Institutional Sector Accounts Non-Financial Quarter 3 2021

The economy as a whole grew in the third quarter of 2021, driven by non-financial corporations' higher gross value added. This increase is seen in both their higher gross operating surplus (profit), and their compensation of employees. Growth was concentrated in the manufacturing sector, where GVA grew by €11bn compared to this time last year out of an overall GDP increase of €13bn (current price, non-seasonally adjusted). Value added in domestic-dominated areas such as construction and trade was also higher than the equivalent quarter of 2020. More information is contained in the Quarterly National Accounts.

Ireland has a positive current account (CA) balance in the quarter (the negative of B.12 of S.2). This meant that Ireland (including, of course, the foreign-owned corporations operating here) generated a surplus to invest in the rest of the world. The current account balance can also be seen as what is left of gross saving (B.8g) after the country has invested in fixed capital (P.5): in recent quarters we have invested disposable income here and we have invested in the rest of the world also. 

Gross Saving - Investment = Current Account Balance.

Gross Saving less investment can be estimated for each sector, showing the contribution of corporations, government and household to the change in our account with the rest of the world. Figure 2.1 illustrates the trends in, and relationships between the current account balance, gross saving and investment. 

Figure 2.1 illustrates how the Current Account Balance has settled down since 2020, as the flow of intellectual property imports ceased. Households and corporations are generally saving more than they are investing, while government is borrowing to fund interventions related to the pandemic. Overall, the economy is not increasing overall borrowing requirements from the rest of the world.

Government Borrowing

The government deficit (net borrowing, B.9) was €2.6bn in the second quarter of the year. On the expenditure side, the government supported household incomes, as mentioned above, through social transfers (D.62) such as the Pandemic Unemployment Payment, and through subsidies (D.3), such as the Employment Wage Subsidy Scheme. Subsidies were at a similar level to those of 2020-Q3, while social transfers were almost €0.5bn lower. Government spending on providing services such as health and education directly (P.3) was €0.6bn higher than this quarter last year and higher than pre-pandemic levels. On the income side, revenue from taxation was up on 2020Q3, as government was paid its due on higher earnings, higher profits and higher consumer spending. Receipts of taxes on income (D.5, such as PAYE and corporation tax) were €2.1bn greater than in the second quarter of 2020. VAT-type (D.2) taxes were €1.2bn higher than 2020-Q2, possibly owing to the higher levels of sales as the restrictions were less severe than in 2020-Q2, and possible also because of 'warehousing' of taxes in 2020.

Non-Financial Corporations (S.11)

The Gross Value Added (GVA, B.1g) of Non-Financial Corporations, which drives Ireland's GDP, was €12.4bn (16%) higher in the third quarter of 2021 compared to the equivalent quarter last year. GVA is made up of compensation of employees (D.1) and gross operating surplus (GOS, B.2A3G), with both parts contributing to the GVA increase.

In earlier quarters affected by the pandemic we saw corporations in sectors dominated by foreign-owned multinationals (sectors such as industry and information technology) grew while the rest of the economy contracted. Between July and September 2021, both foreign-dominated and other sectors added to their GVA. While we are comparing a low base in 2020-Q3, the GVA of domestic-dominated sectors was also higher this quarter than in 2019-Q3. Figure 2.3 shows the changes in domestic-dominated sectors and foreign-dominated sectors. The Quarterly National Accounts show gross value added by economic activity (NACE A10) with analysis of the multi-national dominated sectors. 

Fixed capital formation was at a more normal level than the 2017-2019 period and this left the sector as a net lender in 2021-Q3.  

Financial Corporations (S.12)

Financial corporations (S.12) showed a higher net use of property income (D.4) in the third quarter of 2021 compared to the third quarter of 2020, leaving their gross saving (B.8g) lower, and the sector a net borrower (B.9) in the quarter. Most of the investment income of S.12 relates to transactions with the rest of the world and further details are given in the International Accounts. 

Rest of the World Sector (S.2)

The higher GVA of non-financial corporations has been driven by higher net exports, or, from the point of view of the rest of the world, a more negative balance of goods and services with Ireland. As our globalised economy has grown, so both imports and exports have increased. Sales of goods and services sent to the rest of the world have risen faster than those bought from abroad. This is associated with sales from Ireland growing faster than costs paid to the rest of the world, and hence higher profits. Ireland's net lending to the rest of the world was almost €23bn in the third quarter of last year. 

Further details on transactions with the rest of the world are provided by institutional sector in the International Accounts, which include the financial account as well. 

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