In today’s Irish Times, Harry McGee reports the substance of Alan Ahearne’s recent presentation on the state of the Irish economy here.
Category: Economic Performance
Many have remarked on the negative effects of Ireland’s high price level on our economy. Intrepid Irish Times reporter Orna Mulcahy notes a new and hitherto unreported effect of our lack of price competitiveness and issues a call to economic patriotism:
At the hairdressers they’ve spotted a new trend – customers with homes abroad who have decided to decamp there for most of the summer, rather than the usual two or three weeks.
The word is that it’s cheaper and cheerier to be there – in Portugal, Spain, France, Italy or wherever, than it is to be at home, even if the husband has to commute. Some will only return the day before school begins again, which means that a good chunk of the salon’s cut and colour business is gone for the summer.
This flight of the earners means that their considerable spending power will be exercised abroad rather than at home – a place that’s increasingly seen as downbeat and depressing. This week’s disastrous unemployment figures, and comments that the economy is “banjaxed” (David Begg) and “brutal” (Ibec) may have speeded them on their way.
Paying for a blow-dry and booking another makes me feel positively patriotic.
Moving beyond the economic difficulties of those with second homes in Portugal and Spain, Orna also reports the disturbing problem of a reduction in the selection of Tea Time Express cakes at the Merrion Centre near Ballsbridge. On a more positive note, in today’s feel-good news story, the Spice burger has been saved.
David Begg of ICTU has responded to Sarah Carey’s article on job subsidies. The essence of his reply is twofold. First, he also thinks it’s a bad plan. He writes that
Carey is correct to point out that a “jobs subsidy scheme” of the nature she outlined would be disastrous. It would be a waste of vital taxpayers’ funds, it would do nothing to ease the jobs crisis and, of course, it would be wide open to corruption and abuse.
Second, the plan wasn’t his idea:
Unfortunately, where she went wrong was in attributing such an initiative to congress. The truth is that precisely this approach has been repeatedly proposed by employer and business groups. We have opposed such feckless initiatives from the outset.
Pete Lunn of the ESRI has an interesting article in today’s Times about public sector reform. Pete is sceptical aout the effectiveness of rigorously enforced targets for public service organisations and performance management for individuals. I think these arguments are worth discussing further. (Certainly, Tony Blair’s attempt to impose performance targets on the NHS didn’t seem to be very effective.)
I would guess, however, that whatever the merits of explicit targets and serious performance monitoring, the govenment will probably do well to get the public sector unions to agree to what Pete notes are the “straightforwardly sensible” reforms such as “developing more online services, sharing resources across public organisations, allowing freer movement of staff and, perhaps especially, basing promotion solely on merit.”
One example of this type of rigidity that prevails in the public sector is that there is little room for well qualified economists to join the civil service in the middle-ranking jobs that would be appropriate for them. More generally, the “generalist” philosophy of the civil service often doesn’t sit well with the employment of staff who want a career as a specialist in a particular technical area.
The latest Quarterly National Accounts release from the CSO is available here. The release has been poorly reported by the media outlets that I have seen thus far. The Irish Times reported that “The economy shrank by 8.5 per cent in the first three months of 2009” and this interpretation was repeated on the RTE 9 o’clock news.
The correct interpretation is hard to get wrong if you just take a look at the first page of the release, which says “Compared with the corresponding quarter of 2008, GDP at constant prices was 8.5 per cent lower.” So 8.5 percent is the cumulative decline over the past year rather than the decline that occurred over the first three months of the year.
The best read we have on what happened to the economy during the first quarter comes from the data on seasonally adjusted real GDP (though this is of course imperfect, given large revisions and uncertain seasonal factors, it’s the best we have.) This series declined 1.5 percent during the first three months of the year, not nearly as bad as the revised 5.4 percent decline that occurred during the fourth quarter of last year. So, while the year-over-year declines are unprecedented, RTE’s reporting of the story as implying the economy was contracting at an unprecedented pace during the first quarter is not correct.
In terms of forecasting for the year as a whole, Irish media and forecasters tend to focus on the year-average over year-average figure for GDP growth (averaging the four quarters of 2009 and comparing that to the average of the four quarters of 2008). An absolute best case scenario would be one in which GDP stays flat at its 2009:Q1 level for the rest of the year (so that technically, we would hit the bottom of the recession). This would imply a year-average-over-year average for 2009 of -5.8%. A more realistic scenario would see further declines on a par with the first quarter’s throughout the rest of the year. This would produce a year-over-year figure of -7.9%.
Today’s figures are actually a bit better than I would have expected in light of the big jump in unemployment during the first quarter. I now think we are slightly more likely to avoid a double digit decline in average over average GDP growth than I did beforehand.
The other indicator that most people focus on, GNP, perfomed far worse in the first quarter. Real GNP was down 12 percent relative to year earlier, declining by 4.5% in 2009:Q1 compared with a 3.4% decline in 2008:Q4. The CSO discussed the different pattern of this indicator as follows:
The estimate of GNP is derived by adjusting GDP for income flows between residents and non-residents. The timing of these flows can be variable. They include, in particular, the profits of foreign owned enterprises which increased by some €713m between Q1 2008 and Q1 2009. The increase, in this quarter, in the net factor income flows is also affected by (a) reduced credits (inward flows),compared to Q1 2008, to Irish outward direct investment enterprises and (b) increased interest payments on government debt. As a result, the decline in GNP was more severe than that in GDP.
Clearly, item (b) here is a pattern that is going to continue, though I’ve no insight into item (a). It seems to me that forecasting GNP is more difficult than forecasting GDP, so I won’t try, though obviously this series seems more likely to record a year-aveage-over-year-average decline into the double digits.