The last couple of years or so have seen the return of the Celtic Tiger. Indeed Celtic Tiger 2.0 has been even stronger than the first version especially in the rather extraordinary first quarter of 2015. Let us go back just over a year to the Central Statistics Office.
The National Accounts for 2015 released yesterday (on 12 July 2016) reported an increase in GDP of 26.3%. This scale of increase is unprecedented in OECD economies historically
This came with quite an admission.
The results published yesterday for the National Accounts 2015 accurately capture and highlight the open and globalised nature of the Irish economy. However due to the highly globalised nature of our economy, GDP and GNP do not always help to understand what is happening in the Irish economy.
Regular readers will be aware of the problem here which is that Ireland is a relatively small country whose economy is in fact pretty much in thrall to the machinations of large corporations. Much of this is due to the way it pushed for such companies to have operations in Ireland via its low Corporation Tax rate and efforts like the tax-free district in Dublin which I recall being built back in the day. Back on the 17th of March I pointed out that the Central Bank of Ireland had described it like this.
However, this masked offsetting trends in the components of GDP, in particular investment and trade, which were not closely aligned with indicators of activity in the domestic economy, but were mainly accounted for by the off-shore activities of multinational firms.
Such factors were strongly at play here.
There is an obvious concern with GDP (Gross Domestic Product) rising by 21% in one-quarter as it did at the opening of 2015.
This poses all sorts of questions as not only was the Irish economy suddenly much larger but other numbers such as debt matrices and ratios changed with it. If we look at it then it is an exaggeration to say it had a public sector debt problem beforehand but not after but it is not one to say there was quite a change.
A new effort
Ireland’s statisticians have attempted to take out the impact of aircraft leasing, depreciation and redomiciled companies ( to take advantage of the tax regime). On this road we get some extraordinary numbers for 2016. Let us start with GDP or Gross Domestic Product which was 275.6 billion Euros. Next up is GNP or Gross National Product which was 226.7 billion Euros. So quite a drop and why the change? It comes from the use of the word National which adjusts the numbers to try to allow for companies which really have more of a letter box in Ireland than an actual business. Not an easy job but it makes a big difference as you can see.
Next up is Gross National Income which in this instance adds or subtracts the impact of the European Union and Ireland gained just under a billion Euros from this meaning GNI was 227.7 billion Euros. Food for thought there as to how a relatively rich country benefits overall from European Union membership. But next comes the main event which is the adjustment described above as GNI is then 189.2 billion Euros.
This leaves us a very long way from where the official statistical story began as the Financial Times summarises.
The Irish economy is about a third smaller than expected. The country’s current account surplus is actually a deficit. And its debt level is at least a quarter higher than taxpayers have been led to believe.
If we look at the balance of payments we see that previously Ireland was reporting a current account surplus of 9.2 billion Euros but now trying to allow for the effects of globalisation switches that to a deficit of 29.4 billion Euros. The big change came in 2015 when the annual impact of globalisation went from around 10 billion Euros to over 30 billion and then jumped further to nearly 40 billion last year.
If we move to debt ratios then the already high 120% ratio to GDP in 2012 rises to a rather Greek like 160% or so if we use GNI. The National Treasury Management Agency gave a presentation yesterday on the state of play at the end of 2016.
Government debt-to-GDP fell to 72.8% in 2016; and the GG deficit to 0.5%. The inflated GDP denominator means other metrics of debt serviceability are required to complement debt as a ratio of GDP.
Debt-to-GNI* (106%), Debt-to-GG Revenue (274%), interest cost as a share of revenue (8.5%) and the average interest rate on Ireland’s debt (3.1%) are superior measures for comparison with other sovereigns.
So there you have it 106% or 72.6%, aren’t you clear that this is er clear?
Oh and the interest-rate on the debt may seem high but of course Ireland had to issue quite expensively for a while. Whereas for new debt it can offer a vote of thanks to Mario Draghi and the European Central Bank as the cost is very low. For example it issued some more of a 2045 bond earlier this month for less than 2%.
Oh and this caught my eye.
In April, the NTMA issued its first inflation-linked bond: €610m 23-year tenor, 0.25% coupon + Irish HICP excluding tobacco.
This is because for quite some time now Ireland has essentially had no inflation. According to its statistics office consumer inflation was in fact 0% in 2016. If this continues these bonds will be a very good deal for the Irish taxpayer! Or do the buyers know something?
Ireland is something of a doppelganger to Japan in that if the numbers for bond sales in January are any guide some 97% were to international investors.
What about 2017?
Not so hot.
On a seasonally adjusted basis, initial estimates indicate that GDP in volume terms decreased by 2.6 per cent for the first quarter of 2017. GNP decreased by 7.1 per cent over the same period.
A sort of here we go again.
Initial estimates for the first quarter of 2017 indicate that there was an increase of 6.1 per cent in GDP in real terms in Q1 2017 compared with Q1 2016…….Factor income outflows were 1.6 per cent lower than in the same quarter of 2016 leading to an overall increase in GNP of 7.9 per cent year-on-year.
As you can see the economy is bouncing around as flows of corporate money wash in and out over time.
Whilst there is no overall consumer inflation in Ireland some sectors are seeing it. For example whilst headline inflation was -0.4% in June rents increased at an annual rate of 7.1%. Also house prices are doing this.
In the year to May, residential property prices at national level increased by 11.9%. This compares with an increase of 10.0% in the year to April and an increase of 5.4% in the twelve months to May 2016.
For those of you wondering where Ireland currently sits in its house price boom and bust cycle the index set at 100 in 2005 is now at 92.4 so the banks will be pleased.
Firstly let me welcome this effort by Ireland’s statisticians. You can see why they have been tardy as there must have been enormous pressure from the establishment to stay with GDP. What these numbers do is give us a guide as to why with some much apparent economic success this has happened. From March 17th.
The fact that more than 6,000 people, including children, are now officially “homeless” and living in emergency accommodation in hotels, guesthouses and charity shelters is offensive……….It flows from policy decisions and political collusion that created a deeply unequal society.
Yet there has been economic growth which these numbers from the NTMA highlight.
Employment is expanding, unemployment is at 6.3%; Labour input is growing by 4.0%
There has been quite a bit of success in reducing unemployment and increasing employment from the levels of the dark days of the banking inspired crisis. Yet according to Nama Wine Lake there are still ongoing issues from that.
NAMA again waffling about €5.6bn of state-aid it overpaid for loans; NAMA has said the €32bn it paid equalled value of underlying collateral.