The Irish Economy 2011 by Annette J Dunlea
Published In The Carrigdhoun Newspaper 28th Jan 2011 p.9
The Economic and Social Research Institute predicted an economic contraction of 14% by 2010. In the first quarter in 2009, GDP was down 8.5% from the same quarter the previous year, and GNP down 12%.Unemployment is up 8.75% to 11.4%. The economy exited recession in the third quarter of 2009, with GDP growing by 0.3% in the quarter, but GNP continued to contract, by 1.4%.The costs of the bank rescues, NAMA and government deficits over the period look set to push Irish National Debt up to a ratio of 125% of GDP by 2015.
National data for the third quarter of 2011 were published by the Central Statistics Office (CSO) on 16th December 2011. The data revealed that: on an annual basis, real GDP decreased by 0.1% in the third quarter, following 0.2% and 2.1% expansions in the first and second quarters respectively. Real GNP, by comparison, decreased by 4.2%. Focusing on the underlying growth components, domestic demand continued to decline as personal consumption, government expenditure and investment spending contracted once again. They stated that this negative contribution was partly compensated for by positive export growth of 2.4% and a fall in imports of 3.3%.On a quarterly basis, and using seasonally adjusted data, real GDP fell by 1.9% from the preceding quarter. This followed increases of 1.8% and 1.4% in the first and second quarters respectively. Real GNP decreased by 2.2% quarter-on-quarter, it stated. For the year 2010 as a whole Irish real GDP recorded a decline of 0.4%. This represented a sharp moderation in the pace of contraction when compared to the preceding years.GDP declined by 3.0% in 2008 and 7.0% in 2009 but over the period 2008 to 2010 real GDP contracted by a cumulative 10.2%.As in the case of the fourth quarter, very strong external demand provided a support to the growth rate in 2010, but this was outweighed by falling domestic demand. Exports increased by a rapid 6.3%, while private consumption and investment contracted by 0.8% and 24.9% respectively.
As part of Budget 2012, published on 6 December, the Department of Finance produced new economic forecasts.After three successive years of contraction, real GDP is expected to return to positive growth in 2011, increasing by 1.0%, with the pace of expansion strengthening over the forecast horizon; growth of 1.3% in 2012 is expected to be followed by an average increase of 2.8% per annum in the period 2013 to 2015. As is typical in a small open economy, the recovery is initially being driven by external demand.Strong export growth is being underpinned by the significant competitiveness improvements that the Irish economy has experienced in recent years. Given the impact of budgetary consolidation and the necessary unwinding of private sector imbalances, this strong export performance will take longer than normal to filter down into the domestic components. Nevertheless, by the end of the forecast horizon activity is expected to be broader based, with domestic demand making a positive contribution.It notes : retail sales volumes decreased by 0.8% year-on-year in November 2011. Retail sales excluding the motor trade also contracted by 0.8% in November year-on-year.The annual increase in Retail Sales volumes in 2010 as a whole was 1.4%, while the corresponding decrease excluding Motor Trades was -1.1%.The number of new vehicles licensed for the first time decreased by 20% in annual terms in November 2011.For 2011 as a whole, all new vehicles licensed were up 2.6% year-on-year, while used vehicles licensed decreased by 6.8% year-on year.Output prices in the manufacturing sector increased by 1.9% year-on-year in November. This was composed of a 3.8% annual rise in the home sales component and an increase of 1.5% in the export sales component of the index
Further data from the report reveals that nominal exports were flat in October, recording a year-on-year decrease of 0.2%.Data for exports in real terms (available up until September) show the volume of exports rose by 4.4% year-on-year in September.The trade balance in October was €3.6 billion, which is down 6.5% on the corresponding period last year. Manufacturing output rose by 13.4% year-on-year in October 2011. In the slightly wider industrial sector,output was up by 12.1% on an annual basis.Soft indicators suggest that exports growth could moderate in the coming quarters. The manufacturing and service sector PMIs averaged 49.1 and 50.9 respectively in the fourth quarter .Survey data show that the manufacturing index fell in December measuring 48.6 while the index for services in the same month also contracted measuring 48.4. Export orders were the main component of growth in the indices in 2011.
The Consumer Price Index it says rose 2.9% in the twelve months to November 2011, up from 2.8% in October. Looking at the monthly developments, the main driver was the rise in education costs on foot of an increase in fees for PLC courses while increases in clothing costs also contributed.On a HICP6 (Harmonised Index of Consumer Prices) basis, prices rose by 1.7% in the year to November following a rise of 1.5% in October. This remains one of the lowest rates in the euro area and the inflation differential with our main trading partners represents an improvement in Ireland’s price competitiveness. Euro area annual inflation stood at 2.8% in December, down from 3.0% in November.The annual average rate of inflation for 2010 on a CPI basis was -1.0%. On a HICP basis inflation averaged -1.6%.Over the last year, upward price pressure has mainly come from mortgage interest costs, increased energy prices and the impact of insurance price hikes. Looking to the future, the year-on-year rate of inflation is likely to remain elevated in the coming months with the announced VAT increases coming into effect as well as continued increases in administered prices. However, general economic weakness is keeping a lid on the price of many other goods and services.In Budget 2012, published in early December 2011, the Department forecast HICP inflation to average 1.2% in 2011 and 1.9% in 2012.The annual rate of growth in Private Sector Credit advanced to Irish residents was -1.9% in November 2011,following a 0.1% increase in October 2011. The annual rate of change of residential mortgages was 2.7% lower in November 2011 than in the same month in 2010, having fallen at a similar rate in October 2011 (2.6%).
