National Income: 2 – From Production Value to Added Value – Getting to GDP

Last time, we looked at the production value in Ireland’s national accounts.  Between market and non-market output this is estimated to have been €790 billion in 2021.  This represents a lot of activity but, just like turnover, there is also a lot of double counting in production value.  The classic textbook example is the loaf of bread where the aggregate production value is the sum of the output of the farmer who grows the wheat, the miller who makes the flour, the baker who makes the bread and the retailer who sells it.  Adding up aggregate value of their production does not give us the income of those involved as each stage includes the production value of the stages that preceded it.

Intermediate Consumption

To better reflect the value that is produced at each stage we must subtract the costs of current goods and services purchased for use in production.  For the farmer this is the seeds, for the miller it is the wheat, for the baker it is the flour for the retailer it is the actual loaf of bread.  We have already subtracted the cost to the retailer of buying the loaf of bread with the deduction for goods and services sold in same condition as purchased. But for the other stages of production goods, and services are purchased and are transformed or used in the production process.  These purchase of these goods and services is referred to as intermediate consumption.  Subtracting intermediate consumption from production value gives the value added at each stage of production.

We might like to include some government services as intermediate consumption.  Policing, the legal system, roads and other government services contribute to firms’ ability to produce output.  However, we have no way of dividing such collective services into the amount used by households and the amounts used by firms.  Thus, it is assumed that all government services are final services consumed by households.  This leads to an underestimate of intermediate consumption.

In 2021, the intermediate consumption in the Irish economy was estimated to be €390 billion.  Gross value added in the Irish economy is estimated to have been around €400 billion.  Thus, the €1 trillion of turnover resulted in gross incomes (for persons or businesses yet to be determined) of around 40 percent of that amount.

Taxes and Subsidies on Products

Almost every transaction we enter involves taxes of some form of another, or at least they should.  The buying or selling of goods and services is no different.  It can be argued that this is part of the value of a transaction – it must be if the final user, such as the consumer pays it – but it goes to neither the worker nor the business owner; it goes to the government.  In 2021, taxes on products came to €26.5 billion.  On the consumption side this includes VAT (€16.5 billion), Excise Duty (€6 billion) and EU Customs Duty (€0.5 billion), while for capital transactions Stamp Duty (€1.5 billion) is included.  As these are included in the expenditure of final users they are added to GDP.

On the other hand, the amount of product subsidies paid by government is subtracted from GDP.  In Ireland, these include subsidies for public transport, health insurance and third-level education.  A total of €1.5 billion of such subsidies were paid in 2021.

Double Counting?

In several places above emphasis was placed on the need to avoid double counting.  However, it appears we are doing just this with the inclusion of taxes on products in GDP, at least from the perspective of production.  These taxes are collected by government and go, in part, to fund the production of the non-market output such as government provision of health and education services.  So, given that we have already included the production of such services in GDP is it double counting to also include in GDP taxes that are used to fund them? 

In a sense, it is. Consider a hypothetical situation where the government abolished VAT and Excise Duty but required households to pay directly for health services used.  Let’s just assume that nothing else changes.  The production of non-market output will fall by €22 billion but this will be offset by a €22 billion rise in market output.  However, there will be a €22 billion reduction in the amount of product taxes added to GDP.  In aggregate terms, production is still the same but nominal GDP is lower.  And, in the simple case of no other changes, all that has happened is that the method of paying for what is produced has changed – there has been an institutional change.  Of course, GDP in volume (or real GDP) is unaffected as the tax and price changes will be picked up by the deflators.

Irrespective of where the economic incidence lies, taxes on products are certainly included in the market price of output and form part of the expenditure of final users.  Also, if there was some way of excluding VAT from consumption expenditure, then there would be no direct way of determining the household savings rate and related measures.

Of course, it could also be argued that the subtraction from GVA of subsidies on products to get GDP leads to an undercounting.  Again, the reason for doing so is the desire for an equivalence between the output and expenditure approaches to GDP.  So, it is not so much that the inclusion of taxes and subsidies on products leads to a double counting in or undercounting of GDP; it is more a desire to maintain the equivalence between the different approaches to measuring GDP.  Here we have seen it in terms of the output approach, but it also arises with the income approach when taxes and subsidies on production affect the factor income earned from production.

