The CSO has just published the first quarter National Accounts. If you want to avoid the spin go straight to Michael Burke’s cogent analysis on Progressive-Economy. Here I just want to look at one long-term development – a very concerning trend relating to the very structure of the Irish economy; namely, the growing gap between GDP and GNP.
As everyone knows by now, GDP includes multi-national activity which acts like an economic souffle. Put a fork in it, take out profit repatriation, and we end up with the GNP which is usually proclaimed to be the true economic measurement for Ireland (I believe this to be a bit simplistic but let’s take it as read – it’s closer to the truth than the GDP figure).
The problem we are facing into is that the gap between GDP and GNP is growing. The headline figures are becoming more detached from the concrete economy. This is not just an academic juggling of numbers. For instance, our deficit, for the purposes of the Maastricht criteria, is measured against GDP. Using the Government’s own projections, in 2009 the deficit was projected to be -11.7 percent of GDP (ex-Anglo subsidy); however, when we use the more relevant GNP, the deficit jumps to 14.5 percent. In other words, the deficit is more of a burden on the economy than the headline numbers suggest.
Or take income per head: if we use GDP per capita we’re still a rich nation, even in 2010. We rank 3rd, behind Luxembourg and Denmark. However, if we use GNP per capita we slide all the way down to 10th. And if you really want to get depressed, if we use PPS measurements (to even out living standards), we are hardly wealthier per head than Greece, Spain and Italy. No wonder that Davy Stockbrokers mocked the idea that we could call ourselves a wealthy society.
All analysis, all prescriptions, all policy must be grounded in reality. So the gap between GDP and GNP should be of concern. So how’s that gap going? In 1995, the gap was 11.6 percent. By 2005 that gap had grown to 15.4 percent. It’s been growing ever since.
Since we entered the recession, the gap has been growing in leaps and bounds. This suggests that whatever about the activities of the multi-national sector – and much of it is tax-accountancy motivated – the GNP continues to fall behind.
Even the Government admits this, projecting the gap between GDP and GNP will grow to 21.5 percent. On current trends, however, this could be highly optimistic. Even so, the Government projects that GDP will grow by over €40 billion between 2009 and 2014; GNP is projected to grow by €29 billion. That’s a considerable difference in terms of growth, tax revenue and unemployment costs.
The whole point of this post is that, in the future, we must pay closer attention to GNP and the economic components that monitor developments in the domestic economy. In this respect, we find the current CSO National Accounts reporting:
- Consumer Spending fell by -0.2 percent over the previous quarter last year
- Government consumption fell by 0-9 percent
- And investment fell by an unnerving 13.8 percent
Not much good news here.