Category Archives: Quarterly National Accounts

15/12/19: Under the Hood of Irish National Accounts: 3Q 2019 Data

CSO have released the latest (3Q 2019) data for the National Accounts. The headlines are covered in the release here: and are worth checking. There was a massive q/q increase in GNP (+8.9%) and a strong rise in GDP (+1.7%).

Official value added q/q growth figures were quite impressive too:

  • Financial & Insurance Activities value added was +5.7 percent in volume, all of which, judging by the state of the Irish banks came probably from the IFSC and insurance premiums hikes
  • Professional, Administrative & Support Services +5.1 percent (this sector is now heavily dominated by the multinationals)
  • Public Administration, Education and Health sector lagged with a +1.5 percent 
  • Arts & Entertainment +1.8 percent
  • Construction grew by much more modest +1.3 percent 
  • Industry (ex-Construction) fared worse at +1.1 percent 
  • Information & Communication increased by 0.8 percent over the same period
  • Meanwhile, more domestic-focused Agriculture recorded a decline of 3.2 percent 
  • Distribution, Transport, Hotels & Restaurants posted a decline of 1.0 percent.
On the expenditure side of accounts:
  • Personal Consumption Expenditure increased by 0.9 percent q/q
  • Government expenditure increased 1.2 percent.
Not exactly the gap we want to see, especially during the expansionary cycle, but public consumption has been running below private consumption in level terms ever since the onset of the recovery.

With this in mind, here is what is not discussed in-depth in the CSO release. CSO reports a measure of economic activity that attempts to strip out some (but not all) of the more egregious effects of the tax optimising multinational enterprises' on our national accounts. The official name for it is 'Modified Domestic Demand', "an indicator of domestic demand that excludes the impact of trade in aircraft by aircraft leasing companies and trade in R&D service imports of intellectual property". Alas, the figures do include intangibles inflows, especially IP on-shoring, income from domiciled intangible assets, and transfer pricing activities. Appreciating CSO's difficulties, it is virtually impossible to make a judgement as to what of these three components is real (in so far as it may be actually physically material to Irish enterprises and MNCs trading from here) and what relates to pure tax optimisation.

With liberty not permitted to CSO, let's take the two categories out of the aggregate modified demand figures.

So, this good news first: Modified Total Domestic Demand is growing and this growth (y/y) is improving since hitting the recovery period low in 3Q 2018. 

Bad news: growth in modified domestic demand remains extremely volatile - a feature of the Irish economy since mid-2014 when the first big splashes of the Leprechaun Economics started manifesting themselves (also see last chart below).

Not great news, again, is that domestic growth is not associated with increases in investment (first chart above, blue line). 

More good news: in levels terms, adjusting for inflation, Ireland's Modified Domestic Demand has been running well-above pre-crisis period peak average levels for quite some time (chart below). Even better news, it appears that much of the recent support for growth in demand has been genuinely domestic.

Next chart shows y/y growth rates in the headline Modified Total Domestic Demand as reported by the CSO (blue line) and the same, less transfer pricing, stocks flows and IP flows (grey line). 

Starting with mid-2014, there is a massive variation in growth rates between the domestic economy growth rates as reported by the CSO and the same, adjusting for MNCs-dominated IP and transfer pricing flows, as well as one-off effects of changes in stocks (inventories). There is also tremendous volatility in the MNCs-led activities overall. Historically, standard deviation in the y/y growth rates in official modified domestic demand is 5.68, and for the period from 3Q 2014 this is running at 5.09. For modified demand ex-transfer pricing, IP and stocks flows, the same numbers are 6.12 and 1.62. 

Overall, growth data for Ireland has been quite misleading in terms of capturing the actual tangible activities on the ground in prior years. But since mid-2014, we have entered an entirely new dimension of accounting shenanigans by the multinationals. Much of this is driven by two factors:
  1. Changes in tax optimisation strategies driven by the international reforms to taxation regimes and the resulting push by the Irish authorities to alter the more egregious loopholes of the past by replacing them with new (IP-related and intangible capital-favouring) regime; and
  2. Changes in the ays in which MNCs prioritise specific investment inflows into Ireland, namely the drive by the MNCs to artificially or superficially increase tangible footprint in the Irish economy (investment in buildings, facilities and on-shored employment) to provide cover for more tax-driven FDI.
Time will tell if these changes will lead to more or less actual growth in the real economy, but it is notable that the likes of the IMF have recently focused their efforts at detecting tax optimising activities at national levels away from income flows (OECD approach to tax reforms) to FDI stocks and firm-level capital activities. By these (IMF's) metrics, Ireland has now been formally identified as a corporate tax haven. How soon before the OECD notices?..

30/7/15: Irish 1Q 2015 Growth: Sectoral Contributions

Some very strong headline figures on Irish growth in 1Q 2015 are out today from the CSO so I will be blogging on these in a number of posts today.

To start with, let's take a look at data on GDP composition at Factor Cost - in other words, contributions of various economic sectors to GDP on output side of the National Accounts. The analysis below references real GDP (adjusted for prices changes).

