GNP vs GDP

realitykeeper

Today I read that the ESRI recon Ireland`s GDP is no longer a good indicator for the performance of the economy and they recon GNP is better. One wonders if there is political pressure behind this. The GDP is not so good so they abandon the norm and use GNP instead. The thing about GNP is it pertains more to the domestic economy which is enjoying a mini boom fueled by the borrowing binge. GDP pertains more external factors. To put it another way, it pertains to the real world.

everdead.ie

realitykeeper wrote: »

Today I read that the ESRI recon Ireland`s GDP is no longer a good indicator for the performance of the economy and they recon GNP is better. One wonders if there is political pressure behind this. The GDP is not so good so they abandon the norm and use GNP instead. The thing about GNP is it pertains more to the domestic economy which is enjoying a mini boom fueled by the borrowing binge. GDP pertains more external factors. To put it another way, it pertains to the real world.

Loans to households are at a decade low. The reason which I thought everyone was aware of is several top performing drugs have gone off patent so multi national profits have been slashed massively on some of their best drugs which adversely affects GDP.

The reason they say GNP is a better indecator is because it shows the affect of extra employment in the economy.

AlmightyCushion

The whole GNP being a better reflection of the Irish economy than GDP is nothing new. People have been saying that for years.

Farmer Pudsey

GDP is a not a true reflection of the Irish Economy. The reasons being that the multinationals skew out economic o/p. It often makes it seem better than it is and at present it is not showing true growth. I think during the downturn it made the economy seem to grow at times while the actual economy was shrinking.

Icepick

no longer - 25 years

hfallada

There is nearly a 20% difference between GDP and GNP. As a college and leaving cert student you are always told GNP is the accurate one for Ireland as it excludes foreign multinationals. It's hard to argue why we would us GDP as a healthy indicator of our economy. When we are one of the largest producers of software and pharmactueals in the world(despite our employee in these industries being tiny compared to other countries). Like wise the ifsc "manages" financial services 15 times our economic output.

GNP is the best indicator of the health of our economy. And if a few patient is solely responsible for a large drop in GDP. We seriously need to question our dependence on foreign firms

Godge

realitykeeper wrote: »

Today I read that the ESRI recon Ireland`s GDP is no longer a good indicator for the performance of the economy and they recon GNP is better. One wonders if there is political pressure behind this. The GDP is not so good so they abandon the norm and use GNP instead. The thing about GNP is it pertains more to the domestic economy which is enjoying a mini boom fueled by the borrowing binge. GDP pertains more external factors. To put it another way, it pertains to the real world.

This is rubbish as has been pointed out by many of the good responses to this post.

GDP as an indicator of the health of the Irish economy has been questioned for decades now. GNP and the changes in it reflect what is happening on the ground.

As for the borrowing binge, for the last few years, overall debt levels (both public and private) have been decreasing as we have paid back more than we have borrowed. The deficits run by the state have masked this but as we move back to the 3% of GDP level for the budget deficit, the improvement in the debt situation will become more real

realitykeeper

everdead.ie wrote: »

Loans to households are at a decade low. The reason which I thought everyone was aware of is several top performing drugs have gone off patent so multi national profits have been slashed massively on some of their best drugs which adversely affects GDP.

The reason they say GNP is a better indecator is because it shows the affect of extra employment in the economy.

I am aware of the excuses but the simple fact of the matter is that GDP is the standard statistical measure by which economies around the world are assessed. A little guy with big feet is still a little guy. Similarly, Ireland has an abysmal GDP and its GNP does not change that fact. Ireland is supposed to be an open economy so why hide behind GNP. In any case, the banks were saved with borrowed billions which is the only reason GNP appears to be respectable.

andrew

realitykeeper wrote: »

I am aware of the excuses but the simple fact of the matter is that GDP is the standard statistical measure by which economies around the world are assessed. A little guy with big feet is still a little guy. Similarly, Ireland has an abysmal GDP and its GNP does not change that fact. Ireland is supposed to be an open economy so why hide behind GNP. In any case, the banks were saved with borrowed billions which is the only reason GNP appears to be respectable.

GNP is less than GDP. If we wanted to look good, we'd be using GDP. If you take some time to think about the difference between GNP and GDP, you'll understand that GNP is a better indicator of how well the Economy is doing.

It's like if you rented out your house to a stranger. Yeah the rent your recieve matters, but if you counted your renter's earnings and wealth as part of your own household's wealth and earnings, that would be pretty misleading.