Could taxes and subsidies on products be excluded from GDP? Yes. However, that would lead to a gap between the output and expenditure approaches to measuring GDP.  There is an attractiveness in having a theoretical equivalence between the different approaches to measuring GDP.  However, a wedge caused by taxes means that in practice they will not be equivalent.  Thus, one can view the tax adjustments being our effort at making them equivalent.

Under-Counting?

The system of national accounts is based on production and output.  Consumption plays a role but only the consumption of output that is counted in production is included.  As noted, this is derived on turnover and intermediate consumption. 

The contribution of the Encyclopaedia Britannica to value added was the company’s turnover from the sales of its volumes minus its intermediate consumption to produce them.  This would have declined as users switched to online options, such as Encarta and latterly Wikipedia, and in 2013 the company announced it was ceasing the production of printed volumes.  This ended the contribution of printed encyclopedias to GDP.  What contribution does Wikipedia make to GDP? Very little actually.

Wikipedia does not have a turnover in the sense of charging for the services it provides.  Wikipedia is a non-profit entity.  For the user-value produced, Wikipedia has a relatively modest wage bill.  These costs are covered by donations.  The production focus for GDP means there is an emphasis on costs rather than benefits.  It is likely that Wikipedia provides much greater benefits than Britannica, if only because of the number of people who can access it, but makes a smaller contribution to GDP.  If Wikipedia was to collapse, GDP would be largely unaffected, but the significant value users get from the service would disappear.  GDP is a measure of production based on prices not consumer surplus based on benefits.

Similar outcomes can be seen for other digital technologies such as search engines.  Users derive huge benefit from search engines, but because they are provided for free they make little direct contribution to GDP.  Users perform billions of searches on Google each day but the value of this service consumption is not included in GDP.  For GDP, Google is mainly an advertising company.  In national accounts, Google’s turnover is the mainly the amount it collects in advertising revenue.  This is a significant amount but will be well below the value users get from using the services that Google provide.

This suggests that, similar to government services, the value of certain private services may be undercounted in GDP.  While true this is not necessarily a reason to discard GDP. GDP has limitations because of what it is: a measure of output that can contribute to national wealth. GDP is a flow that can lead to changes in national wealth, and there are other things that can change national wealth.

The output included in GDP should give rise to something that can be included on a national balance sheet.  If Wikipedia and Google give their main products away for free, then that means there is no direct way they can give rise to something that can be included on a national balance sheet.  In one sense, this means that GDP undercounts the value of these services. It does. But in the sense that GDP was created for, it more accurately reflects the value of the output produced that gives value that can be added to national wealth – though not necessarily of the country in which the output is produced.

Anyway, after those few digressions, we can now see how production value is translated into value added and subsequently into GDP.

The Output Approach to GDP

Using the output approach gives us Gross Value Added (that will go to persons and businesses) and adding the government net take from taxes and subsidies on products to GVA gives us Gross Domestic Product (GDP). 

  ITEM €million
  Production Value 790,000
less Intermediate consumption (390,000)
equals Gross Valued Added at basic prices 400,000
plus Taxes on products 26,500
less Subsidies on products (1,500)
equals Gross Domestic Product 425,000

This is an important measure of an economy and taking the components of the phrase in reverse we have:

  • Product: the value added of the output produced (including taxes)
  • Domestic: activity that that takes place within a country’s borders
  • Gross: before depreciation or the cost of replacing capital used

Irish GDP in 2021 was around €425 billion.  With a population of 5.1 million this is just over €85,000 for every man, woman and child in the country.  With an average of around 2.4 million in employment during the year, it is about €180,000 per worker.  GDP is one of many Irish macroeconomic indicators that is distorted by the presence of MNCs here.  Our next journey will be the steps to go from GDP to national income.

National Income: 1 – From Turnover to Production Value

In aggregate terms, Ireland’s national income in 2021 was around €230 billion (using modified Gross National Income, GNI*). This comes from an economy where the aggregate turnover is probably around €1 trillion. There is a lot of money flowing around but as is often quoted but rarely attributed: “turnover is vanity, profit is sanity and cash is reality.”

The table shows a progression from turnover to production value. All bar the top two rows are in line with the latest estimates for 2021 from the CSO. Aggregate figures for turnover and for the cost of goods and services purchased for resale in same condition as received are not provided by the CSO within Ireland’s national accounts but the figures shown are within the ballpark. Turnover is not significant within the national accounts framework where the emphasis is on production, value added and income. The sequence shown isn’t how the national accounts are compiled but can serve as a setting off for examining where our income comes from.

