“Recession: The commonly accepted definition of a recession in the UK is two or more consecutive quarters (a period of three months) of contraction in national GDP” HM Treasury glossary of terms
Ireland is back in recession.
We know that because the latest figures show that real GDP declined in the third quarter of 2012 compared to the second quarter and that the real GDP declined in the fourth quarter compared to the third quarter. The generally accepted definition of a recession is two consecutive quarters in which GDP contracts compared with the immediately-previous quarter.
The latest figures from the Central Statistics Office on 21st March 2013 show that in Q2, 2012 our real GDP* was €40,209m, in Q3, 2012 it was €40,045m and in Q4, 2012 it was €40,026m. The CSO reported the decline in Q3 as -0.4% and in Q4 as 0.0% though in Q4 it was really -0.047%. But here you have two consecutive quarters of decline in real GDP.
Why didn’t RTE refer to the recession-word in their reporting? I don’t know and I asked both David Murphy and Sean Whelan at RTE on Twitter if Ireland had slipped back into recession. Neither replied.
I also asked the BBC’s Jim Fitzpatrick the same question on Twitter who replied that yes, Ireland had slipped back into recession on the basis of its recent GDP statistics.
RTE is under constant attack from all sides about its partiality, and there may indeed be partiality in individuals but I think as an organization RTE is reasonably independent. The opinion on here is that the R-word is provocative and the fact that to one decimal place the figures in Q4,2012 were flat, gave RTE the cover to avoid the provocation. Remember on 21st March 2013, An Taoiseach Enda Kenny was in the USA selling the Irish comeback story, and if the national broadcaster back home was reporting a recession it would have pulled the rug from beneath him. And on the other hand, who would be upset if RTE didn’t use the R-word?
Outside RTE, much of the old media is teetering on the brink of collapse and desperate for more advertising spend and better circulation. So a headline with the R-word would just depress confidence and spending, and again, who would it upset if the R-word wasn’t used?
In the Dail last week, the Minister for Finance Michael Noonan was asked if Ireland was back in recession. It seems like a straightforward question and with two quarters of contracting GDP, it would seem equally straightforward to provide a clear answer. The response was hardly clear, though the Minister did acknowledge two quarters of contraction.
Now, it should be said that a conclusion of “recession” is regarded by some as requiring a wider analysis than just real GDP. Unemployment, retail sales, manufacturing, construction, exports are regarded by some as areas to be considered before concluding there is a recession.
The concern on here though is that we are soft-soaping the reality of our position, we still have a 7% deficit which is forecast to reduce to 2% in 2015 and this may not strike some as serious given our progress in reducing the deficit to date, but just look at our neighbours in the UK, they have a deficit forecast for 2013-2017 at 6.8%, 6.0%, 5.2%, 3.5% and 2.3%. We face an immense challenge, and ignoring the fact that we are back in recession is not helpful to honestly tackling the challenge.
The parliamentary question and reply are here:
Deputy Pearse Doherty: To ask the Minister for Finance if he will confirm that the economy is back in recession; and if he will make a statement on the matter.
Minister for Finance, Michael Noonan: The most recent data show that GDP contacted by -0.4 per cent quarter-on-quarter in the third quarter and by -0.0 per cent in the fourth quarter. In relation to the fourth quarter figure, the decline was very modest, and does not show up at the first decimal point.
Importantly, the same statistical release shows that domestic demand stabilised in the second half of 2012, with growth in consumer spending for the first time since 2010. The data-flow in recent months have also been positive on the domestic front as core retail sales have now been in positive territory in year-on-year terms in each of the last seven months. In addition, labour market data show increases in employment in the second half of last year.
My Department forecast GDP growth of 1.5 per cent for 2013 at Budget time. The main downside risks to this forecast remain beyond our control and relate to the external environment as well as some sector specific issues. Since then, a second successive year of negative growth has been forecast in the euro area given the simultaneous deleveraging and consolidation under way in so many euro area countries. A more prolonged downturn in our key international markets would negatively impact upon our export performance. Such a prolonged downturn could arise from a more protracted period of deleveraging or from any re-ignition of the sovereign debt crisis in the euro area.
My Department will publish revised forecasts at the end of April, taking into account all available information. [ENDS]
*real GDP referenced to 2010 and seasonally adjusted