In 1Q 2015:

  • Agriculture, Forestry & Fishing sector posted growth in output of 5.8% y/y. This contrasts with growth of 21.0% recorded y/y in 4Q 2014 and with 16.5% expansion y/y in 1Q 2014. This is the slowest growth in the sector since Q3 2013. Overall, in annual terms, the sector accounted for 2.02% contribution to the overall GDP growth (Factor Cost GDP) or EUR50 million y/y (compared to EUR194 million added by the sector in 4Q 2014). The sector was the second smallest contributor to growth in GDP (at Factor Cost) in 1Q 2015 after Building & Construction. Quarterly growth in the sector was negative: in 1Q 2015 Agriculture et al sector shrunk (on seasonally-adjusted basis) by 30% compared to 4Q 2014 and this contrasts with 25.4% growth q/q recorded in the sector in 4Q 2014.
  • Industry (ex-Building & Construction) grew strongly in 1Q 2015, posting y/y expansion of 9.63% compared to 8.71% expansion in 4Q 2014 and 0.56% growth in 1Q 2014. This marks 1Q 2015 as the fastest growth quarter (y/y terms) since Q3 2014 and the second fastest growth quarter (y/y) since Q4 2010. As the result, the sector accounted for 39.1% of all growth recorded in GDP (at Factor Cost) in 1Q 2015. The sector was the single largest contributor to GDP (at Factor Cost) growth in 1Q 2015. A caveat here is that this sector growth is strongly influenced by the MNCs, especially Pharma, Bio and Medical Devices sectors, but more on this when I am covering external sectors performance in subsequent posts. Quarter on quarter growth in Industry (ex-Building & Construction) was much less impressive than annual growth rates. In 1Q 2015, Industry contribution to GDP actually was negative on q/q basis at -0.31% compared to 5.16% growth recorded q/q in 4Q 2014 and 3.35% growth recorded q/q in 1Q 2014.
  • Building and Construction sector posted positive y/y growth of 3.26% in 1Q 2015, which contrasts positively with a -0.16% contraction y/y posted in 4Q 2015. However, 1Q 2015 y/y growth was much weaker than 9.66% growth recorded in the sector in 1Q 2014. Overall, Building & Construction sector contribution to growth in GDP (at Factor Cost) stood at 1.38% in 1Q 2015 - the smallest positive contributor to growth in 1Q.
  • Distribution, Transport, Software & Communication (DTSC) sector made a strong contribution to growth in 1Q 2015, with activity up 6.5% y/y. The rate of annual growth is relatively steady in the sector, having posted growth of 5.4% in 4Q 2014 and 5.93% growth in 1Q 2014. The sector accounted for 29.1% of total growth in GDP (at Factor Cost) in y/y terms. The caveat applying to these figures is that the sector includes many ICT-related MNCs which have been recently posting growth in tax optimisation-linked activities. Quarterly growth in the sector was also positive, with 1Q 2015 activity up 2.11% on 4Q 2014, after posting growth of 1.05% q/q in 1Q 2014.
  • Public Administration & Defence (PAD) sector posted another quarter of annual contraction in activity, shrinking -5.52% y/y in 1Q 2015 after posting -3.09% decline in 4Q 2014. In contrast, the sector expanded by 2.21% in 1Q 2014. Overall, sector made negative contribution of -3.4% to annual GDP (at Factor Cost) growth in 1Q 2015. This marks the largest contraction in annual growth rates in the sector since 2Q 2012.
  • Other Services (including rents) sector posted another quarter of steady growth, rising 4.42% y/y in 1Q 2015, having previously posted growth of 4.40% in 4Q 2014 and 4.12% in 1Q 2014. Sector contribution to overall growth in GDP (at Factor Cost) was 30.1% - second largest after Industry ex-Construction.
Chart below summarises sectoral shares of GDP growth in 1Q 2015:

The above clearly shows that the bulk of growth in 1Q 2015 by sector must be compared against growth in exports to attempt to control for MNCs activities before drawing any conclusions about headline growth figures anchoring to the real economy. I will do this in subsequent posts, so stay tuned.

Overall, real GDP at Factor Cost posted growth of 6.1% y/y in 1Q 2015 - a healthy figure compared to 5.28% growth recorded in 4Q 2014 and to 3.87% y/y expansion in 1Q 2014. Thus annual rate of growth accelerated in 1Q 2015 compared to 4Q 2014 and to growth a year ago.  Overall, sectoral activity expanded GDP by EUR2.47 billion in 1Q 2015 compared to growth of EUR2.176 billion in 4Q 2014.

As chart above shows, annual growth rate is currently running above the period average (2012-present) and marks statistically significant rate of annual growth. Which is very good news.

On a quarterly basis, GDP (at Factor Cost) grew by a more modest 0.74% quarterly rate in 1Q 2015, slightly slower than in 4Q 2014 when it expanded 0.79% q/q and much slower than in 1Q 2014 when it grew at 1.57% q/q.  This marks 1Q 2015 as the slowest quarter over the 5 consecutive quarters and the second slowest in 8 consecutive quarters.

Longer-term trends:

Based on annual rates of growth and levels performance, Irish real GDP (at Factor Cost) is on a renewed positive trend. Once again - good news.

Stay tuned for more analysis of the National Accounts figures in subsequent posts.