Scofflaw

While we do undoubtedly have one of the largest GDP/GNP disparities, and while GNP is as a result unquestionably the better measure of the state of the Irish domestic economy, the GDP/GNP gap representing the multinationals is not something that simply doesn't factor into our national accounts, and GNP is not the best measure to use in every circumstance.

There has been a tendency in recent years, for example, to relate our government debt levels to GNP rather than GDP, and the same with overall tax burden. In neither case is GNP particularly appropriate, because we do tax the production of the multinationals, and they therefore do contribute to our ability to sustain debt and to our overall tax burden (rather heavily, in fact).

On the OP, though, yes, this isn't anything new, and in fact a couple of years back when GDP grew while GNP was still falling, the government were castigated for using GDP as a measure rather than GNP. That GNP is growing is good news, because it indicates an improvement in the domestic economy.

cordially,
Scofflaw

Slydice

I see it written here and think I've heard it on the radio about the GNP being all about the domestic economy. So I start to think it's about us selling things to ourselves (the 'domestic' part in 'domestic economy'). I remember during the bubble that we were selling houses to ourselves. Now I see GNP is going up round about the time that the market where we sell houses to ourselves seems to be getting more expensive.

Has anyone done analysis showing what is in correllation with the rise in the domestic economy?

If it's down to a small supply of houses, I'm confused. That sounds like demand is big enough to need more supply but nobody is jumping in with an extra supply line. What could be constraining further supply? Are labour or material costs too high? Are politicans contraining the ability of builders to begin building new houses?

We're a market economy right? There has to be some economic explanation right? You know ... one that isn't just full of buzzwords and actually comes down to some evidence... right?

Scofflaw

Slydice wrote: »

I see it written here and think I've heard it on the radio about the GNP being all about the domestic economy. So I start to think it's about us selling things to ourselves (the 'domestic' part in 'domestic economy'). I remember during the bubble that we were selling houses to ourselves. Now I see GNP is going up round about the time that the market where we sell houses to ourselves seems to be getting more expensive.

Has anyone done analysis showing what is in correllation with the rise in the domestic economy?

If it's down to a small supply of houses, I'm confused. That sounds like demand is big enough to need more supply but nobody is jumping in with an extra supply line. What could be constraining further supply? Are labour or material costs too high? Are politicans contraining the ability of builders to begin building new houses?

We're a market economy right? There has to be some economic explanation right? You know ... one that isn't just full of buzzwords and actually comes down to some evidence... right?

Well, it seems more to be actual growth in some productive sectors, although building is one of them (10.6% growth), so as far as I can see it's not the result of prices going up due to supply restriction, but in fact due to construction and sale of houses. Other sectors were also up, mind you.

cordially,
Scofflaw

sparky42

Slydice wrote: »

I see it written here and think I've heard it on the radio about the GNP being all about the domestic economy. So I start to think it's about us selling things to ourselves (the 'domestic' part in 'domestic economy'). I remember during the bubble that we were selling houses to ourselves. Now I see GNP is going up round about the time that the market where we sell houses to ourselves seems to be getting more expensive.

Has anyone done analysis showing what is in correllation with the rise in the domestic economy?

If it's down to a small supply of houses, I'm confused. That sounds like demand is big enough to need more supply but nobody is jumping in with an extra supply line. What could be constraining further supply? Are labour or material costs too high? Are politicans contraining the ability of builders to begin building new houses?

We're a market economy right? There has to be some economic explanation right? You know ... one that isn't just full of buzzwords and actually comes down to some evidence... right?

In terms to the domestic economy, GNP is rising as we have more people employed (back to 09 levels) and they are spending more in local environments. This is a good thing and not in anyway related to the boom situation.

In regards to house building, yes there has been improvements in the price, but even in Dublin the asking price is still some 40% below peak levels, during the crash a builder couldn't build a house for what the asking price was. The pressures now are due to 5 years of well below needed build rates (international studies suggest 25-30K housing units a year are needed and are sustainable in Ireland, we've been building less than 10K a year for the five years), add in the reduced credit to builders, the erosion of the skill base due to emigration and lack of trade course take up during the crash, and you have a substantial lag issue that is driving up the prices.

