Trends In Economic Output in Ireland

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ireThere is very little combined economic analysis of both parts of the island of Ireland. With the exception of some very useful and innovative work done by the NERI Institute, it is not clear there is any other body which attempts to look at the island economy by simultaneously integrating an economic perspective North and South.

This is regrettable. To take just one example, about one-third of what the Office of National Statistics (ONS) designates NI exports goes southwards, although the proportion of exports from the RoI to the North is far smaller. In fact, despite all the obstacles in terms separate jurisdictions, regulations, monetary and fiscal policies, etc., it is very likely that the two economies are more integrated now than at the time of Partition. But that is a question for another time.

A recent development from the Office of National Statistics (ONS) does allow at least some useful comparisons to be made. Gross Value Added (GVA) is a measure of total output in an economy which excludes the effects of taxes and subsidies on production, to remove the distortions caused by them. It can be used when comparing the levels and composition of output in differing regions.

The Central Statistical Office (CSO) has for some time provided a real measure of GVA, which excludes the effects of inflation. The ONS has only recently done the same for what it describes as the regions of the UK.

The results are in the chart below show real GVA in both parts of Ireland. The indices of activity are adjusted so that the year 2010 equals 100.

Fig1

Fig.1 Real GVA in RoI & NI 2006 to 2012

The effect of comparing the data may be surprising. These show that recessions occurred both sides of the border at the same time but that the recession in the North was more severe.

Real GVA in the South fell to a low in 2010 and has since recovered slightly. The links to the relevant statistical data are provided here and here. There is as yet no recovery in NI.

The actual decline in real GVA in NI was 11.3% while the real decline in GVA in RoI has been 3.3%, although at its low-point it was a slump of 4.9%. This is shown in the chart above where both have been rebased so that the indices in 2010 equal 100.

Over at NERI, Paul MacFlynn has updated the data to 2012. While the ONS does not provide real data up to that point, he has adjusted the nominal data for inflation (using the GDP deflator of the National Accounts). While both statistical offices attempt to account for inflation, the methods used are not identical and in any case all the data is subject to revision. Even so it is still possible to draw some broad conclusions. The comparison in the chart below is of real GVA in both parts of Ireland is for a longer period, from 2000 to 2012.

Fig2

Fig. 2 Real GVA in RoI & NI 2000 to 2012

From 2000 to 2007 the level of real GVA in NI expanded by 24%. Over the same period GVA expanded in RoI by 40%. The slump saw real GVA fall by 6.2% in RoI from 2008 to 2010 and it has since recovered less than half of that loss. By contrast real GVA in NI fell by 10.9% over the same period and there has been no recovery. The cumulative fall in real gross value added to 2012 has been 11.8%.

The OECD does provide data on real GVA, but not for either RoI or NI. If the OECD’s national data is combined with the data for both parts of Ireland it is possible to make some comparisons. It is important to stress that these are not directly comparable, as the different agencies use different sources and methods. Even so, they do allow for a broad perspective on the relative performance in the crisis.

The chart below combines the data on the change in real GVA from 2008 to 2012 for Ireland with the same data for selected OECD economies. The NERI estimate of real GVA in NI in 2012 has been used.

fig3

Fig. 3 Real GVA in Selected OECD Countries & NI 2008 to 2012

In the chart there are effectively four broad groupings. Sweden, the US and Germany have been the most successful of these selected OECD economies. But even strongest economy in Sweden has increased its GVA in real terms by only 4.7% over a 5-year period. This might be characterised as crawling from the wreckage.

The next grouping includes France and the OECD as a whole, as growth has been less than 1% in either direction. This is stagnation. As it encompasses the entire OECD the entire period should be characterized as the Great Stagnation.

The third grouping includes the laggard economies of Portugal, Britain, Spain and RoI, where real GVA has fallen by around 3% over the period. In effect these are economies where output remains well below its peak and recovery remains elusive.

Finally there are economies where the crisis has been an outright disaster. Taking Italy alone, there have been sharper recessions in Western Europe in the post WWII period. But previously no recession was so severe that there was still a 6.6% fall in output 5 years later.  Greece is much worse. It has experienced the most severe slump of any OECD economy in the post WWII period. The performance of the NI economy sits between these two.

Conclusion

Clearly there may be other regional economies that have been as severely hit in real terms but that would not alter the verdict that on these data the NI economy has experienced a disaster, twice as bad as Italy but not as severe as Greece. It is also possible that the statisticians have assumed a much higher level of price increases than is actually the case. This is an argument for better quality data than is currently available, but it might not change the overall picture.

Despite much talk of recovery, (in Britain as well as in Ireland) the economy in RoI has not experienced a recovery and remains among the laggards, Portugal, Britain and Spain. These are worse even than the Great Stagnation which characterises the OECD as a whole.

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