Press release
Minister Donohoe notes continued recovery in domestic economy in the third quarter
Published on
Last updated on
Published on
Last updated on
The CSO today (3 December) published the Quarterly National Accounts for the third quarter of 2021. Commenting on the figures, Minister for Finance, Paschal Donohoe T,D, said:
“Today’s figures, while confirming the continued growth in the domestic economy, are slightly below expectations, particularly on the consumer spending side. Modified domestic demand, my preferred quarterly measure of economic activity, increased by 1½ per cent quarter-on-quarter. It now stands at more than 3 per cent above the pre-pandemic level in the fourth quarter of 2019. Consumer spending grew by a modest ½ per cent, a figure that was somewhat behind what had been expected, given the ongoing strength of VAT numbers and the recovery in employment and wages.
“The exceptionally strong annual GDP numbers are broadly in line with expectations and again point to the significant disconnect between this indicator, which is distorted by globalised activities in the multinational sector, and underlying developments in the domestic economy. While it remains the case that a significant part of our corporation tax receipts are still related to GDP, for the purposes of understanding and projecting underlying economic and fiscal developments, modified metrics such as MDD and GNI* are now the go-to measures. For this reason, my Department today published a report on GNI* outlining its relevance as a domestic indicator and describing its approach to forecasting this important measure.
“Overall, today’s figures confirm that the Government’s policy response to the pandemic has been appropriate – minimising scarring and paving the way for a sustained recovery. Further positive news can be seen in the construction sector with 21,000 homes completed over the four quarters to the third quarter this year, with more than 30,000 starts in the same period despite the lockdown. However, against this we are also seeing significant price pressures with annual inflation now more than 8 per cent in the construction sector according to today’s numbers.
“Looking forward, early indications point towards an easing in domestic growth rates in the domestic economy in the fourth quarter. Part of this is the continued adjustment in growth towards pre-pandemic trends with re-opening effects and pent-up demand tapering off, with an element of household caution also a factor in light of epidemiological developments. However, with our booster campaign ramping up, with nearly a quarter of fully vaccinated people having received a booster, I am confident that, once we overcome this further wave of the virus, our economy and our jobs market will continue to strengthen. While the recovery is not yet complete, and has not been uniform across sectors, it is clear that we are moving in the right direction.”
Ends.
Note to editors:
GDP is a measure of the total economic activity in a country.
GNI measures of how much of the value produced in a country stays in the country.
Contract manufacturing refers to a form of outsourcing whereby an Irish-resident firm engages a company abroad to manufacture goods on its behalf. As these goods are recorded as Irish exports when sold, this practice serves to artificially boost exports.
On-shoring of intellectual property refers to Irish-resident, foreign-owned firms moving high-income generating intellectual property assets to Ireland.
Separately the large depreciation bills from on-shored foreign-owned intellectual property assets (and to a lesser extent aircraft for leasing) suppresses profit outflows from foreign MNCs and thus artificially inflates GNP and GNI, measures that had until recently been regarded as more appropriate metrics on underlying developments.
Modified metrics (MDD, modified investment, GNI*) strip out these distortions and are crucial to understanding and projecting underlying economic developments in Ireland.
The divergence between GDP and GNI* has accelerated in recent years; GDP has risen by almost 70 per cent since 2014 whereas GNI* has grown by only 18 per cent. GDP is expected to be nearly double the level of GNI* this year.
Modified (final) domestic demand, a proxy for the domestic economy, is the sum of personal and government consumption and investment, excluding investment in imported IP and aircraft for leasing. It also excludes changes in the value of stocks.
While MDD is published on a higher frequency basis than GNI*, GNI* is a more comprehensive measure. However, the two measures are highly correlated.
Construction sector gross value-added grew by 1.8 per cent in value terms on an annual basis in the third quarter but declined by 6.1 per cent in volume terms. This indicates annual prices increases in the construction sector of around 8 per cent.
The Department of Finance paper on GNI* is available here
The Department’s dashboard of real-time indicators on the pandemic, including cross-country comparisons on infections, hospitalisations, ICU admissions, and vaccinations is available here