False results - misleading

femur61

I watched the news and officially the country is out of recession, but on closer inspection of the the figures the growth is attributed to foreign companies hence, the profits will be exported, I know they are employing people here and the whole cycle of their taxes going back into the system but the bulk will be going further a feild. Irish companies had negative growth.

Sleepy

Yep, spent half of yesterday explaining that to friends...

Cookie_Monster

But it sounds good.

Regardless of what is actually going on the Gov have to try put as much positive spin on it as possible. If people think the recession is over they'll spend more.

Also even if it only foreign co's, if they are recovering it will mean more jobs and potentially more purchases from irish companies in the medium term...

RichardAnd

Also, let's not forget that GDP is effected by government spending.

Recession is just an economists word. Until unemployment starts to drop, a recovery isn't a recovery.

George Orwell 1982

This Michael Burke's post on the subject on www.progressiveeconomy.ie

The Q1 real GDP figures show the economy expanding by 2.7%. No doubt these will be hailed as a turning-point, and even a vindication of policy. If only that were true.

As everyone knows, this is a twin-track or two-speed economy. Organisations such as the ESRI, OECD, IMF and EU Commission all forecast that the export sector would recover reflecting the rebound in global demand following the recession, but that the domestic economy would remain mired in recession. That's what is happening. GNP, the domestic sector of the economy contracted again in Q1 by 0.5%, for the ninth consecutive quarter, far longer than in any other Euro Area economy.

But even this is to understate the true picture. Usually, growth data is presented in real terms, so that it is real activity that is captured not just inflation. But Ireland is experiencing deflation, a generalised fall in prices. So, concentrating on the 'real' numbers means not extracting the effects of deflation. To do that, we have to go to the nominal numbers, the actual Euros produced or spent in each category of national income.

Then the picture is more accurate. Just much worse. On this measure, GDP grew by just 0.1% in Q1 (€38.752bn compared to €38.715bn in Q4 2009- that's just €37mn) and GNP contracted by a massive 6.8% in the quarter. Nominal GDP fell 4.4% year-on-year and is now 20.2% below its end-2007 peak. GNP fell 8.6% from a year ago and is now 27.6% below its peak. This is an Irish Depression.

If we take the components of growth the data are as follows: personal consumption is down 4.6% year-on-year, -19.6% from the peak; current govt. spending down 8.9%, -11.2% from peak, and investment remains the biggest single contributor to the slump with gross fixed capital formation falling 7.6%, -66.4% from its peak. The decline in investment actually exceeds the decline in GDP, and accounts for 93% of the decline in GNP. Exports are the only bright spot, up 3.5% from a year ago, belying the idea that the economy is uncompetitive, they are 5.1% below their peak. But the improvement in net exports is actually greater as import demand continues to decline.

Unsurprisingly, given the litany of declines in all other sectors, net exports more than accounts for the entirety of quarterly GDP growth, €2,137bn of a total improvement of just €37mn. Taken together, personal consumption, government current spending and investment fell by more than €2bn in the quarter. Because this is on export-only recovery and the sector is capital-intensive, dependent on imports and has ultra-low taxes, this 'recovery' will actually lead to increased joblessness, bankruptcies and a widening of the deficit. Even worse, rampant deflation will increase the real debt for all households, businesses and of course the government, making interest payments and debt repayment more burdensome from shrinking national incomes.

George Orwell 1982

Constantin Grudgiev has been saying much the same thing on his blog, http://trueeconomics.blogspot.com/

So the recession is over… or it just went into a triple dip… you have a say.

Today’s QNA for Q1 2010 showed a 2.7% increase in real GDP compared with the final quarter of last year. This brings to an end eight consecutive quarters of economic contraction – the longest recession of all advanced economies to date.

What happened? Have you felt that warm wind of spring back in March and decided that it is time for Ireland Inc to start upward march to renewed prosperity?

Err… not really. What did happen was a simple trick: Deflation took out a bite out of the price level adjustment, as nominal GDP grew a fantastically unnoticeable and statistically indifferent from zero 0.0956%. Yes, that’s right, less than one tenth of one percent. Take a snapshot: in Q1 2010, our MNCs-led exporting economy was better off than in Q4 2009 by a whooping €37 million, while our domestic economy shed another €2,199 million. Don't know about you, I feel so much richer today than back in December 2009...

One has to be sarcastic about the Government that needs a massive deflation to generate economic growth. Industry gains - again driven by MNCs manufacturing - are clearly not supported by domestic services and construction.

Oh, and subsidies-reliant sectors - Government and Agriculture - are going relatively strong. Clearly CAP is recession proof - per chart below - with Agriculture up 84% on Q4 2009. Investment continues to compress: capital formation down 14% qoq, and 30% yoy. And that’s gross! Government spending was down a paltry 0.9% qoq or €96 million – a clear slowdown in deficit reduction efforts. Give it a thought, we will be borrowing this year some €17bn - not accounting for banks alone. At the current rate of Government spending contraction, Q1 2010 reductions in public spending (net!) will cover just 10% of our annual interest bill on one year worth of borrowing!

