Productivity in Ireland 2019

Source publication: National Income and Expenditure 2019

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The chart above shows GVA decomposed into the contributions from Labour, Capital and MFP. In 2019, GVA growth recorded a result of 5.4%, down from 9.2% in 2018. This result was associated with the largest increase in Capital input (which is the weighted change in Capital Services) since 2015 and a large fall in MFP, from a high of 7.3% in 2018 to -1.4% in 2019. This large fall in MFP extended to the majority of sectors in the economy such as Manufacturing, ICT, Construction and Wholesale and Retail. Capital input increased by 6% in 2019 due to increased Capital Formation, which made a significant contribution to the 5.4% GVA growth in that year. Over the last four years, Labour input has remained consistent growing at around 1% per annum, while GVA growth has been strong recording average growth of 6%. There was average GVA growth of 4.3% over the entire nineteen-year period, driven by the “Celtic Tiger” results in the early noughties and the unprecedented growth in 2015. The pre-crash period was driven by increased Capital input, while the years of the financial crash were associated with declining Labour input and weak demand.

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The chart above shows GVA growth split into Foreign Sector[1] and Domestic and Other sectors. GVA growth of 5.4% in 2019 is explained by an increase of 3.1% in the Foreign-dominated sectors and one of 2.3% in the Domestic and Other sectors. This growth has been as a result of continued strong performances in the Foreign sectors of ICT and Manufacturing and in the Domestic sectors of Agriculture and Construction. In the early noughties, the majority of GVA contributions came from the Domestic and Other sector, while since the crisis the majority contribution to GVA has been from Foreign-dominated sectors, particularly since 2014.

[1] See Glossary of Terms or the Appendix for more information on the Foreign-owned Multinational Enterprise-dominated sectors.

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GVA growth of 4% was recorded in the Domestic and Other sector in 2019, with average growth of 4.2% over the last four years. The main factor contributing to this positive GVA result in 2019, was the 2.3% increase in Capital input, due to continued strong investment in Construction and Finance, while MFP decreased compared to 2018. The reduced MFP contribution of 0.6% in 2019 was due to falls in MFP in the Water and sewerage and the Professional, Scientific, Admin and Support Services sector. Capital input growth has been contributing the most to GVA since 2012, with average growth of 2.6% in the period. Labour input has remained consistent in recent years, with growth averaging 1.8% in the six years since 2013. The earlier 2000s saw high rates of growth in the Domestic and Other sector from 2000 to 2007 and were due mainly to Capital input with increases in Labour input of between 0.5% and 3% also observed.

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In 2019, GVA growth of 7.2% in the Construction sector was reported. The main contributing factor was the substantial increase in Capital input, from 4.5% in 2018 to 5.9% in 2019.  Interestingly, the Labour input only grew by 1% in 2019, down on the 8.4% result in 2018, evidence of a trend towards higher levels of Capital Intensity in the sector. No MFP growth was recorded in the sector in 2019, a continuation of the low or negative MFP growth in the sector in recent years.  Since 2013, MFP growth has averaged at -1.3% over the period. Looking to the earlier years, the Construction sector was one of the hardest hit sectors during the financial crisis with negative GVA growth recorded between 2008 and 2012.  However, in recent years there has been a series of positive results recorded.

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For the Wholesale and Retail sector, GVA growth of 0.7% was reported in 2019 due to increased input from Capital services of 3.3% and reduced MFP of -2.1%. Over the last five years, Capital has mainly contributed to GVA in the sector, with an average contribution of 3.1% per annum. In comparison with other inputs analysed, Labour has remained somewhat stable in recent years, growing between -1% and 1.5% per annum. In this sector the impact of the crisis was felt most with GVA falling by over 5% in 2008 and by 14% in 2009. These large declines in GVA were due to falling demand for retail sales but also back up the supply chain to falling Wholesale and Retail demand. Since 2013, the sector has recovered and recorded positive GVA increases each year since.

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The Accommodation and Food sector recorded GVA growth of 4.5% in 2019, down from the 8.4% in 2018. Growth in this sector has been largely explained by additions to Labour input since 2013. This 4.5% result is mainly due to the reduced contribution from Labour which fell from 6.6% in 2018 to 1.8% in 2019, however this was partially offset by an increased contribution from Capital services, which increased by 2.5% in 2019.  In recent years, particularly since 2016, MFP has played a small role in explaining developments in the sector and this has continued until 2019 with a result of 0.2% recorded. Like the Wholesale and Retail sector, this sector also suffered badly during the crisis, with large falls in Labour input occurring during the years 2008-2011. Since then, the sector has recovered and has recorded increases in Labour input that match pre-crisis levels, and increased Capital input, which had not occurred since the early 2000s.

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The figure above shows GVA in the Market sector broken down by factor inputs over the period 2000 to 2019. The Market sector is an aggregate sector which encompasses all market activity in the economy. The sector includes all NACE sectors except Real Estate, Public Administration, Education and Human Health. In 2019, GVA growth of 5.9% occurred and at the same time MFP fell from 9.2% in 2018 to -2.7% in 2019. This decline in MFP was due to decreases in sectors such as ICT and Professional, Scientific, Admin and Support Services. The contribution of Capital Services to the sector in recent years has been significant with average growth of 4.7% since 2015.

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In line with presentations in earlier Chapters, the Foreign dominated sectors are presented separately for the period 2000-2014 and also for the period 2016-2019. Due to the impact of the 2015 globalisation events, this year been excluded from the chart for presentation purposes only.

