Ireland: Latest GDP Contraction Worrying
The latest numbers on Irish GDP are bad news for those hoping that Ireland’s dynamic export sector will drag the country out of insolvency. Overall, in 2010, GDP contracted by 1% while GNP contracted by 2.1% y/y, although growth in Q4 in relation to the equivalent quarter of the previous year showed a positive trend (Figure 3).
The most worrying information is that growth in Q4 was weak (GDP fell by 1.6% q/q seasonally adjusted—SA—in Q4 2010). The increase of GNP by 2.0% q/q SA appears to be more positive, but could be attributed to “the decline in net exports of multinational companies compared with the third quarter result[ing] in a substantial decrease in profits thereby reducing the overall net factor outflows,” according to the Economic Incentives blog. This is particularly worrying because of Ireland’s reliance on exports to drive growth – especially given that the biggest 10 firms account for an estimated one-third of Irish exports.
Real GDP and Real GNP, 2006-10 (% change y/y)
Source: Central Statistics Office
In addition, the prospects for Ireland’s export-led GDP growth have been further weakened by recent corporate tax cuts in the U.S. and the UK. In its second 2011 budget, the UK government announced that it would cut corporate taxes to 26% by end-2011 and 23% by end-2015. These fiscal policy changes will heighten the competition faced by Ireland to attract or retain multinational firms.
Editor’s Note: This post is excerpted from a much longer analysis available exclusively to RGE clients, UK Budget; German Politics; Polish Monetary Policy.
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