Goods and Services Purchases for Resale in Same Condition as Received

Of the roughly €1 trillion of turnover in the Irish economy in 2021, around €300 billion was due to the selling, both wholesaling and retailing, of goods and services that somebody else made. Those doing the selling are looking to gain a small margin. The wholesale sector in Ireland (G46) has a turnover of around €150 billion, some of which is linked to MNC-activities, while the more domestically-orientated retail sector (G47) has a turnover of around €50 billion. Both have operating margins in the low single digits. It will also be the case that the same goods will be included in the turnover of both. The turnover of wholesalers includes sales to retailers and the turnover of retailers is based on the sale of those same goods to customers. Subtracting the cost of goods and services sold in the same condition as purchased leaves around €700 billion of turnover from goods and services that are made – market output. This is the value of output that is produced for sale at market prices.

Non-Market Output

There will also be output that does not get picked up in turnover. There are two main types of non-market output. There is output that is produced by someone for own final use and output that is produced for sale at prices that are not economically significant.

There are lots of activities that could be included in production for own final use and around €35 billion of such activity was included in the national accounts for 2021. One of the main elements is the housing services that owner-occupier households provide to themselves. Owner-occupiers do not buy the housing services that they consume, but instead own the asset that produces them. An imputed value is included in the national accounts for the housing services produced, and consumed, by owner-occupier households. These are based on market rents and around €18.5 billion of such imputed rents were included in non-market output in 2021. Household cooking and cleaning undertaken by workers who are paid is also included in output but any cooking and cleaning done by households themselves is not.

Firms can also produce output for their own final use but as firms do not undertake final consumption their output for own final use only includes capital assets, as capital formation is a final use. Firm may have in-house production of capital assets such as machinery, software, and research and development. They do not sell the capital assets produced but use them in their own production. The 2021 figure is not yet available but in 2020, businesses in Ireland in the industry sector (NACE C) produced around €15 billion of capital assets for their own final use.

There is also non-market output which is provided at prices that are not economically significant (which includes having no price at all). The most important component of this other non-market output is the provision of health, education, and other services by the government sector. There will also be some non-market output from non-profit institutions serving households. In total, the value of such non-market output was estimated to be €50 billion in 2021. As there is no market price this value is based on the costs of production, of which labour costs will be the most significant in many instances.  While consistent and measurable, the sum-of-costs approach does mean that such non-market output can potentially be undervalued relative to output included using market prices.

Changes in Stocks

As we want to get the production value within a particular time period (such as a year) an adjustment is made for changes in stocks. It could be that some of this year’s turnover is derived from the sale of goods made last year (i.e., a decline in stocks) or there could be output made this year that is not sold (i.e., an increase in stocks). In 2021, it is estimated that more output was produced during the year than was sold during the year which resulted in a positive figure for the change in stocks, of around €5 billion.

Production Value

Adding these four items: market output (€700 billion), output for own final use (€35 billion), other non-market output (€50 billion), and changes in stocks (+€5 billion) gets us to the total value of goods and services produced in the economy and included in the national accounts. Thus, the value of production in the Irish economy was estimated to be €790 billion in 2021. In a future post, we will pick up the sequence and follow how this production value is transposed into GDP and subsequently to National Income.

A Consolidated-by-Nationality Approach to Irish Foreign Exposure

Andre Sanchez Pacheco (Trinity College Dublin)

How exposed is Ireland to foreign shocks? Relying on residence-based measures of foreign holdings to answer this question can be challenging. These statistics are obscured by the vast presence of Special Purpose Entities (SPEs) in the country. In residence-based statistics, foreign assets and liabilities are sorted according to the residence of the immediate counterparts. Consequently, the cross-border positions held by these Irish-resident financial intermediaries appear in Ireland’s external balance sheet. However, these entities frequently have no economic ties to Irish agents. Lane (2019) notes that the large size of these holdings imply that the positions of Irish agents are not visible in the headline data. Such opaqueness poses an obstacle for policymakers when assessing the exposure of the Irish economy to foreign shocks.

Consider a foreign-owned SPE resident in Ireland whose sole purpose is to raise capital from international investors and transfer these resources to the company’s headquarters located abroad. Suppose this Irish-resident company sells one billion Euros in bonds and lends one billion Euros to its parent company. Under the residence-based approach, the bonds issued by this entity and purchased by international investors will be recorded as Irish foreign liabilities. Similarly, the loans sent to its home country will be booked as Irish foreign assets. As a result, the presence of this SPE in Ireland will increase the sum of Irish external assets and liabilities by two billion Euros. However, the activities conducted by this company have virtually no relation to Irish agents. In line with this example, Galstyan et al. (2021) provide evidence of cross-country financing happening through Irish-resident SPEs.

