Yesterday’s economic numbers were ugly. Both the domestic and export sides of the economy contracted sharply in the first three months of the year, while statisticians’ revisions to last year’s figures show that growth was weaker in 2012 than they thought just three months ago.
Putting it all together, the picture painted by yesterday’s first-quarter data was one of an economy still on the canvas.
Start at home. Spending by consumers registered its biggest ever quarterly contraction in the January-March period, exceeding even the falls during the worst of the downturn in 2008-09.
As the largest component of the domestic economy, a decline of that magnitude in consumption has major effect on the headline numbers.
After showing some signs of life in the second half of last year, the domestic economy did not just stall in the first quarter of the year, it lurched backwards.
Domestic demand fell to a new post-crash low, as the first chart illustrates. The amount spent on consumption, investment and inventories combined was almost 23 per cent below peak five years earlier and back at 2003 levels. A lost decade domestically.
As if that was not bad enough, exports detracted from overall growth, rather than adding to it as they have tended to do since the crash. Worse still, the quarter-on- quarter fall was the second largest on record.
Clearly, weakness in export markets is taking its toll. As the second chart shows, even services exports dipped in the first three months of 2013. That brought to an end a three- year uninterrupted surge.
The sharper slump in goods exports, illustrated in the same chart, reflects not just weak international demand, but the shrinkage in the pharmaceutical sector as patents on blockbuster medicines manufactured in Ireland expire.
Trade figures show that broad chemicals, pharmaceuticals and medical devices sector has grown to account for 60 per cent of total goods exports, or, put another way, the sector’s exports last year were worth almost seven times more than all food- and agriculture-related exports combined.
As such, even if the industry does not fall off the patent cliff, a gradual structural decline will be enough to erase a significant chunk of overall GDP.
Upwards revision
About the only positive thing to come out of yesterday's numbers was that the absolute size of the economy – in contrast to its growth rate – was revised upwards.
Reflecting the incorporation of baseline census data into their figures among other factors, statisticians believe that GDP last year was more than €300 million higher in cash terms than they had first estimated
This is important because the most closely watched measure of the State’s budget deficit and debt are measured as a ratio of this nominal figure. Had that number been revised down, the deficit and debt ratios would have moved up.
That, in turn, could have had implications for October’s budget, December’s scheduled exit from the EU-IMF bailout and debt sustainability over the longer term.
As it happens, the IMF’s representative in Ireland noted on Tuesday that to assume a very low growth scenario over the next five years is “not unreasonable”. Yesterday’s figures suggest that it is far from impossible that there could be no growth at all.
