It's a bit of a guessing game and everyone from the Department of Finance, to the OECD, to the Central Bank, to the ESRI, to the Central Statistics Office has a go at establishing, estimating and forecasting the figures that indicate how the economy is growing: Gross National Product (GNP) and Gross Domestic Product (GDP).
Last August the Department of Finance's annual Economic Review and Outlook contained revised forecasts, suggesting that GDP and GNP would grow in volume terms by 10 1/4 per cent and 8 1/4 per cent respectively.
They weren't far off - the forecast was out by just one-half and one-third of a percentage point respectively. The Department of Finance's more recent estimate is that GDP grew by 10.7 per cent in 2000 while GNP grew by 8.6 per cent. According to the OECD's Economic Outlook, released earlier this month, growth of real GDP accelerated to nearly 11 per cent in Ireland last year with a surge in the second half owing to cyclical strength in the OECD area, particularly strong demand for the information and communications technology sector, and a favourable exchange rate.
The ESRI's Quarterly Economic Commentary says output growth in 2000 is estimated to be 10.5 per cent in real GDP terms driven, in part, by strong export growth and reinforced by buoyant domestic demand. The growth in output as measured by real GNP is estimated to have reached a historical high of 9.8 per cent in 2000.
Exchequer returns showing the Government's income and spending, the details announced in the annual Budget and various Government statements throughout the year allow the ESRI to take a view on official expenditure. "All those factors, consumption, government consumption, investment, exports and imports all combine together to give us our forecast of economic growth, initially at a gross domestic product level. In recent years we've had the advantage of quarterly national accounts coming out so that then gives us the view of how the economy is growing on a quarterly basis," explains Mr David Duffy, economist with the ESRI.
Because there is a lot of foreign direct investment in Ireland, the number-crunchers need to take account of profit outflows, profit repatriations, money flowing in and out of the economy between multinationals and their home bases and Irish multinationals abroad repatriating money to their head office here in Ireland. These calculations are factored into the figure for GDP to get GNP, explains Mr Duffy. "Given the size of the multinational sector in Ireland relative to the number of Irish multinationals abroad that's generally a negative figure."
Gross domestic product is the output accruing to people located in Ireland, gross national product is the output owned by Irish companies wherever it happens in the world, he says. "In terms of how the Irish economy is performing we would generally talk in GNP terms rather than GDP terms given the size of the multinational sector," he notes.
"The figures from the various indicators and the figures from the quarterly accounts for 2000 suggest that 2000 will have been a bumper year and we could in fact be seeing record growth in GNP terms," says Mr Duffy.
FOR 2001 the Department of Finance estimates that GDP will grow by 8.8 per cent while GNP will grow by 7.4 per cent. This is higher than other forecasts; the recent OECD outlook said GDP is projected to expand by 73/4 per cent this year underpinned by continuing rapid increase of both the labour force and productivity. Earlier this month the Central Bank cut its estimate for growth in Gross National Product this year to 6 per cent, a growth figure which remains above what the Bank believes is sustainable.
Going forward Mr Duffy expects a downturn because of uncertainty over the the US economy and the impact of the foot and mouth crisis. Growth in 2001 is forecast by the ESRI to be 6.7 per cent in real GDP and 6.1 per cent in real GNP terms. The growth prospects for 2002 are much more susceptible to the extent and duration of the US slowdown and it is forecast that output growth in 2002 will be 6.2 and 5.2 per cent in real GDP and real GNP terms respectively.
Mr Duffy adds that a slowdown for the Irish economy, provided it is one with a so-called soft landing, is not a bad thing. "It allows the economy to a certain extent to catch up with itself. We've had a number of years of very strong growth and we don't have the infrastructure yet to cope with that. Investment is needed in infrastructure to alleviate the congestion that we are seeing happening."
The ESRI expects investment to have grown by 11.2 per cent in 2000. Given the slowdown in foreign direct investment, including the delay in Intel's expansion plans in Leixlip and the slowdown in the US economy, Mr Duffy says, "we would expect it to slow to 7.1 per cent in 2001 and 6.9 per cent in 2002".
Consumption is another economic variable and in forecasting the growth of the economy, the ESRI looks at consumer expenditure. Unlike say, external trade, there are no formal consumer expenditure estimates. The Retail Sales Index is a guide to consumption patterns in the economy, but only gives an indication of how consumer expenditure is going. Its March release gives figures for January and final figures for the year 2000. In value terms retail sales grew by 16.3 per cent and in volume terms by 11.9 per cent in 2000; very strong growth rates, says Duffy.
According to the OECD economic outlook, private consumption should continue to grow rapidly, underpinning buoyant tax revenues.
