Yay! Ireland exits recession? – or – Boo! Ireland doesn’t exit recession?

Depending on whether or not you regard GDP or GNP as the best measure of the actual size of the Irish economy, Ireland may have (or did not) exit recession in Q3 2009. Ireland is an unusual case in that substantial amounts of economic activity recorded in the GDP figures result from transfer pricing, where organisations transfer economic activity generated in one location to another within the same company.

The Central Statisitics Office report that

The seasonally adjusted estimates show that for Q3 2009, compared with the previous quarter, there was a small increase in GDP of 0.3 per cent while GNP declined by 1.4 per cent..

Now some Irish economists, notably Karl Whelan do regard GDP as a fair reflection of the Irish economy as profits made by multi-national corporations can be taxed here – see an explanation of his viewpoint here. Others, such as Colm McCarthy regard GNP as superior, as the profits themselves are often earnt from economic activity elsewhere and are simply booked here for tax purposes (which rather limits the governments room for manouvere with respect to taxation). For an explanation of the consensus view, see here.

As we noted earlier on Slugger Capital Investment pretty much collapsed in Ireland this year (down 35%), consumer spending weakened significantly (down 7.3%). Net exports (total exports – total imports) rebounded strongly in the third quarter, contributing an additional €2.8bn towards GDP. This appears to be due to decreased cost of imports rather than increased exports (i.e. As also reported previously, the currency collapse in our biggest import partner has been a net boon for Irish economic figures). Per the CSO report

The expenditure components had decreases in personal consumption, capital formation, government expenditure and exports but also had a lower level of imported goods and services resulting in a small increase in GDP.

RTE report economist Alan McQuaid of Bloxhom stock brokers said that

the quarterly figures were relatively new and ‘there appears a reluctance on the part of the Central Statistics Office to stand over the reliability of the numbers’. He said Irish analysts continued to focus on the year-on-year change in both GDP and GNP, which were down quite sharply again.

Davy economist Rossa White feels that GNP growth may turn positive in Q1 next year. It’s far too early for cheers of joy (except perhaps the festive kind), but it does make a change from the bleak news..

Update : Worth highlighting that Constantin Gurdgiev thinks that US MNCs may reduce their transfer pricing activities in Ireland in 2010. Even for the GDP figures, one swallow does not make a summer.

Should Ireland-based multinationals reduce their transfer pricing activities in 2010 – a prospect consistent with a possibility of a restart of new investment cycle in Asia and the US – an even greater share of the burden of paying for public sector expenditure will be falling onto the shoulders of rapidly thinning minority who still have higher value-adding jobs.