Over the period 2000-2014, capital input has been the main contributor to GVA growth, followed by MFP. The capital contribution recorded an average growth rate of 4.4% over the fourteen years, while MFP recorded an average growth rate of 0.2%. Labour Input has been relatively consistent over the period with rates generally between -1% and +1% recorded, with the exception in 2010, when Labour Input fell by 3%.

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The chart above shows GVA growth in the Foreign-dominated sector decomposed into the factor inputs for the period 2016-2019. GVA growth of 7.1% was recorded in 2019, with the main contributor being growth in Capital Services. The Capital contribution increased significantly from -1.8% in 2018 to 12.6% in 2019, with sectors such as Manufacturing and particularly, ICT, contributing to the result. MFP recorded a result of -5.8% in 2019, down from 16.8% in 2018. Similar to the period to 2014, Labour input in the period 2016 to 2019 has also remained steady growing at rates of between 0% and 1% over the four years.

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Due to the impact of globalisation events in 2015 on the Manufacturing sector, much of the entire period is difficult to observe. Nevertheless, GVA growth of 3.7% was recorded in 2019. This result was lower than the 10.8% GVA growth reported in 2018, with the main explanation being that Capital input in the sector increased from -0.6% in 2018 to 5.7% in 2019, due to increased investment in Intangible Assets. In addition, MFP declined from 11.4% in 2018 to -2.2% in 2019. Similar to the narrative for other Foreign-dominated sectors, Labour input has remained relatively consistent over the entire nineteen-year period, with average growth of approximately -0.5%.

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In 2019, GVA increased by 15.8% in the ICT sector. This can be almost entirely explained by the large contribution of Capital Services, when compared to 2018. Growth in Capital input of 34.4% was recorded in 2019, up from 6.0% in 2018. This substantial improvement can be explained by a large increase in investment in Intangible Assets in the sector. In contrast to the large growth in Capital Services, MFP growth sharply declined, when compared to 2018, with a result of -19.3%, largely down on the 2018 result of 16.4%. This large negative MFP result was associated with a large increase in Capital Services. As they are driven by imports of Intellectual Property Products these large increases in Capital services are typically associated with large declines in MFP, with no impact on Labour.

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In 2019, positive GVA growth was recorded across all sectors examined in the chart above. The sector with the highest growth in 2019, was the ICT sector, with growth of 15.8%. This can be explained by a substantial increase in Capital Services, as a result of increased investment in intangible assets in the sector. The large increase in Capital was also associated with a corresponding decrease in MFP. Among the sectors examined, Electricity and Wholesale and Retail reported the smallest increase in GVA growth in 2019, at 0.4% and 0.7% respectively. Unlike in previous years, the Construction sector recorded higher GVA growth than the Manufacturing sector, with a result of 7.2%. The main contributor to the positive Construction result has been the increased role that Capital is now playing in the sector. Both the Transport and Financial Services sectors reported the largest growth in Labour input in 2019, with results close to 3%, while the Transport sector had the lowest growth in Capital input among the sectors examined in 2019 at 1.9%.

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The chart shows the average GVA growth over the period 2010-2019. Over the last nine years Ireland (total) recorded an average result of 6.1%[1]. A note of caution should be sounded as this is predominantly due to the large globalisation events and the import of IPPs and the associated contract manufacturing and aircraft leasing activities which added significantly to GVA in 2015 and subsequent years. The impact of the Foreign sector goes a long way towards explaining this exceptional growth for the overall economy. Over the last nine years, the Foreign sector recorded extraordinary average growth of 12%, which was the highest result reported among the countries examined. This sizeable growth in GVA places Ireland - Foreign at the top of the distribution. The Domestic and Other sector of the Irish economy also performs relatively well, placing above the EU 27 and Euro area and reporting an average result of 3%, which probably reflects the economic performance in the underlying economy.

[1] CSO estimates are included for Ireland to allow subsectors Ireland-Foreign and Ireland-Domestic and Other to be calculated.

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Similar to the average MFP growth reported over the period 2010-2019, growth in the Foreign sector in 2019 recorded a large decline of -5.8%. For the same period Ireland as a whole recorded a result of -1.4%. Negative results were also reported for Germany, Finland and Austria with near zero growth rates recorded for three other EU countries. Ireland Domestic and Other came just behind Denmark with a result of 0.6%. This is largely explained by strong MFP results in 2019 for Agriculture and Mining and Quarrying.

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The chart above shows the contributions of various sectors to MFP growth for 2019. The largest negative contributions came from the Foreign-dominated sectors of Information and Communications and Manufacturing, while the sectors such as Financial Services, Wholesale and Retail and Electricity also made negative contributions. In 2019, Agriculture and Mining and Quarrying made the largest positive contributions to MFP growth. The reason for the large declines in MFP growth for the Foreign-dominated sectors is due to large increases in Capital input, for example, in the ICT sector Capital grew by 34% in 2019, by 6% in Manufacturing and by 6% in Professional, Scientific, Admin and Support Services.

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MFP growth for the Foreign sector recorded the largest average decline over the period 2010 to 2019 with a result of -8.7%. The only other negative MFP growth that was recorded over the period was for Ireland (total), with a result of -1.4% and for the Domestic and Other sector of the Irish economy of -0.03%. This placed the Domestic and Other sector below countries such as Austria and France and results in a place near the bottom of the distribution.