For better or worse? Making sense of Ireland's economic progress.(Read article summary)
Ireland released its latest economic reports last week, and there's good news and bad news. On the one hand, Ireland's economy is no longer contracting; on the other, it isn't recovering at the same speed as some of its northern European neighbors.
For some unknown reason, Ireland, is always slower than almost everyone else in releasing GNP* and current account statistics, and this year it got delayed even more than usual. But now, two weeks in to the third quarter, we have finally gotten its first quarter numbers for the above two indicators.
It contained two good news and one bad news. The good news is that Ireland's current account surplus increased and that unlike Greece, Italy, Spain and Portugal (and Britain) Ireland's economy is no longer contracting. The bad news is that it doesn't really seem to recover either like the Baltic countries have started to do.
*=GNP is more appropriate for Ireland than GDP because its low corporate income tax has caused corporations to attribute their profits to Ireland in their internal accounting, causing Ireland to formally have an extremely large trade surplus combined with an extremely large investment income deficit.
Compared to a year earlier, GNP increased 0.2% as consumption fell while the current account surplus rose. That Ireland has stopped contracting further is of course better than the development in other countries whose recessions deepen, but considering that GNP was 15% lower in Q1 2011 than in Q1 2008, stabilizing at that level is very unsatisfactory to say the least.
Though Ireland for seasonal reasons had a current account deficit the first quarter this year, the deficit was smaller than in previous years, so the total balance the last 4 quarters improved from a surplus of €1.8 billion to €2.7 billion, roughly equivalent to 2% of GNP, something that is a big improvement from the 7% of GNP deficit seen in 2007. With the current account in a surplus and with the previously very bloated construction sector having already contracted by three fourths, it seems fair to say that Ireland has rid itself of the imbalances. that caused it to have a crisis in the first place.
So why hasn't Ireland started to recover the way the Baltic countries did once they had rid themselves of their imbalances?
There are probably many reasons for this, but one key factor is that while the key trading partners for the Baltic countries, Sweden, Finland, Russia and Germany had strong recoveries at that point, Ireland's most important trading partner, Britain has slipped in to a double dip recession, and other important trading partners in Europe aren't doing much bettter