Updated: Wednesday, 7th July, 2010 4:35pm

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Tax receipts and jobless numbers, not GDP, will indicate end of recession

Eamon Quinn.

The Government's press relations people must have been tempted, maybe for all of a minute, to make a big deal out of the latest economic figures that showed the recession was at an end.

One of the statistical measures used to measure such things - gross domestic product (GDP) - showed that the economy was officially out of recession. Output in the economy had increased in the three months to the end of March from the previous quarter: a losing streak stretching over the previous eight quarters, or two years, had been broken.

The GDP measure showed the economy was worth €41.7bn in the first quarter, impressively 2.7 per cent more than the €40.7bn recorded in the previous three months. It was cheering news. After all, GDP is the internationally accepted way of measuring growth and contraction and promises growing wealth and the end of rising job losses. Last year, Christine Lagarde, the French finance minister, interrupted her summer holidays to rush back to Paris to announce the end of the French recession when similar GDP figures showed that the economy there had stopped contracting.

Wisely, the Department of Finance and Minister Brian Lenihan held back from trumpeting any such turnaround here. The GDP measure, as many Leaving Cert students know, properly lumps in the huge exports generated by the many big US companies who have their European head offices here. The computer and pharmaceutical plants up and down the country employ many tens of thousands of people. They are undoubtedly a very significant anchor of the economy. However, the foreign plants do not deliver the number of jobs that the billions of euro they generate from their exporting Irish bases would suggest.

Despite the importance to the economy of the multinationals, many more jobs are created by Irish-owned firms, public sector jobs and in retail and distribution. There are blackspots but the Irish-based foreign firms are mostly on the mend as the world economy picks up: the profits they generated in the Republic rose €2bn in the year. The other measure of economic growth or contraction - gross national product (GNP) - shows clearly that the rest of the economy is still feeling the pain. The GNP measure showed that the economy was still contracting. Adjusting for the income flows and repatriated profits of foreign-owned firms, GNP showed the economy fell by a slight 0.5 per cent to €33.6bn in the three months to March from the previous three months. Recessions are more properly measured by the pain of unemployment and lost household income.

GDP and GNP measures are useful in identifying turning points when the economy has stopped contracting. Last week's statistics hint at a time when unemployment will start falling too. Unfortunately, the GNP measure suggests that this turning point is still a few months away. It is just about possible that the next GNP and GDP statistics will agree that the recession had ended by early summer. But, for the time being, the other indicators of the economy - the monthly live register and the exchequer returns - will continue to give more reliable soundings of the state of the economy.

There was another reason the Department of Finance held back for the time being from heralding the latest Central Statistics Office's GDP figures as marking the end of the recession. The live register and its own tax returns show that the domestic economy is still fairly evenly balanced between further contraction and turning the corner. It could go either way.

Subtracting those people working in part-time jobs and those signed up for tax credits but who were still working, the latest live register figures showed that the rate of full time unemployed had crept higher again to 13.4 per cent of the labour force in June.

Every month that passes without unemployment falling condemns more and more people to long-term unemployment. This deep recession is potentially worse than the mismanaged decade of the 1980s - even though unemployment in the Republic peaked at the much higher rate of 18.7 per cent in 1987. Back then, there was also extreme pressure on the public finances. The jobless rate will, say all the forecasters, not reach that crisis level this time and peak instead at about 14 per cent.

But the longer the contraction continues, the scarring from long-term unemployment will last longer and go deeper. Back in the 1980s, the Government also faced questions about national solvency. The structure of the 30th September 2008 State guarantee has piled up funding requirements for the banks through late 2010.

The Department of Finance could not herald the end of recession because its own tax and spending receipts show a mixed picture. As controller of all departmental spending, it has finally done what it should be good at: controlling spending. Arguably, it has done this only too well because Government spending has fallen faster than it budgeted by the end of June.

The Department of Finance has done the easy bit. The tax receipts will be closely watched. Any improvement will bring hope that the short-term challenges facing the banks this summer and autumn can be met.