Is it time for Eurozone GDP ex-Ireland?

{"text":[[{"start":6.94,"text":"Ireland accounts for only about 4 per cent of the Eurozone economy. But lately it has been doing a remarkable job of determining whether the currency bloc appears to be booming or stagnating."}],[{"start":18.22,"text":"The latest Eurozone GDP figures are a case in point."}],[{"start":21.62,"text":"In the second quarter, Ireland’s economy expanded by a whopping 10.2 per cent, helping lift Eurozone growth to 0.6 per cent — faster than both the US and the UK."}],[{"start":33.06,"text":"One quarter earlier, the reverse happened. Irish GDP contracted by 7.8 per cent, helping drag Eurozone growth down to zero."}],[{"start":41.86,"text":"Strip Ireland out, and the picture is considerably less exciting (and, arguably, considerably more useful)."}],[{"start":null,"text":"

"}],[{"start":48.66,"text":"Eurozone GDP excluding Ireland expanded by 0.3 per cent in the second quarter, half the headline rate and marginally below the 0.4 per cent recorded by both the US and UK. More importantly, it was the same 0.3 per cent pace as in the first quarter."}],[{"start":66.06,"text":"In other words, beneath some spectacular Irish volatility, the Eurozone economy has been plodding along at a remarkably steady rate."}],[{"start":74.26,"text":"“Looking beyond Ireland, the Eurozone economy is currently — and perhaps surprisingly — a beacon of stability,” said Claus Vistesen, chief Eurozone economist at Pantheon Macroeconomics."}],[{"start":85.6,"text":"Economists reckon the hit from higher energy prices has been cushioned by households saving less to sustain spending, governments increasing defence expenditure, the deployment of remaining Next Generation EU funds, and stronger exports."}],[{"start":99.26,"text":"So, is it time for Eurozone-excluding-Ireland GDP to become a key measure of the currency bloc’s economic health?"}],[{"start":106.18,"text":"For some economists, it already has."}],[{"start":108.74,"text":"“Excluding Ireland from Eurozone GDP gives a much better idea of how the currency union’s economy is performing, which is why we routinely track both GDP for the Eurozone as a whole and the Eurozone excluding Ireland,” said Jack Allen-Reynolds, deputy chief Eurozone economist at Capital Economics."}],[{"start":130.86,"text":"Producing Eurozone-ex-Ireland figures “is already happening in practice”, said Vistesen, who forecasts GDP both with and without the country. He noted that the ECB also looks through unusually volatile multinational-related components in Ireland — and, to a lesser extent, the Netherlands — when assessing underlying growth."}],[{"start":142.82,"text":"“It is now already sensible for policymakers, like the ECB, to look at Eurozone GDP ex Ireland,” agreed Peter Vanden Houte, economist at ING."}],[{"start":152.78,"text":"The Irish GDP problem"}],[{"start":154.66,"text":"The peculiarities of Irish GDP are well known. They largely reflect the enormous presence of foreign multinationals, particularly in technology and pharmaceuticals, relative to the size of the domestic economy."}],[{"start":166.86,"text":"The result is that movements in Irish GDP can be driven by multinational activity that has little connection with what is happening to Irish households, employment or domestic spending."}],[{"start":177.1,"text":"As Ireland’s Central Statistics Office puts it: “All of the goods and services flowing through Ireland make the economy seem very big, but the flows in and out leave much less in the domestic economy than appears in GDP.”"}],[{"start":null,"text":""}],[{"start":190.3,"text":"The location and transfer of intellectual property by foreign-owned multinationals generate large movements in Irish investment and international trade in services."}],[{"start":201.14,"text":"Pharmaceutical exports — an important part of Ireland’s multinational sector — can also swing sharply. Recently, they have been affected by stop-start front-running and subsequent declines amid tariff uncertainty, contributing to Irish GDP volatility."}],[{"start":214.46,"text":"Moreover, contract manufacturing, when a company manufactures products on behalf of another, can generate very large swings in measured Irish exports."}],[{"start":223.7,"text":"The distortions are significant enough that Ireland’s own statisticians have developed alternative measures."}],[{"start":229.54,"text":"These include modified gross national income, or GNI*, which strips out some of the globalisation effects that inflate conventional measures of the Irish economy. The CSO also publishes modified domestic demand, or MDD, a broad measure of underlying domestic activity that covers personal, government, and investment spending. Economists additionally watch measures such as household consumption and employment."}],[{"start":254.26,"text":"The divergence was stark in the latest data. The CSO said multinational-dominated sectors expanded by 11.2 per cent in the second quarter, while domestic sectors grew by just 0.7 per cent. Personal spending on goods and services, a key gauge of domestic activity, rose 1 per cent."}],[{"start":272.26,"text":"The Ireland effect is unlikely to disappear from the Eurozone numbers any time soon. But stripping its volatility, economists expect Eurozone growth to remain relatively stable over the next two quarters"}],[{"start":283.78,"text":"Vistesen forecasts that, excluding the Emerald Isle, the Eurozone will see growth holding steady at 0.3 per cent in the next two quarters."}],[{"start":292.58,"text":"Allen-Reynolds said that there is scope for all the factors that supported Eurozone growth so far to continue in the short term. “So even if energy prices rose further, the Eurozone economy could continue to grow.”"}],[{"start":310.06,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1788929141_7184.mp3"}