Stag-covery (n): a situation where statistical recovery occurs within a persistent economic stagnation
The CSO’s new release shows a statistical recovery and a stagnant economy – a state of affairs that can be described as stag-covery.
The headline rates show a GDP quarterly increase of 2.7 percent. This might seem solid enough but all this is driven by net exports. The domestic economy remains mired in stagnation.
The worst of the economic crash ended in 2010. Since then it’s just a matter of bouncing along the bottom. In 2013 consumer spending fell, spending on public services bumped up marginally while investment fell marginally. We can debate the swings and roundabouts (impact of the pharma cliff, aircraft leasing, etc.). But the narrative remains the same – the ship sunk to the bottom and is struggling to get back to the surface.
The first quarter of 2014 didn’t get off to a hectic start. On a quarterly basis:
- Consumer spending fell, though this shouldn’t be too surprising given that it was coming off a quarter that contained Christmas spending.
- Spending on public service resumed its long-term fall – by over 2 percent.
- Investment fell by a substantial 8 percent.
It is this inability of the latter to generate any momentum upwards that is particularly worrying.
This represents is a potential problem for the Government. In the last quarter investment fell by 8 percent. Yet the Government has pencilled in investment growth of over 15 percent this year. Of course, the game isn’t even half over but this is an especially poor start.
Yes, GDP grew in 2013, thanks to the Eurostat revision (for an interesting thought on these revisions see Constantine Gurdgiev’s post). But it was marginal – at 0.2 percent. Quarterly GDP grew by 2.7 percent but this was down to net exports. Leave aside the issue of how real these exports are, especially in the services sector; the real question is whether this export growth will have a strong spill-over in the domestic economy (employment, wages, sourcing from domestic companies). Forfas shows that exports grew by 11 percent between 2008 and 2012. Yet, employment and direct expenditure (payroll and domestic sourcing) fell by 3 percent each.
On the swings and roundabouts, Philip O’Sullivan of Investec makes an interesting point:
‘The national accounts release is not something that we particularly look forward to, given its tendency to be significantly distorted by idiosyncrasies relating to the multinational sector (such as the patent cliff in the pharmaceutical industry) and subject to frequent revisions. Today’s publication does not disappoint on either front. We prefer to base our core narrative around the Irish economy on the encouraging signals emanating from high frequency data on the domestic side (as reflected in positive labour market, retail sales, industrial production and residential property price data) . . . ‘
Whatever about house prices (if houses were being built there would be more economic activity but house price rises might be depressed – is that good or bad?), let’s look at the high frequency data – that is, data that comes out more frequently and up-to-date.
Labour Market: Quarterly employment growth in 2013 averaged 14,700 (let’s pretend this is real - for a more cautious reading of this data see here). In the first quarter of this year employment only grew by 1,700.
Retail Sales: That average monthly Index for retail sales in the first five months of this year is 2.4 percent higher than the monthly average for last year. So this is positive. But in the last month the index fell marginally. Hopefully this is not an emerging trend.
Industrial Production: There has been solid growth since December of last year. But this is concentrated in the ‘modern’ sector (primarily multi-national sector) – in particular, the chemical / pharmaceutical sector - but there has been little growth in the sectors dominated by domestic industry. We need to see more growth in the domestic sectors which are employment and sourcing-rich.
All in all, the economy remains in stagnation mode. There are some small positive signs but against the backdrop of the phenomenal crash, it is just that: small. We can call it a recovery and there is data to substantiate that. But that recovery is not inconsistent with what can be called stag-covery.
To my mind, that captures the state we’re in.