Implications of QNA Release for 2009

As I noted before, the 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).   This figure is important for thinking about things like income tax revenue, which is levied on a calendar-year basis, but it can be misleading as an indicator of the economic growth taking place in the economy during a particular year.  This is because if GDP has fallen a lot coming in to the year, then the average level may be lower than the previous year, even if GDP starts to recover.

This situation exactly applies to measuring the Irish economy right now.  In news that will hardly be surprising to anyone who reads a newspaper, today’s QNA release shows that Irish GDP fell off a cliff in 2008:Q4, with seasonally adjusted real GDP falling 7.1% in 2008:Q4 relative to 2008:Q3—not at an annual rate.   This “base effect” will make the average-over-average figure for 2009 a very poor measure of underlying economic growth.  Here’s some quick calculations.  If Irish GDP stays at its 2008:Q4 level throughout the year (i.e. if we hit bottom in 2008:Q4 and managed to stay there for the year), then average-over-average GDP growth for 2009 would be exactly -5%.

Of course, all the incoming statistics suggest that the economy continued to contract rapidly in the first quarter this year—At 10.4 percent in February, the umployment rate has already risen by 1.8 percentage points since the December level, compared with an increase of 1.4 percentage points between September and December.  If GDP posted another 7 percent decline in 2009:Q1, then even a flat level of GDP for the rest of the year would imply an average-over-average growth rate of -11.6%.

An optimistic scenario would hope that the unemployment figures in the first quarter represent more of a lagged effect and hope to limit declines in the first half of the year to two percent in each of the first and second quarters, followed by a return to growth at, let’s say, a 3 percent annual rate.  This would still imply an average-over-average growth rate of -7.8% for 2009.

I think it’s time for those that use the average-over-average figures to revise their forecasts down.

Q4 2008 Macro/BOP data from CSO

The CSO has released new data today in relation to Q4 2008 and preliminary annual data for 2008.  As per Karl Whelan’s preference,  I will briefly focus on the Q42008-Q42007 annual changes.  The year-on-year decline in GDP is 7.5 percent (GNP declined by 6.7 percent).    The current account has declined from a Q42007 deficit of 5.8 percent of GDP to a trivially-small deficit of 0.3 percent of GDP in Q4 2008.

The National Accounts data release is here.

The BOP data release is here.

Brian Lucey honoured

Brian made it into the global Top 200 Young* Economists according to IDEAS/RePEc

*Active for less than 10 years

Irish trade statistics still looking good, but…

Kevin O’Rourke has drawn our attention on a number of occasions in this blog to the collapse in world trade and its implications for the depth of the recession. Yesterday, the Financial Times reported that the World Trade Organisation was predicting a 9% drop in the volume of world goods trade this year, the largest drop since the second world war. Today, it reported that Japanese exports have halved compared to a year ago.

Against this backdrop, Irish external trade statistics have been remarkably healthy, albeit two caveats are in order. First, although Japan can report its February trade statistics today, the latest trade statistics on the CSO website (last updated 27 February) refer to December 2008. Presumably the January figures should be published in the next few days. Second, we only get monthly trade statistics for merchandise trade, even though the value of services exports is now about 75% of the value of merchandise exports, so the merchandise trade statistics only tell half the story.

Continue reading “Irish trade statistics still looking good, but…”

The FT on Ireland

The Lex column in today’s print edition of the FT was pretty sniffy about the Irish public finances.  However, it is interesting to read the new contribution by columnist Quentin Peel who does a ‘compare and contrast’ between Ireland and Greece, praising the Irish government for at least trying to face up to its predicament.