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Irish Growth contraction spin
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Irish Economic Growth contraction. From Irish Times
Economic growth in the Republic shrank by 1.5 per cent between January and March this year, according to data released by the Central Statistics Office this morning.
Growth rates recorded for the Republic during the first quarter 2008 showed that Gross Domestic Product (GDP) contracted by 1.5 per cent, while Gross National Product (GNP) - which excludes the profits of multinational companies - rose by 0.8 per cent.
Year-on-year, GDP growth has decelerated from 8.7 per cent in the first quarter of 2007 to -1.5 per cent in the first three months of this year.
Similarly, GNP growth has slowed over the same period from 6.5 per cent to 0.8 per cent.
The point I see as interesting is that GDP has fallen faster then GNP. Considering the government has always liked to use the GDP figure per head to illustrate how rich we are while the opposition tend to use GNP to say how we are not really. Lets see if it that attachment changes. Whatever spin however is put on it. Certainly not good. I am guessing that GNP does include construction so the fact that GNP stays positive and GDP goes negative suggests something more then just construction is at play here.
Simon, I wonder to what extent some of the players in the construction business have off shored themselves in terms of residence/operations such that they are no longer viewed as domestic. It’s unlikely though, I’m just speculating.
For my benefit I looked up the difference between GDP vs GNP:
”
Gross domestic product (GDP) is defined as the “value of all final goods and services produced in a country in one year” [1]. On the other hand, gross national product (GNP) is defined as the “value of all (final) goods and services produced in a country in one year, plus income earned by its citizens abroad, minus income earned by foreigners in the country”[2]. The key difference between the two is that GDP is the total output of a region, eg. America, and GNP is the total output of all nationals of a region, eg. Americans.
When the value of income from abroad is included - what domestic companies earn abroad minus what foreign companies earn here and expatriate - then the GDP becomes the Gross National Product (GNP).
”
If GNP stays positive and GDP goes negative does that mean that the global economy is holding its own and the exclusively Irish economy is the one thats sinking?
Irish Jer
My understanding would be that GDP = GNP + Foreign Companies profits.
So if GNP is positive then they Foreign Companies profits are falling by a greater extent then Domestic. Which is something not really being touched on in the Media. Recent unemployment figures have also shown a evenish drop between male and female workers. With males being predominate in the construction industry and females not. The idea that this is just construction doesn’t stack up in my mind. Pharmacetetical companies I hear are not doing amazingly well. And they are a big part of our economy.
Take Pfizer
http://uk.finance.yahoo.com/q/bc?s=PFE.SW&t=1y
Elli lilly
http://finance.yahoo.com/echarts?s=LLY#symbol=LLY;range=1y
Also with consumer spending up 3.5% it is hard to think the loss in female jobs and drop in GNP is in the services sector. Something just does not add up.
But .8% growth isn’t exactly great compared with previous years.
Dan you could be right of course would need an economist to answer that one and what effect that would have
I suspect that Construction largely fits into GNP. I took a peak at the balance of payments figures (which feed into the difference between GNP and GDP) and I couldn’t see construction in the breakdown, neither could I see where it might fit in hidden under the existing titles. Still, I can imagine part of it could go under serives for example. But in the main, I’d say its safe to assume that construction is largely inside the GNP figure.
The actual CSO report specifically mentions construction and says that it has fallen 16.4% on the same period last year. That in itself represents about 1.6% of shrikage in GNP - because the same report shows construction sitting at about 10% of GNP. On the other hand services more than compensated and were largely responsible for the net 0.8% increase in GNP.
I think if you examine the recent historical QUARTERLY figures you see GDP is more ‘erratic’ and jumps around a bit more. This is probably due to the fact that the components of Irish GDP that are not in GNP are inherintly erratic. Though it would still be very useful to know exactly what components of the GDP shrank in Q1 08. ie. what foreign owned assets performed more poorly and why.
Simon, we crossed posted. You answer some of the questions I was asking. Thanks!
Simon, go raibh maith agat. learn something about economics is on the do list for 2008.
It would appear that the discrepency between GDP and GNP growth can, to a large extent, be explained by MNCs, investors, etc. reducing the amount of money being taken out of the economy. We are seeing a contraction, but it is mostly concentrated in the construction sector. However, GNP has strayed in a slightly upward direction because less money is being removed. Quarterly snapshots can throw out these figures. Longer term reports usually even these out if historical patterns remain largely constant. Still, it’s going to be bumpy ride.