Alternatively, one could rely on consolidated-by-nationality statistics to provide a more accurate description of Irish foreign exposure. Its key principle is to sort foreign assets and liabilities according to the nationality of the ultimate counterparts. In this example, such approach would imply leaving the holdings of the SPE out of Ireland’s consolidated foreign balance sheet as these holdings do not have Irish agents as their ultimate counterparts. By not incorporating such holdings, the consolidated-by-nationality balance sheet would provide a more accurate description of the foreign exposure related to Irish agents.

In Sanchez Pacheco (2021), I construct the Irish consolidated-by-nationality foreign balance sheet for the period between 2011 and 2019. The balance sheet is constructed using a novel methodology that builds on firm-level data.

Figure 1 shows the size of Ireland’s balance sheet measured by the sum of its foreign assets and liabilities using both methodologies. The key stylized fact that emerges from this analysis is that Ireland’s consolidated-by-nationality foreign balance sheet is on average 46.7% smaller when compared to its residence-based analogue. Devereux and Yu (2020) show that international financial integration increases the degree of cross-country contagion. Therefore, I interpret this finding as indicating that Ireland is less exposed to foreign shocks than what is captured by residence-based statistics.

Figure 1: Sum of Ireland’s foreign assets and liabilities

Note: This figure shows the evolution of the sum of Irish foreign assets and liabilities. The blue line shows such sum when calculated using the consolidated-by-nationality approach in Sanchez Pacheco (2021). The black line comes from Lane and Milesi-Ferretti’s External Wealth of Nations database and shows the sum when calculated using a residence-based approach.

The role of multinationals

Ireland’s consolidated foreign balance sheet expanded over the past ten years. What were the key drivers behind such expansion? Figure 2 shows the evolution of Irish consolidated foreign liabilities according to different categories. It shows that affiliates of foreign non-financial multinational enterprises (MNEs) were the key contributors to such expansion.

In general, foreign non-bank MNEs represent the main source of Irish international financial integration. In 2019, their activities are associated with EUR 923.2 billion in Irish foreign assets and EUR 2,172.1 billion in foreign liabilities.

Figure 2: Ireland’s consolidated foreign liabilities

Note: This figure shows the evolution of Irish consolidated-by-nationality foreign liabilities related to each category. Foreign companies that have changed their domicile to Ireland are excluded from the sample.

The outsized presence of U.S. MNEs in Ireland

Of that amount, U.S. MNEs are the most relevant ones as their activities account for over half of the Irish foreign liabilities related to foreign non-banks. Figure 3 shows Ireland’s consolidated foreign holdings related to the activities of foreign non-banks MNEs according to the nationality of their ultimate owners. U.S. firms are followed by German and U.K. firms in distant second and third places.

This result suggests that Ireland is particularly exposed to shocks in the U.S. that affect the global decision-making of these MNEs.

Figure 3: Ireland’s consolidated foreign assets and liabilities related to foreign non-banks MNEs

Note: This figure shows Irish consolidated foreign assets and liabilities related to foreign non-banks operating in Ireland for 2019. Foreign holdings are sorted according to the ultimate counterpart countries that own these companies operating in Ireland. These holdings are estimated using data from Bureau van Dijk’s FAME data-set.

Conclusion

Residence-based measures of Irish foreign holdings are obscured by the vast presence of financial intermediaries in the country. Alternatively, I construct an estimate of the Irish consolidated-by-nationality foreign balance sheet for the period between 2011 and 2019. I find that Ireland’s consolidated-by-nationality foreign balance sheet is on average 46.7% smaller than its residence-based analogue over the sample period. This result indicates that Ireland is significantly less exposed to foreign shocks than what is typically suggested by residence-based statistics.

This paper is part of the Consolidated Foreign Wealth of Nations project that seeks to create publicly available estimates of consolidated-by-nationality foreign assets and liabilities for multiple countries. This dataset will complement the seminal External Wealth of Nations work by Lane and Milesi-Ferretti which provides estimates of residence-based external holdings for all countries.

Contact email: sanchean@tcd.ie. The author would like to thank the Irish Research Council for the financial support provided.

