Little cause for celebration in national accounts data
The most important number in the latest national accounts is noticeably off target
Good riddance to recession. That is what the statisticians effectively said yesterday when they published their quarterly economic growth numbers. But there was little cause for celebration to be found in the national accounts data, for two reasons.
First off, the picture the figures paint of the economy in the second quarter was mixed, more of which anon. More seriously still, they show that the most important single number in the national accounts as far as the Government’s budgetary calculus is concerned is significantly off target.
That figure is GDP in cash terms (ie not adjusted for inflation). The Government’s own budget shortfall is expressed as a percentage of this figure. If the figure is lower than expected then the deficit-to-GDP ratio rises, even if the Government successfully hits its own tax and spending targets (which in itself is still far from assured).
Currently, the Government believes that the deficit as a percentage of GDP will be 7.4 per cent this year, just below the ceiling of 7.5 per cent that Ireland cannot go above under the terms of its bailout and wider EU commitments.
But the current projection is based on cash GDP in 2013 of €167.9 billion, a solid 2.6 per cent increase on 2012. Folk in the department must have been shaking their heads yesterday when they saw cash GDP in the first half of 2013 at a mere €81 billion. Year on year, that amounts to a rate of contraction almost as large as expected rate of growth.
Given that cash GDP growth has been anaemic over the past two years (see the first chart), and is unlikely to be surging now, it will almost certainly not reach the full year projection.
That means that there is now a big risk that the 7.5 per cent ceiling for this year will be breached, even if the expenditure containment targets are achieved and revenues remain on target.
All of this will merely add to tensions within the cabinet and between the Government and the troika as some in the Coalition seek to row back on the €3.1 billion adjustment previously committed to for Budget 2014.
If there are many questions surrounding budgetary issues, what did yesterday’s figures say about what’s going on in the wider economy?
Here, too, there are more than a few conundrums, with different measures of activity showing different trends (see the second chart). The State’s statisticians highlighted yet another conundrum yesterday.
Output and employment are the main indicators of economic activity that economists watch. GDP is usually the best measure of the former, while the numbers at work tell the story on employment. Normally, the two are closely correlated.
But that correlation sometimes breaks down. Jobless growth (ie rising GDP without employment gains) is a not infrequent phenomenon in developed economies. It happened in the Irish economy in the 1990s.
Much less usual is employment growth in the absence of GDP growth. But that is what has been happening here over the past year or so.
Two weeks ago, the Central Statistics Office reported yet another quarter of jobs growth. Since the post-crisis trough in employment in the second quarter of 2012, the numbers at work grew by 1.9 per cent.
Comparison with peers shows just how strong this was. Last Friday, the EU’s statistical agency produced jobs figures for the 28-member bloc. They showed that over the same period only Estonia and Malta enjoyed stronger employment growth.
Statisticians are scratching their heads about this. Yesterday they said they might have to revise the GDP number, the jobs numbers or possibly both.