Treading Water Beneath the Surface

From its peak at the back end of 2007, the Irish economy sank like a stone for two solid years, seasonally-adjusted quarterly GDP falling 10.7% in real terms. Ever since, it has seemed alternately to be sinking more slowly or rising gradually. In reality, for two and a half years it has been treading water beneath the surface.

Between the first three months and the second three months of 2012, estimated GDP was within a rounding error of zero growth, avoiding a technical recession – two quarters of successive GDP contraction – by less than one euro for every person in the country. In the 10 quarters since end 2009, GDP has increased just 2.6%, barely keeping pace with population growth. The unemployment rate remains stranded at 14.8%.

The domestic economy is starved of the oxygen it needs to grow: consumers are overburdened with debt; businesses are either afraid to invest because of weak demand or unable to invest due to lack of credit; government is reinforcing the problem through ongoing, enforced austerity.  The one bright light is Ireland’s continuing strong export performance, even in the face of a challenging external environment.

Those who until recently were writing Ireland off as an ‘export laggard’, in need of aggressive austerity to restore competitiveness, must now surely see that the opposite is in fact the case. Cost competitiveness has been largely and painfully restored, and exports remain robust, but austerity is undermining confidence at home and sapping domestic demand.

The CSO’s mid-September data dump tells us the following:

Quarterly national accounts are often an imperfect guide to the state of the economy. Quarterly numbers are volatile, and the latest data points are estimates subject to – sometimes substantial – revision. GNP figures, often labeled a convenient proxy for the domestic economy in Ireland, are notorious in this regard.

While the debate on whether GDP or GNP is the best measure of wealth, output etc. may never be settled – in most economies they are near identical, but the large multinational presence in Ireland means they differ by about a fifth – but at least quarterly GDP figures are not susceptible to the profit repatriation policies -and their execution – of the multinational sector.

One can argue the toss as to whether the economy is still sinking or slowly rising, but it’s crystal clear that the surface is still a long way off.

One response to “Treading Water Beneath the Surface

  1. Could you clarify 2nd last paragraph a little please for the non economist reader. Thank you.

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