In terms of the GNP/GDP argument as has been said it's an old one that's gone round and round. It's been causing economic professionals confusion as you have a situation of Job growth with falling GDP figures (if you go into detail and see the Patent cliff issue it makes sense but not if you just skim the details). Neither measure taken in isolation are perfect for judging the economy IMHO

sparky42

Scofflaw wrote: »

Well, it seems more to be actual growth in some productive sectors, although building is one of them (10.6% growth), so as far as I can see it's not the result of prices going up due to supply restriction, but in fact due to construction and sale of houses. Other sectors were also up, mind you.

cordially,
Scofflaw

The majority of the economic sectors were up from the last report from memory. It's not tied to construction, but returning that to a functioning sustainable rate will certainly help the economy.

djpbarry

hfallada wrote: »

It's hard to argue why we would us GDP as a healthy indicator of our economy. When we are one of the largest producers of software and pharmactueals in the world(despite our employee in these industries being tiny compared to other countries).

Define "tiny". Because according to the most recent CSO figures, there are almost 200,000 people employed in "Information and communication" and "Professional, scientific and technical activities":

http://cso.ie/en/media/csoie/releasespublications/documents/labourmarket/2013/qnhs_q42013.pdf

That's about 10% of the labour force - I'd say that's significantly more than "tiny".

sparky42

djpbarry wrote: »

Define "tiny". Because according to the most recent CSO figures, there are almost 200,000 people employed in "Information and communication" and "Professional, scientific and technical activities":

http://cso.ie/en/media/csoie/releasespublications/documents/labourmarket/2013/qnhs_q42013.pdf

That's about 10% of the labour force - I'd say that's significantly more than "tiny".

In real terms it's tiny if you are comparing against a country with a population of 300-1000 million and 10% (or more) of them are involved in the same area.

djpbarry

sparky42 wrote: »

In real terms it's tiny if you are comparing against a country with a population of 300-1000 million and 10% (or more) of them are involved in the same area.

If we're comparing with a country of one billion people then everything about Ireland is tiny. In that context, picking out one particular statistic and dismissing it as "tiny" is pretty meaningless.

ardmacha

djpbarry wrote: »

If we're comparing with a country of one billion people then everything about Ireland is tiny. In that context, picking out one particular statistic and dismissing it as "tiny" is pretty meaningless.

I think the previous poster had a point, though We have a material part of the value of world production in some sectors (largely for pricing reasons), although not having a material part of the world's employment, although this is still useful employment in local terms.

Slydice

Scofflaw wrote: »

Well, it seems more to be actual growth in some productive sectors, although building is one of them (10.6% growth), so as far as I can see it's not the result of prices going up due to supply restriction, but in fact due to construction and sale of houses. Other sectors were also up, mind you.

cordially,
Scofflaw

Hrmm, productive sectors. I wonder what that is.

We grow food so maybe we're growing and selling more food to one another?

What else do we make? ICT stuff like websites? Are we selling more websites to one another? Are we still making computers (granted the absense of Dell), have sales of PCs gone up?

We don't build cars anymore I think.

What could it be?

Can prices increases in domestic products (ESB?) raise our GNP? We definitley make and sell electricity to one another... right?

What else do we make folks?

Are we possibly making more generic drugs and selling them to one another now that the patent cliff has allowed some native companies make what used to only be made by multinationals?

sparky42

Slydice wrote: »

Hrmm, productive sectors. I wonder what that is.

We grow food so maybe we're growing and selling more food to one another?

What else do we make? ICT stuff like websites? Are we selling more websites to one another? Are we still making computers (granted the absense of Dell), have sales of PCs gone up?

We don't build cars anymore I think.

What could it be?

Can prices increases in domestic products (ESB?) raise our GNP? We definitley make and sell electricity to one another... right?

What else do we make folks?

Are we possibly making more generic drugs and selling them to one another now that the patent cliff has allowed some native companies make what used to only be made by multinationals?

You do realise that the Department of Jobs/Skills/Employment (wish they would stop changing the names) have publications on the break down of the areas.

Other than that I'm not sure what you are trying to ask? There's 1.6 million people employed in the Private sector (pulling out the 300K of the public service), only about 100K-150K are directly employed by the multinationals (with about another 90K-100K indirectly employed) with the overwhelming majority of employment being from SME's.

Are you asking for a breakdown on the full range of the Irish economic activity?

Amirani

Slydice wrote: »

Hrmm, productive sectors. I wonder what that is.

We grow food so maybe we're growing and selling more food to one another?

What else do we make? ICT stuff like websites? Are we selling more websites to one another? Are we still making computers (granted the absense of Dell), have sales of PCs gone up?

We don't build cars anymore I think.

What could it be?

Can prices increases in domestic products (ESB?) raise our GNP? We definitley make and sell electricity to one another... right?

What else do we make folks?