The CSO published the Quarterly National Household Survey (QNHS) for the third quarter of 2011 in December. The QNHS provides a definitive measure of labour market trends, including employment,unemployment and labour force participation rates.The key points from the release are:there were 1.806 million people in employment in Q3 2011, a decline of 2.5% from the same quarter of the preceding year.This compared to annual falls of 2.9% and 2.0% in the first and second quarters of 2011 respectively.On a quarterly basis and using seasonally adjusted data : employment was 1.1% lower than in the second quarter of the year. This followed a quarterly contraction of just 0.2% in Q2 2011.Since peaking in Q4 2007 employment has now fallen by almost 350,000 in seasonally adjusted terms.The labour force declined by 1.4 per cent on an annual basis, a broadly similar rate of decline to the previous three quarters.Around 55% of this decline in the labour force reflected a fall in participation; the seasonally adjusted participation rate declined to 60% from 60.7% a year earlier.The remainder reflected negative demographic effects against the backdrop of net outward migration.The CSO estimate that just over 34,000 people left the country in net terms in the year to April 2011.This reflected net outward movements in both Irish and non-Irish nationals. The labour force has declined by 145,000 since the final quarter of 2007 in seasonally adjusted terms.There were 315,000 people unemployed in the third quarter, an increase of around 16,000 from the same quarter of 2010. Compared to the previous quarter, and in seasonally adjusted terms, unemployment increased by 4,000, while the seasonally adjusted unemployment rate increased to 14.4% in Q3.Those in long term unemployment continued to increase in the third quarter of 2011. More than half of those unemployed are now long term unemployed. The long term unemployment rate increased to 8.4%, says the report.Sectoral Developments:On an annual basis, employment fell in ten of the fourteen economic sectors.For the first time since Q2 2008 the construction sector did not account for the largest annual employment decline. Employment in the sector did fall by almost 7,000.The largest declines occurred in the education (-12,000) and the accommodation and food services (-8,500) sectors. Employment increased in the administration and support services, transportation and storage, human health and social work and ICT sectors.Focusing on the period since employment peaked in Q4 2007, losses in the construction sector account for 45% of the total jobs lost. The industrial sector and wholesale and retail sector each account for additional 15%.
On The Live Register there were 434,784 people on in December, a decrease of 2,295 from the same month in 2010. On a seasonally adjusted basis the Register decreased by 3,300 to 443,200 from November (a decrease of 0.7%). Reflecting these developments the CSO estimate that the standardised unemployment rate (SUR) was 14.3% in December.The report says of Employment Targets:The June 2010 European Council adopted the Europe 2020 Strategy (EU2020) for jobs and smart,sustainable and inclusive growth. EU2020 is the successor to the Lisbon Strategy which expired in 2010. The EU employment target under EU2020 “aims to raise to 75% the employment rate for women and men aged 20-64, including through the greater participation of young people, older workers and low-skilled workers and the better integration of legal migrants”. Ireland’s own National Employment target under EU2020 which is contained in its National Reform Programme is “to raise to 69-71% the employment rate for women and men aged 20-64, including through the greater participation of young people, older workers and lowskilled workers, and the better integration of legal migrants, and to review the target level of ambition in 2014, in the context of a proposed mid-term review of the Europe 2020 Strategy”. In Q3 2011 Ireland’s employment rate for women and men aged 20-64 was 63.9%. On redundancies the report says that the latest figures from the Department of Social Protection show that the number of redundancies in December 2011 was 6,8508, while the total figure from end-December 2010 to end-December 2011 was 49,766, a decrease of 15.3% on the previous twelve month period.
The CSO published Earnings and Labour Costs data for the third quarter of 2011 in November. The release covers employees in all sectors with the exception of agriculture, fishing and forestry. The key points from the release are: average weekly earnings increased by 1.4% on an annual basis to €693.40. This was the first increase in weekly earnings for over two years. The average work week contracted by 0.3% to 32 hours. This was outweighed by an increase in average hourly pay rates, however. Average hourly earnings increased by 1.5% in annual terms to €21.64.Hourly earnings in the public sector increased by 1.1% on an annual basis, while average weekly paid hours fell from 32.3 to 31.8 hours. As a result, average weekly earnings were 0.5% lower year-on-year.Hourly earnings in the public sector had recorded a very sharp fall in 2010, declining by 4.4% for the year as a whole.Hourly earnings in the private increased by 1.6% from the previous year, while average weekly paid hours increased by 0.3% to 32.1 hours. Accordingly, average weekly earnings were 2.0% higher on an annual basis, according to the CSO. Hourly earnings in the private sector declined by 0.1% last year.The latest developments brought average weekly earnings to €906.81 and €617.45 in the public and private sectors respectively.
Across the economic sectors average hourly earnings increased in six of the 13 sectors. The largest increases were in administrative and support services (5.4%), education (4.1%) and accommodation and food services (3.2%) sectors;Contractions in hourly earnings occurred in the construction (-4.3%), professional, scientific and technical (-2.6%), transportation and storage (-1.4%) and arts, entertainment and other services (-1.2%) sectors.Hourly earnings were stable in the industry, ICT and human health sectors when compared to the same quarter of 2010.The data also revealed that employment in the public sector (including semi-state bodies) declined by 8.2% in annual terms in the year to Q3. These figures differ from those published by the Department of Public Expenditure and Reform which are based on full-time equivalents and do not include semi-state bodies. Nevertheless, the two indicators show a similar trend of declining numbers in the public sector.An Exchequer deficit of €14.5bn is forecast compared with €17.5bn this year; excluding bank bailouts, the deficit/GDP ratio in 2012 is expected to be 7.1% compared with 9.3% in 2011.The public debt is forecast to rise to 109% of GDP in 2012, down from the ESRI’s forecast of 116% last spring.
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