Central Bank Quarterly Bulletin 4, 2020

A guest post by Enda Keenan from the Central Bank, highlighting some of the key messages from Bank’s latest Quarterly Bulletin.

Today the Bank published its fourth and final Quarterly Bulletin for 2020. The report contains a detailed overview of developments in the economy since the publication of last Bulletin in July as well as our latest macroeconomic forecasts out to 2022.

The forecast for GDP growth has been revised upwards to -0.4 per cent in 2020 reflecting more positive developments in consumption, strong export performance and an enhanced level of fiscal support arising from the July stimulus package. Growth prospects for next year and 2022 are more subdued compared to the previous Bulletin due to the implications of a WTO Brexit. As outlined Box A, a disruptive transition to a WTO trading relationship would frontload associated output and employment losses. In this baseline scenario, the growth rate of the Irish economy is 2 percentage points lower in 2021 relative to a Free Trade Agreement due to the introduction of tariff and non-tariff barriers. The ILO unemployment rate is projected to average 5.3 per cent for this year, rising to 8 per cent in 2021 following the closure of income-support schemes at the end of the first quarter (Box D in the Bulletin discusses the challenges that arise for measuring unemployment in the time of COVID-19).

Since re-opening from a period of lockdown, the recovery of the Irish economy has been uneven as levels of domestically focussed economic activity remain well below pre-pandemic levels. In particular, consumer-facing services sectors, such as tourism, hospitality and retail services, which are also more labour-intensive, have been slower to recover contributing to a projected decline in underlying domestic demand of 7.1 per cent this year. The strong performance of exports, which are expected to decline by just 0.3 percent in 2020, is the main factor driving an upward revision in the baseline projection for GDP. Box C details the relative resilience of high-value exports such as computer services and pharmaceuticals during a period of declining trade-weighted world demand.

The Central Bank’s Business Cycle Indicator (BCI), a monthly summary indicator of overall economic conditions estimated from a larger dataset of high-frequency releases, fell sharply during the months of March and April reaching a historical low (Figure 1). The latest estimates show that economic conditions continued to improve into July and August, but the rate of recovery has slowed down. Despite the improvement over the four months to August, the overall level of the BCI remains substantially below that observed prior to the emergence of the COVID-19 crisis.

Figure 1: Business Cycle Indicator (BCI) for Ireland’s Economy

The outlook remains highly uncertain, depending not only on the economic consequences of COVID-19 and its containment, but also on the nature of the trading relationship between the EU and the UK. Recognising this uncertainty, Box E analyses the impact of a ‘severe’ COVID-19 scenario as an alternative to the baseline forecasts in which there is a strong resurgence of the pandemic, leading to the restoration of widespread and stringent containment measures for a more prolonged period. Underlying domestic demand is projected to fall by 8.5 per cent in 2020 in this case with a continued contraction of -1.3 per cent into 2021. While the economy does not begin to recover until 2022, underlying domestic demand remains 6 percentage points below 2019 levels. In the ‘severe’ scenario, the unemployment rate rises to 12.5 per cent in 2021 before moderating to 10.1 per cent the following year.

The bulletin also contains analysis on the latest income tax developments and measurement difficulties for the unemployment rate arising from COVID-19.

Household wealth in Ireland: results from the 2018 HFCS survey

Guest post by David Horan (Central Bank of Ireland). Disclaimer: this blog post represents the author’s views and not those of the Central Bank of Ireland or the European System of Central Banks.

The Central Bank has published a Research Technical Paper on household wealth in Ireland: “Household wealth: what is it, who has it, and why it matters” (Horan, Lydon & McIndoe-Calder).

The paper uses data from the latest wave of the Household Finance and Consumption Survey (HFCS 2018) to track changes in the financial position of Irish households between 2013 (the last survey) and 2018. The CSO carries out the survey in Ireland. It is part of a wider cross-country project examining household wealth, income and consumption, coordinated by the ECB.

While carried out prior to the outbreak of COVID-19, the HFCS survey provides insights into issues relevant to the assessment of the economic impact of the pandemic on Irish households. For example, the data highlight the improved financial position and resilience of households prior to the COVID-19 crisis, than was the case leading into 2008. Moreover, these data highlight distributional considerations and differences between households that align with the asymmetrical effects the COVID-19 induced economic shock has had on households, including along age, employment sector and housing tenure status dimensions.