Consumer spending contracted further by 0.2% supported from hitting much greater decline numbers by services spending and, potentially, 2010 registration plates fetish. Remember, total retail sales are down more than 6% in Q1 2010. Added support to consumer spending was winter freeze, which was a boost to the likes of state-owned ESB and Bord Gas – carbon footprint notwithstanding, good news for state monopolized energy sector.

Time for champagne, then? Perhaps not quite vintage variety yet, but some bubbly? I am afraid not.

There’s another trick to the data: Net exports boomed – as we imported fewer things to consume, invest and use in future production, while Ireland-based MNCs booked on massive profits. So massive in fact that net increases in transfers of profits abroad were literally bang on (take few euros) with net increase in our trade balance.

This has to be the fakest ‘recovery’ one can imagine.

Before charts, illustrating the above, few more points. Services exports were particularly strong (good news):

• volume of goods exports rose 2.4% yoy in Q1 2010,
• volume of services exports was up 9.5% yoy.

Services – the Cinderella of our external trade policies – now account for 46% of total exports.

As MNCs-driven economy steamed ahead, domestic economy continued to contract -0.5% in Q1 2010, in qoq terms. Profits expatriation by the MNCs reached €7.9bn in Q1, up from €7.1 in Q4, and GDP/GNP gap widened to over 20% in quarterly terms.

Should things stay on this 'recovery' course, by the end of this year some 26% of our entire economy's output will be stuff that has nothing to do with our economy. That would put us on par with some serious banana republics out there as an offshore centre. And not that I, personally mind. It's just fine that companies book profits via Ireland Inc. The problem is when we, the natives, start believing the hype that our GDP generates.

Riskymove

femur61 wrote: »

Irish companies had negative growth.

I think its wrong to suggest false results...they are accurate findings I am sure.....just like most statistical analyses, they can be presented and interpreted in many ways

few had issues when they were showing we were in recession as per the usual measurement method

'recession' to the general public has a wider meaning than the official technical measurement

George Orwell 1982

Cookie_Monster wrote: »

But it sounds good.
Also even if it only foreign co's, if they are recovering it will mean more jobs and potentially more purchases from irish companies in the medium term...

It should be recognised that employment in multinational is back to 1998 levels while the total workforce has grown by 400,000.
More than 50% of Ireland’s merchandise exports are from the pharmaceutical and medical devices sectors - - about 20 companies are responsible for these exports.
In the five years to 2009, exports increased by 26% in the sector but the payroll remained almost static at 40,000.
The trend in employment is not good and while policymakers will always boost the R&D element in a project win, most of the jobs announced this year have been in call centers.

A 20% reduction in the payrolls of the 14 biggest pharma firms is expected in the US, Europe and Japan by 2015:
http://www.finfacts.ie/irishfinancenews/article_1020022.shtml

hiorta

Sounds good? Could that be the bait, perhaps?

ardmacha

It is right and proper to analyse the components of these figures. If only people had been so willing to look at the detail in 2006 or 2007! But the "good" news is not a problem in itself, just that there is much more to do. It is not time to relax, but perhaps time to hope that further work will pay off. There is much comment about deflation and its impact on the figures, yet much of this is coming from the same people who called for Ireland to reduce its costs. This reduction in costs will lead to deflation, but it will also provide the means for the recovery. ROI business is now 15-20% more competitive against UK business than 18 months ago, this will begin to benefit more labour intensive businesses, SMEs, Dundalk shops, hotels and B&Bs etc. It will also reduce pressure on the margins of these businesses, making it possible to them to service their loans.

George Orwell 1982

ardmacha wrote: »

This reduction in costs will lead to deflation, but it will also provide the means for the recovery. ROI business is now 15-20% more competitive against UK business than 18 months ago, this will begin to benefit more labour intensive businesses, SMEs, Dundalk shops, hotels and B&Bs etc. It will also reduce pressure on the margins of these businesses, making it possible to them to service their loans.

Major austerity coming down the tracks in the UK also.

Liam Byrne

Cookie_Monster wrote: »

If people think the recession is over they'll spend more.

....assuming that they have it in the first place to spend.

ardmacha

....assuming that they have it in the first place to spend.

Which many people do.

Not everyone does, but even those who do are still a bit wary that their salary/pension will be cut or that their job is insecure. When things seem to be on the up the next salary change would probably be an increase.

