We will get the economic figures from the Central Statistics Office tomorrow 17th December 2012 [CORRECTION: moved to Tuesday 18th February 2012 at 11am] for the three months ending 30th September 2012, and there will be much focus on these figures, particularly in light of the Government’s odd projections for 2012.
There are mixed signals in the Irish economy with exports performing well, with inflation falling and subdued, with retail sales rising modestly and some good anecdotal reports of pre-Christmas sales. Consumer confidence is up and down, but overall appears steady. On the other hand, we continue to have 14.6% unemployment equating to 324,000 people and we have a total of 420,000 on the Live Register which includes recipients of all unemployment-related benefit and this latter figure is after an additional 5,000 people going on schemes in the past 12 months which allow them to be temporarily removed from the Register. Anecdotally emigration continues to be elevated. A mixed domestic picture.
Ireland’s GDP – gross domestic product – is 2011 was €158,993m and this is the usual top-line measure of the strength of an economy. In Ireland however, because of the significant presence of foreign multinationals who remit a lot of their profits overseas, it is our GNP – gross national product which largely removes the effect of these remittances – that many economists focus on, and in 2011 our GNP was €127,016m.
The most recent Government projections from the Medium Term Fiscal Statement in November 2012 are that real GDP – that is excluding the effect of inflation – will increase by 0.9% in 2012 and that real GNP will increase by 1.4%. Inflation, measured by HICP – harmonized index of consumer prices – is estimated at 2.1% in 2012. Nominal GDP for 2012 is put at €163,150m – a 2.6% increase over the nominal €158,993m actual nominal GDP in 2011. Nominal GNP for 2012 is put at €130,850m – a 3.0% increase over the nominal €127,016m actual nominal GNP in 2011.
Economic forecasting is very difficult indeed, and generally you only tend to pay particular attention when one forecast is significantly out of line with another. And it would seem that the Government’s current projections are indeed out of line with consensus.
In October 2012, the Central Bank of Ireland produced its latest quarterly forecast for 2012 and put real GDP at 0.5% and GNP at a contraction of 0.4%, HICP is forecast at 2%. The GDP forecast is in line with other organisations’ forecasts, eg the European Commission forecasts 2012 real GDP at 0.4%.
These percentages might look very small to you and you might wonder whether a 0.5% difference in GDP forecasting or even a 1.8% difference in GNP forecasting makes a lot of difference. Unfortunately, it does make a difference.
In Ireland’s case, we have a target deficit to reach in 2012, which has been agreed with the programme Troika. As a percentage of GDP, the target is 8.6%. The Government is saying it expects to beat that target and deliver an end-of-year deficit as a % of GDP of 8.2%. And these targets are by reference to actual GDP where both real GDP and inflation combine. Actual annual HICP to end of November 2012 was 1.6% which is below BOTH the Government and Central Bank’s estimates for the 12 months to the end of December 2012.
When recently asked to explain why the Government’s forecast was at odds with the Central Bank’s forecast, Minister for Finance Michael Noonan gave a partial response – see below – which justified the GNP forecast on the basis of the CSO’s estimates of GNP and GDP for the first half of 2012. But these estimates were also available to the Central Bank at the start of October, and in line with Department of Finance practice, there was no real attempt to answer the question, why the difference with the Central Bank.
Forecasts come and go, and it is a difficult business, but the recent publication of the British outlook for their economy from their independent Office for Budget Responsibility should have set a few alarm bells ringing because it forecasts a 0.1% contraction in the British economy in 2012, down from a 0.8% forecast expansion earlier this year. And remember that Britain is our biggest practical trading partner. The latest Department of Finance monthly economics report refers to international developments but curiously omits reference to the UK statement on 5th December 2012.
So the estimates of Q3, 2012 GNP and GDP from the CSO will be closely watched tomorrow to see if they bolster or undermine the Government’s own forecasts which at this point look distinctly odd.
This was the parliamentary question and response this week about the discrepancy between Central Bank and Department of Finance forecasts.
Deputy Pearse Doherty: To ask the Minister for Finance if he will provide an explanation for the significant difference between the forecast contraction of gross national product by the Central Bank of Ireland produced in October 2012 for the full year 2012 of 0.4% and the forecast in the medium term fiscal statement produced by his Department in November 2012 which forecast real GNP growing at 1.4% in 2012..
Minister for Finance, Michael Noonan : My Department’s latest forecasts are set out in the Economic and Fiscal Outlook which accompanied the Budget and which was based on the Medium Term Fiscal Statement (MTFS) published on 24th November.
My Department is projecting real GNP growth of 1.4 per cent for this year. This projection is based inter alia on data for the first half of the year which show annual GNP growth of 2¼ per cent relative to the first half of the previous year.
The projection for GNP is in excess of that projected for GDP (0.9 per cent). As the Deputy will be aware, GNP equals GDP less net factor income from the rest of the world, the latter mainly relating to profit repatriation by multinational corporations. Net factor outflows recorded a sharp fall in the second quarter of 2012 boosting GNP growth relative to GDP. This development is also likely to contribute to a further improvement in the current account of the balance of payments, which is expected to record a surplus equivalent to 3.4 per cent of GDP this year.
I would stress that net factor income flows are very volatile on a quarterly basis as they can be heavily influenced by specific decisions made by individual firms which cannot be predicted with much certainty. In this context, the MTFS stresses that there is a wide degree of uncertainty around GNP growth and level forecasts both in the short- and medium-term.