The quarterly national accounts for 2011:Q1 have been released. They show seasonally adjusted real GDP increasing 1.3% quarter over quarter and seasonally adjusted real GNP falling 4.3% over the same period.
Smoothing through the volatile quarterly series, looked at on a year-over-year basis, real GDP was up 0.1 percent and real GNP was down 0.9 percent.
Overall, the picture seems to be one of an economy in which output has stabilised. Given the substantial negative headwinds (fiscal contraction, falling credit, debt overhang and a frozen property market) this is a pretty good performance. Still, it seems too early to say that the economy is about to produce a period of job-producing growth.
With all that was going on in Brussels, the fourth-quarter QNA release got less attention than might have been expected. As usual, the numbers don’t all point in one direction. And also as usual, the quarterly numbers must be treated with caution given their volatility and propensity for revision.
The annual declines in real GDP (1 percent) and real GNP (2.1 percent) received the most coverage. But the annual numbers can give a misleading picture when the economy is at a turning point. A better measure is the percentage change over the same quarter of the previous year. I linked to these graphs on the thread following the release. The noticeable turnaround in real GNP is encouraging (up 2.7 percent on quarter four of 2009); less encouraging is the 0.6 percent decline in real GDP, with the overall performance dragged down by a poor final quarter.
The final graph in the set shows again the “two economies” reality of recent Irish growth performance. The only thing that I would add is that the underlying potential growth of the economy is a critical factor for our capacity to pull out of the debt crisis without default. Recognising the likely impact of the austerity measures on domestic demand, I think the picture is consistent with the (ESRI) view of solid underlying export-driven growth potential.
The main bad news in the release relates to the performance of nominal GDP. The Budget 2011 forecast for nominal GDP in 2010 was €157.3 billion. The actual nominal GDP turned out to be €153.9 billion – a 2.1 percent shortfall over the budget day forecast. Readers might recall that the €157.3 billion was itself the result of an earlier downward revision (see Philip Lane’s explanation here).
If that nominal shortfall carried over to 2014, the deficit would have to be reduced by an additional €94.1 million to meet the 2.8 percent of GDP deficit target for that year. This back-of-the-envelope calculation ignores the impact of any additional deficit reduction on GDP. Of course, there are even more severe implications if we are required to hit the higher intermediate targets along the way (for these targets see Table 6, p. D19 here; see p. D9 for the Budget 2011 nominal GDP projections). For example, an extra €316 million would have to be taken off the deficit to meet the 9.4 percent deficit target for 2011. It should be noted, however, that the poor performance for nominal GDP mainly reflects an eyebrow-raising quarter-on-quarter drop in the final quarter (down 6.6 percent, seasonally adjusted), and could be even more than usually subject to revision.
The quarterly national accounts for 2010:Q3 have been released. They show seasonally adjusted real GDP increasing 0.5% quarter over quarter and seasonally adjusted real GNP up 1.1% over the same period. There are also some small upward revisions to the second quarter figures, with the change in real GDP revised from -1.2 percent to -1.0 percent and the change in real GNP revised from -0.3 percent to 0.1 percent. On a year-over-year basis, real GDP was down 0.5 percent in 2010:Q3 and real GNP was down 1.6 percent.
Nominal GDP perhaps matters more for fiscal policy and here the news is also better than we have seen in some time. Nominal GDP was up 0.8 percent in 2010:Q3 and the second quarter figure was revised up from a 0.3 percent decline to a 0.2 percent increase. Nominal GNP was up 1.9 percent in 2010:Q3 and the previous quarter was revised up from a 0.5 percent increase to a 1.9 percent increase. Nominal GDP is down 1 percent year over year while nominal GNP is down 2.3 percent over the same period.
The growth in the third quarter was driven by a strong performance for net exports, with all component of domestic demand contracting.
The quarterly national accounts for 2010:Q2 have been released. They show seasonally adjusted GDP declining 1.2% quarter over quarter and seasonally adjusted GNP down 0.3%. Year over year, real GDP is down 1.8 percent and GNP is down 4.1 percent. Nominal GDP is down 3.6 percent year over year while nominal GNP is down 6.2 percent over the same period.
There were also revisions to the first quarter figures. Seasonally adjusted quarter on quarter growth in GDP was revised down from 2.7 percent to 2.2 percent, while the decline in GNP was revised from 0.5 percent to 1.2 percent.
The CSO today released the Quarterly National Accounts for 2009:Q3. Consistent with other indicators such as a stabilising unemployment rate, the release is consistent with a bottoming out of the economy. Though the year over year patterns still show sharp declines (7.4 percent for GDP and a whopping 11.4 for GNP) the best read we have on what happened during the latest quarter—seasonally adjusted quarter-over-quarter changes—point to stabilisation. GNP was down 1.4 percent on a seasonally adjusted basis over the quarter and GDP was up 0.3 percent. So technically, one could argue that this release confirms commenter John the Optimist’s call in September that Ireland was already out of recession.
There are, of course, caveats to this. The seasonal factors are based on limited data and so not particularly reliable. And the increase in GDP occurred despite declines in consumption, investment, government spending and exports (this was offset by the decline in imports). But still, one has to welcome anything that looks like good news.
How do these figures square up with the government’s projections in the budget? One point to note is that the bottoming out means that next year won’t have the same negative carry-over that this year did. In other words, if quarterly GDP remains flat at its 2009:Q3 level up to the end of 2010, then the year average for 2010 will be essentially the same as the year average for 2009. This assumption also implies a year-over-year projection for GDP in 2009 of minus 6.8 percent.
Against this background, one could argue that the budget’s projection of a 1.3 percent decline in GDP next year is perhaps too negative. Alternatively, with €4 billion of fiscal adjustment to be applied and a banking system that will still be restricting credit, perhaps the government have it about right.