Economic growth ground to a halt in the third quarter of last year, according to the latest figures from the Central Statistics Office (CSO).
New national accounts figures, published yesterday, show a slight 0.3 per cent fall in gross national product (GNP) during the quarter compared to the same period in 2001. If the main trends in the figures are sustained, the prospects are for weak growth this year.
The CSO warns that too much reliance should not be placed on data for one quarter. However the lacklustre economic performance is confirmed by figures showing that GNP in the first nine months of last year was just 1.4 per cent ahead of the same period in 2001.
The small decline of GNP in the July-September period last year indicates the weakest period for the economy in more than a decade. The CSO has only started measuring quarterly data since 1998 and this was the first annual decline since then. The last recorded fall in GNP was for the year 1986, but the economy experienced a weak period during the currency crisis of late 1990 and early 1991.
The breakdown of the latest figures shows that growth in the domestic economy was slowing sharply in the latter part of 2002, but rapid growth was recorded in multinational exports and the resulting profit repatriations. This meant that, while GNP fell slightly in the third quarter, gross domestic product (GDP) growth was 6.9 per cent. Annual GDP growth for the first nine months of 2002 was 6.1 per cent. GDP is the measure of overall economic activity before account is taken of net factor income flows into and out of the economy. Profit repatriations of multinational companies are the dominant factor in these flows.
The extent of the gap between the GNP and GDP growth rates last year is most unusual. It suggests that massive exports are being recorded in parts of the high-technology sector with the resulting profits being repatriated out of the State. This boosts GDP but has a limited impact on GNP.
Recent industrial production and export figures show that exports are being driven by the chemical/pharmaceutical sector. A number of companies in the basic chemical sector are believed to be the main contributors.
CSO statisticians say they have also recorded a decline in the inflows to Irish firms from their investments abroad, which would also help to explain the gap between GDP and GNP. However, they warn that estimates of net factor flows from the multinational and domestic sectors may be revised when fuller information is available.
Reacting to the figures, Opposition politicians renewed their attack on the coalition's handling of the economy. The Government "has clearly taken its eye off the ball as far as competitiveness is concerned", according to Mr Richard Bruton, Fine Gael finance spokesman. A "cost-price squeeze" is taking its toll on domestic industry, he said.
Labour's finance spokesperson, Ms Joan Burton, said the Government was ignoring the threat of a recession and needed new policies to develop infrastructure and support indigenous industry.
The overall pattern of the data suggests a significant weakening in economic activity in most areas, although some annual growth was recorded in the key domestic economic aggregates, complicating assessment of the real rate of growth. Consumer spending in the third quarter was running 2.6 per cent ahead on an annual basis. Investment spending was up 2.1 per cent for the quarter, although the trend in recent months appears weak. Net government spending was running 7.5 per cent on an annual basis, reflecting higher public spending.
The main reason for the sharp rise in GDP is the 7.7 per cent annual rise in exports recorded in the quarter.
However, the predominance of the multinational sector in this performance is shown by the €5.37 billion outflow in net factor income during the three moths, compared to €3.8 billion in the same three months last year. For the first nine months, net factor flows - mainly profit repatriations - totalled almost €13.7 billion, 30 per cent up on 2001, illustrating the massive sales and profits being recorded by some multinationals.
Looking at the other economic sectors, the figures show a 0.2 per cent fall in agriculture, the third successive quarter when the annual growth rate declined. In terms of investment, house building rose by a strong 7 per cent, driven by a rise in new homes, but as other building was weak, total construction spending was up just 2.7 per cent.
