,427)	(7,969)	(8,711)	-60.5%	-9.3%
GNP	33,925	32,225	31,523	-7.1%	-2.2%

The annual figures are poor and there is a €2.4 billion drop in quarterly GNP over the year. Although the seasonally adjusted figures are not additive it is instructive to do so to get an indicator of where the annual 7% drop came from.

All of consumption, investment and government have fallen but their sum contributes €1.0 billion of the drop. Net exports (driven by the MNCs) rose by €2.4 billion over the year but this was more than offset by a €3.3 billion reduction in net factor income from abroad.

A large proportion of the change in GNP is a result of changes in exports and net factor income. About 90% of our exports are from MNCs and you can use the Balance of Payments to track income flows (noting though that the this does not include seasonally adjusted data). It seems that the expected drop in the outflow of investment income in the final quarter of the year was not as large as anticipated, thus becoming a seasonally adjusted increase in the outflow of investment income as reflected in the table above.

If we look at the quarterly changes we see that both consumption and investment rose in Q4 2011 (although investment was at an extremely low level to begin with). This is not suggestive of an economy in freefall in the latter quarters of 2011.

Ireland national income statistics are hugely influenced by the presence of MNCs. Although GNP is a useful indicator it is important to realise that changes in GNP are not necessarily reflective of changes in the domestic economy. The CSO do provide tables on ‘Domestic Demand’ which is the bulk of the “Irish” economy (as opposed to the economy in Ireland) but that excludes the performance of indigenous exporting firms.