Are we possibly making more generic drugs and selling them to one another now that the patent cliff has allowed some native companies make what used to only be made by multinationals?

GNP does include exports. Price increases are generally controlled for when dealing with GDP or GNP, so it does usually measure actual changes in output.

In terms of what Ireland "makes":

- 4th largest exporter of beef in the world
- Food and drink exports in general are huge, Kerry Group for example has yearly turnover of about €6 billion.
- 2nd largest exporter of computer and IT services in the world (obviously a large amount are multinationals and hence wouldn't be included in GNP)
- Over 50% of the world's aviation fleet is managed or leased from Ireland.

sparky42

Diego Simeone wrote: »

GNP does include exports. Price increases are generally controlled for when dealing with GDP or GNP, so it does usually measure actual changes in output.

In terms of what Ireland "makes":

- 4th largest exporter of beef in the world
- Food and drink exports in general are huge, Kerry Group for example has yearly turnover of about €6 billion.
- 2nd largest exporter of computer and IT services in the world (obviously a large amount are multinationals and hence wouldn't be included in GNP)
- Over 50% of the world's aviation fleet is managed or leased from Ireland.

One of the largest Alumina plants in the world, one of the largest Zinc exporters in the world, ESB international has plants installations all over the world (though that would be GDP), really the list of niche products/companies are huge ranging from the well known IT to Car wiring looms, Container-ship cranes(both Multi's), to biotech and nanotech, Penny's/Primark, DairyGold etc

Geuze

Just to note that GNP does not exclude MNC ouput.

All output is included in GDP.

GNP is GDP less net factor income sent abroad.


So start with GDP:

add income from abroad like profits that Irish firms send home, or interest earned, or rental income from apts in Spain, etc.

less income sent abroad, the biggest element being profits of MNCs, also interest and rents paid abroad

and that leaves you with GNP.


It does not exclude MNC output, it excludes MNC profits.

Godge

Geuze wrote: »

Just to note that GNP does not exclude MNC ouput.

All output is included in GDP.

GNP is GDP less net factor income sent abroad.


So start with GDP:

add income from abroad like profits that Irish firms send home, or interest earned, or rental income from apts in Spain, etc.

less income sent abroad, the biggest element being profits of MNCs, also interest and rents paid abroad

and that leaves you with GNP.


It does not exclude MNC output, it excludes MNC profits.

Yes, people are getting confused. GDP is equal to GNP plus net transfers abroad.

What is happening in Ireland is that because of the patent cliff GDP should be declining as the net transfers abroad decline. The drugs are still being made and sold from Ireland but the profit is less. However, we are not seeing the decline in GDP, instead GDP is flat. This is because the GNP part is growing fast enough to cancel out the decline in net transfers. This is shown in employment numbers and income tax revenue. Ironically, if it wasn't for the patent cliff, we might have hit the 3% target this year.

Calibos

When then do people think this good news will filter through to public sentiment and get them spending more of their disposable income or indeed considering more of their income disposable?

Does the idea that things are demonstrably improving economically on a macro scale in Ireland need to be promoted more by government or is it that people need to see a few more cut-less/new stealth tax-less budgets before they rest easier and loosen the purse strings.

NB* I don't believe we had austerity. I believe the property taxes, rates and water charges etc are only proper and FF shouldn't have used their abolition to buy elections in the past. The only unfortunate thing about their re-introduction was they had to be brought back almost all in one go so to speak. As for spending cuts. Unfortunate as they are, we found all notion of efficiency and transparency was lost when departments budgets were massively increased so the net benefit of the spending increases was much less than it should have been. Maybe the spending cuts will focus minds to deliver efficiency again before we start increasing spending again. All this supposed enforced germanic austerity talk wrecks my head. 1. What Austerity? (like I alluded to earlier) 2. We should be eternally grateful to the troika for giving us the breathing space to get the deficit under control in the time we have without any real austerity. However I also think there was an element of what got us into trouble ironically helping us get out of it. ie. Ah sure twill be grand...paying lip service to european regulations, making it look like we are doing enough on the surface to placate the troika and the bond markets while really not enforcing any real austerity,getting the benefits of looking like the best boy in class but really just letting an improving world economy sort things out for us without having to take any real pain for the gain.

I just wish everyone was aware of this dirty little secret and realise they can start safely spending in the domestic economy again

Godge

Calibos wrote: »

When then do people think this good news will filter through to public sentiment and get them spending more of their disposable income or indeed considering more of their income disposable?