Key developments between 2013 and 2018
When comparing changes between 2013 and 2018, it is important to consider the economic context under which both surveys were conducted. In many respects, 2013 reflects the low point of the recession following the financial crisis; by 2018 the economic recovery was well underway. With this in mind, it may come as little surprise that the financial position of many households in Ireland improved considerably between waves.

We observe that household net wealth grew by over €76,000 for the median household – or by 74 per cent – to €179,200 between 2013 and 2018.  House price growth and declining mortgage debt were the primary drivers of this development.

Net wealth increased across the entire wealth distribution, while inequality, as measured by the gini coefficient, fell between waves. Key to this was the decline in negative equity, which fell from 33 per cent of mortgaged households in 2013 to 4 per cent in 2018. Median gross household income surpassed its previous peak in 2007, reaching €47,700 in 2018. Combining household wealth and income, we find the two are closely linked and that relatively higher income households also tend to be wealthier households — although the relationship is not one-for-one. 

Economic implications
Compared to 2013, households were more resilient in 2018, with debt to asset and debt to income ratios falling significantly between survey waves. These improvements are particularly pronounced for those between 30 and 49 years of age. The debt service burden – the cost of servicing debt repayments to (gross) income – has also fallen since 2013, primarily due to rising incomes. Net liquid assets – the sum of liquid assets less non-collateralised debt – are a commonly used financial buffer metric. The proportion of Irish households with net liquid assets increased to 72.6 per cent in 2018, while the median value of these financial resources increased from €2,000 to €3,000 2018.

To better understand the resilience of indebted households to negative shocks, Table 1 shows the proportion of households by debt-service bucket in 2018, where savings account for at least three mortgage payments. Over two thirds (67.8%) of lower debt service households – that is households with mortgage repayments less than 5% of their gross income – have savings at least three times that of their regular mortgage repayments. Looking at households with the highest debt service ratio (>40% of income), we find that 42% of these households have savings of at least three times that of their regular mortgage repayment.

Turning to household spending patterns, we find that the gross income share that households regularly spend on goods, services and housing varies substantially by income. The average household spends about 80 per cent of their income. Those in the bottom income quantile, on average, report spending more than their income on regular expenses. For the 13% of households that report having expenses greater than their income, typical strategies employed to bridge the gap include using savings, especially for middle income households; getting help from friends and family, especially for lower income households; and using credit cards and overdrafts.

In line with other data sources, homeownership rates have fallen while the share of those renting accommodation has risen. Over 60 per cent of recent owner-occupier home-buyers were under the age of 40 at time of purchase. Almost 30 per cent of recent buyers report receiving an inheritance or gift within three years of their house purchase with a median value of €25,000 (self-reported). The prevalence of inheritance was lower for older borrowers, however the amounts they received tended to be higher.

House price developments play a key role in changes in the net wealth position of Irish households. The ‘collateral channel’ argues that wealthier households have easier credit access. We do find that households are less credit constrained in 2018, which holds true for younger and older households, and for homeowners and renters. Although we cannot rule-out improvements on the supply-side as a driver of this development.

In the mid-2000s, housing equity was used by many households to fund both consumer spending (often on durables) and investment (often in more housing). This peaked in 2006/07, when the value of housing equity withdrawal for the household sector was equivalent to some 10 per cent of income. When house prices fell sharply, this had real effects on spending and investment. In the paper we show that, despite housing wealth in 2018 exceeding previous highs, the household sector as a whole continues to inject as opposed to withdraw equity. In 2018, injections were running at around 10 per cent of income (Figure 1). This reasons for relatively large ‘injections’ include the continued repayment of long-lived, large debts from the early-/mid-2000s, and a far lower level of top-up borrowing relative to the past.

The paper highlights several potential areas of future research using the HFCS data*. For example, we provide useful insights into how households can withstand unexpected income shocks and the financial resilience of households, which are particularly relevant in light of the COVID-19 crisis.

In many respects, we can see that households are better placed going into 2020 than they were leading into the last crisis in 2008. Given the healthier position of many household balance sheets in 2018. Our work indicates that, if house prices and/or incomes falls, we would not expect household debt to drag on spending in the same way it did going in to 2008. Incomes developments are therefore likely to be the primary determinant of consumer spending when the public health threat from COVID-19 recedes. Understanding the distribution of income shocks within the context of household wealth and income position will be important going forward.  

(*) Datasets for research and analysis are available from both the CSO (the HFCS RMF) and the ECB. The ECB dataset also includes cross-country data for most countries.