High growth in Ireland. Five anomalies
The increase of nominal Irish GDP in the third quarter was 12%, YoY. Which is ‘whopping’. But I do not understand. I see at least five anomalies (anybody any ideas about this?):
- Total nominal wage growth (not yet published) must be about 5%, YoY (3% employment growth and 2% wage growth). Which is magnificent and good – but way below the 12% increase of GDP. Which means that ‘total profits and mixed income of the self employed’ has to be about +22% (assuming a wage share of 60%) to be consistent with 12% nominal increase of total income. Which is hard to believe, considering ‘2’.
- Households and non-financial companies are still deleveraging in a serious way when we look at ‘banks within Ireland’ (graph, source: Central Bank of Ireland). The 9% deleveraging of non-financial companies does not tally with 12% nominal growth at all.
The 3% deleveraging of households is hard to reconcile with a 8% increase house price increase. Where does the money come from? Are households as well as non-financial companies borrowing from USA or French or German or UK banks (the Eurostat data on total lending and borrowing are alas not available for Ireland)? there has also been a car buying frenzy: where did the money come from?
- Looking at consumption and production data there have been extreme price and production swings when it comes to manufacturing production and (considering 12% nominal growth) extreme deflation when it comes to retail prices, deflation which also does not tally with the GDP data. By the way – seasonally adjusted production, consumption and exports have not really been increasing during the last three to six months.
- Investments are way up (about 100%) but as borrowing is declining the question is again: where does the money come from? This might be explained by intra company transfers but the problem is that the outflow of profits from Ireland to ‘abroad’ is rapidly increasing. Are intra company transfers of property rights counted as ‘monetary investment’ in intangibles?
- According to these data, productivity is exploding: +4% in one year. Which is possible for countries like Greece and India but which is pretty extreme for a high income country like Ireland.