Scarab80

Constantin Grudgiev wrote:

Err… not really. What did happen was a simple trick: Deflation took out a bite out of the price level adjustment, as nominal GDP grew a fantastically unnoticeable and statistically indifferent from zero 0.0956%. Yes, that’s right, less than one tenth of one percent. Take a snapshot: in Q1 2010, our MNCs-led exporting economy was better off than in Q4 2009 by a whooping €37 million, while our domestic economy shed another €2,199 million. Don't know about you, I feel so much richer today than back in December 2009...

One has to be sarcastic about the Government that needs a massive deflation to generate economic growth. Industry gains - again driven by MNCs manufacturing - are clearly not supported by domestic services and construction.

More dodgy analysis from Dr. Grudgiev, always be wary of an economist who uses sarcasm in his report. I agree completely with him on the GDP v GNP aspect, however one should point out that on that basis we exited recession in Q4 2008, went back into recession in Q2 2009 and exited again Q4 2009. By this metric we would still be out of recession as we have only had 1 quarter of negative growth.

The deflation "trick" is a complete red herring. GDP is supposed to be a measure of economic activity, if prices have dropped you need more economic activity to maintain the same level of GDP. If you have 10% deflation in an economy with the same level of GDP in current market prices then everyone is 10% more wealthy as the same amount of money will buy you 10% more.

There is a reason the CSO release GDP in constant market prices as their headline figure, it's because it is the most relevant measure. If we want to use current market prices as Dr. Gurdgiev seems inclined to we would have been running near double digit growth during the boom and Zimbabwe would be the economic powerhouse of the world.

femur61

Cookie_Monster wrote: »

But it sounds good.

If people think the recession is over they'll spend more.

...

But, isn't that the attitude that got it into hot water in the first place, I suppose banks/credit card are not giving out credit anymore so maybe that will curtail people spending beyond their means. I'm no economist but shouldn't we be saving as banks say they have no money so if we saved they would have resevres thus be able to lend to business therefore creating jobs.

Cookie_Monster

femur61 wrote: »

But, isn't that the attitude that got it into hot water in the first place, I suppose banks/credit card are not giving out credit anymore so maybe that will curtail people spending beyond their means. I'm no economist but shouldn't we be saving as banks say they have no money so if we saved they would have resevres thus be able to lend to business therefore creating jobs.

yep, I don't agree with it but it is what happens.

Sleepy

femur61 wrote: »

I suppose banks/credit card are not giving out credit anymore so maybe that will curtail people spending beyond their means.

I think you suppose wrong tbh. My credit card limit which was raised without being asked for almost annualy since I left college hasn't come down and I doubt many others' limits have either...

There's a real danger in getting people's hopes of a recovery up that they might think 'ah sure, I'll be back workin' next month, I'll just stick the new telly on the credit card'...

The_Honeybadger

Sleepy wrote: »

I think you suppose wrong tbh. My credit card limit which was raised without being asked for almost annualy since I left college hasn't come down and I doubt many others' limits have either...

There's a real danger in getting people's hopes of a recovery up that they might think 'ah sure, I'll be back workin' next month, I'll just stick the new telly on the credit card'...

Yep, and you must realise that there are many people who simply don't understand how f**ked the country is with all the debt we have hanging over us. There are alot of people who think it will all blow over and we'll be back to "normal" soon enough.

femur61

mickeyk wrote: »

. There are alot of people who think it will all blow over and we'll be back to "normal" soon enough.

I totally agreee with you, I have the same agruement with my husband, he says in the "next boom" but reality check we've never had a boom before, so normal is going back to the third world status we were labelled with in the 70's and 80's.

Powerhouse

Riskymove wrote: »

I think its wrong to suggest false results...they are accurate findings I am sure.....just like most statistical analyses, they can be presented and interpreted in many ways

few had issues when they were showing we were in recession as per the usual measurement method

'recession' to the general public has a wider meaning than the official technical measurement

Very well said, you hit the nail on the head here.

Very few people were dismissing these same technical measurements as not telling the real story when they announced we were in recession. Nor did I hear anyone claiming the government was putting a negative spin on things at that time and that we shouldn't really believe the figures.

George Orwell 1982

Powerhouse wrote: »

Very well said, you hit the nail on the head here.

Very few people were dismissing these same technical measurements as not telling the real story when they announced we were in recession. Nor did I hear anyone claiming the government was putting a negative spin on things at that time and that we shouldn't really believe the figures.

Thats because both GDP and GNP were booming during that time. And even then economists were always pointing out that there was a big difference between GDP and GNP for Ireland.

hiorta

Sleepy wrote: »

My credit card limit which was raised without being asked for almost annualy since I left college hasn't come down...

Sleepy, be careful of this. Should you be scammed or disagree with any account being deducted from your balance, the bank will use your 'credit' to pay, regardless of the issue. The onus is always on you, yet this money wasn't sought by you.
Suggest you have it reduced just in case - and it can always be reinstated later.