Saturday 25 February 2017

GDP in focus, but is it the best measure of the health of the economy?

Peter Flanagan

Peter Flanagan

Ford will post its second quarter earnings tomorrow
Ford will post its second quarter earnings tomorrow

Just how important is Gross Domestic Product (GDP)?

Depending on who you talk to GDP is either the key number for the health of an economy, or is a completely misleading and even dangerous figure.

On Thursday we'll get our first look at the GDP for this year, when the Central Statistics Office publishes its first quarter figures.

Economist Alan McQuaid at Merrion Capital is forecasting a quarterly increase of 3pc in the first three months of the year, in part because this will be the first time Ireland's gargantuan aircraft leasing industry will be fully integrated into the accounts.

But bringing the aircraft leasing business into the accounts highlights the problem with GDP. As Ireland is such an export-led economy, opponents of using GDP as the key economic number argue that many industries, such as pharma, medical devices, and aircraft leasing, barely interact with the "real" Irish economy. These sectors artificially inflate the GDP figure. As a result, we would be better focusing on Gross National Product, which would exclude these sorts of industries, they argue.

They are whistling in the wind however. GDP is the standard internationally and that will not change any time soon. Away from the national accounts, we'll get an update today on where property prices were at the end of June. The data will already be old but it gives a snapshot of the market. Expect increases to have slowed a little bit.

Earnings season will continue both here and in the US. The banks will be in focus on this side of the Atlantic with Permanent TSB and Bank of Ireland set to report half-year results.

Across the pond a slew of firms will be publishing second quarter numbers, with Ford scheduled to report its numbers tomorrow.

Irish Independent

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