Does the idea that things are demonstrably improving economically on a macro scale in Ireland need to be promoted more by government or is it that people need to see a few more cut-less/new stealth tax-less budgets before they rest easier and loosen the purse strings.

NB* I don't believe we had austerity. I believe the property taxes, rates and water charges etc are only proper and FF shouldn't have used their abolition to buy elections in the past. The only unfortunate thing about their re-introduction was they had to be brought back almost all in one go so to speak. As for spending cuts. Unfortunate as they are, we found all notion of efficiency and transparency was lost when departments budgets were massively increased so the net benefit of the spending increases was much less than it should have been. Maybe the spending cuts will focus minds to deliver efficiency again before we start increasing spending again. All this supposed enforced germanic austerity talk wrecks my head. 1. What Austerity? (like I alluded to earlier) 2. We should be eternally grateful to the troika for giving us the breathing space to get the deficit under control in the time we have without any real austerity. However I also think there was an element of what got us into trouble ironically helping us get out of it. ie. Ah sure twill be grand...paying lip service to european regulations, making it look like we are doing enough on the surface to placate the troika and the bond markets while really not enforcing any real austerity,getting the benefits of looking like the best boy in class but really just letting an improving world economy sort things out for us without having to take any real pain for the gain.

I just wish everyone was aware of this dirty little secret and realise they can start safely spending in the domestic economy again

If you look at the figures

http://www.finance.gov.ie/sites/default/files/Appendix%20I%20-%20End-March%202014%20Tax%20Receipts.pdf

VAT is performing better than expected. So the facts suggest that people are spending in the domestic economy again.

roro2

Godge wrote: »

If you look at the figures

http://www.finance.gov.ie/sites/default/files/Appendix%20I%20-%20End-March%202014%20Tax%20Receipts.pdf

VAT is performing better than expected. So the facts suggest that people are spending in the domestic economy again.

Subsequently from the Dept of Finance:

In relation to March 2014, €101 million was classified as VAT which should have been classified as income tax

So VAT is actually behind target by 1.5%. But not a big deal this early in the year either way.

everdead.ie

roro2 wrote: »

Subsequently from the Dept of Finance:

So VAT is actually behind target by 1.5%. But not a big deal this early in the year either way.

Actually isn't that a good thing it means more people are at work paying tax, hopefully it means there is more money to go into buying and subsequently the vatwill go up in the coming months.

sparky42

everdead.ie wrote: »

Actually isn't that a good thing it means more people are at work paying tax, hopefully it means there is more money to go into buying and subsequently the vatwill go up in the coming months.

When you factor in that car/van sales are up significantly in the first three months then it could be that people are spending it on large capital expenditure first. But yes, more income tax does support the suggestion of the extra 60k of jobs last year which should feed into the GNP figures.

Sand

Scofflaw wrote: »

On the OP, though, yes, this isn't anything new, and in fact a couple of years back when GDP grew while GNP was still falling, the government were castigated for using GDP as a measure rather than GNP. That GNP is growing is good news, because it indicates an improvement in the domestic economy.

A couple of years ago you also had the government trumpeting growth in GDP as being where the real performance of the Irish economy was at, whilst GNP was an archaic statistical figure of no real importance. The government is still guilty of spin when it calls for GNP growth to be a triumphant story, but measures its horrific debt to GDP, rather than GNP.

You're right though - GDP cant be completely dismissed, but neither are multinationals rooted in Ireland or taxable in the same way as the components of GNP are. This is true for all countries, but outside of micro states and tax-havens, within the EU Ireland is almost uniquely dependant on multinationals to boost its GDP far, far above GNP. If we were prudent, we really ought not borrow presuming the multinationals we are borrowing against will still be booking the same amount of "profits" in Ireland 5 years from now, let alone 10 or 20 or 30. The benefits from taxing GDP ought to be treated as a windfall, and little more.

As it stands, neither GDP nor GNP growth necessarily indicate an *improvement* in the domestic economy. Both GDP and GNP grew at record rates through the Celtic Tiger era, a time all acknowledge as sowing the whirlwind we are currently reaping. GDP and GNP are simply measures of income..not wealth. Borrowing increases your income, but it doesn't make you wealthier unless its invested in something with a greater return than day to day bills and spending.

Scofflaw

Sand wrote:

The benefits from taxing GDP ought to be treated as a windfall, and little more.

And we have such a good record with regard to windfalls...

cordially,
Scofflaw

Sand

It can hardly be worse than our record with regard to forward planning for a national pension shortfall. Raided multiple times for short-term political interest.