Professor John McHale:

I was building up to that issue, which I will address in a moment. The bad news is the devastating effects of the balance sheet recession. There were tentative signs last year that the domestic economy was stabilising. If we compare domestic demand in the fourth quarter of 2012 with domestic demand in the fourth quarter of 2011, one finds that it was essentially stable in the period. While stable is nowhere near good enough, given what we had been through, stabilisation is the first step we need to take. In addition, consumption and investment grew in the second half of 2012 and members will see a pattern of retail sales that was broadly consistent with a stabilisation of domestic demand and the domestic economy.

There are renewed signs in the early part of 2013 of weakness in retail sales. It is too early to tell if this is the case and it is hoped the pattern of stabilisation of domestic demand will continue. Just as the news on domestic demand was getting better, we see a worsening of export performance, ultimately in terms of net exports, as a result of weaknesses in our trading partners, particularly the eurozone and United Kingdom. The UK's official forecasting agency has revised its growth forecast for the country for 2012 by halving it to 0.6%. These factors are acting as a drag on the economy and some of this is probably spilling back over to domestic demand. There are signs, however, that stabilisation is occurring.

In terms of the distinction between GNP and GDP, growth in the former lagged behind growth in the latter for a number of years. People viewed this as a sign of weakness in the domestic economy as the difference between GNP and GDP is largely accounted for by the profits of multinational companies. If the international sector is doing well, profits among these companies will be high. A significant portion of GDP growth will then be subtracted when calculating GNP, which is, therefore, reduced. That this did not occur last year, when GNP grew, indicates that, based on the type of analysis that has been applied, there has been a strengthening of the domestic economy. As it happens, I would not read too much into these figures in terms of them being a positive sign. It seems certain that multinational companies are now domiciling themselves in Ireland. As a result, their profits are now considered an inflow of profits, which skews the numbers. There is considerable noise at present in these international income flow statistics.