Preliminary quarterly national accounts data show that the volume of GNP contracted by 11.3% last year. While this was the largest decline on record and represents a very significant decline in our living standards, it was not unexpected. In the December 2009 budget, my Department had assumed a double-digit contraction for GNP last year of the order of 10.5% and a 7.5% decline in GDP. The preliminary data show that the decline in GDP last year was 7.1%.
I am advised that the very sharp fall in national income last year was due mainly to a large decline in consumer spending and a contraction of nearly 50% in the level of new house building. In addition, the volume of exports fell last year, although given the prevailing international climate our export performance was relatively good.
In terms of the labour market, I understand that quarterly national household survey data show that when those outside the labour force but who are interested in finding work are added to the number of unemployed, the rate increased to 16.5% in the final quarter of last year compared with 10.8% a year earlier. Such developments are a matter of concern for Government and this is why we have taken decisive action to stabilise the public finances, to rectify our banking system and to facilitate an improvement in competitiveness. Action in these areas is essential to ensure economic recovery and, hence, an improvement in the labour market.
While quarterly national household survey data are the widest measure of labour market developments, they lag behind live register data. I understand these latter data are available for the first quarter of this year and that they provide some evidence that unemployment is close to its peak. However, a decline in the size of the labour force is part of the reason for this and the Government is under no illusion in this regard. The labour force is declining for two reasons, outward migration and falling participation rates.
In terms of migration, I am advised that the number of non-Irish nationals in the labour force is estimated to have declined by 33,600, 10%, year-on-year in the fourth quarter of 2009. While no firm data are yet available, there is also considerable anecdotal evidence of outward migration of Irish nationals. I am also informed that the labour force participation rate fell by 1.7 percentage points year-on-year in the fourth quarter of last year, although participation rates remain higher than the euro area average. The budget day forecast is for unemployment to average 13.25% this year. While this is still too high, it must be remembered that this time last year some commentators were projecting an unemployment rate in excess of 16% for this year.
There is now mounting evidence that economic conditions are stabilising and most commentators now expect a resumption of positive growth from the second half of this year. As the economy gains momentum, we can expect a positive dividend in the labour market, both in terms of reduced unemployment and the return of many recent migrants.
Turning to the public finances, the Exchequer deficit at end-March 2010, at €3.9 billion, was generally in line with expectations for that point of the year. Tax and expenditure performances to end-March were broadly in line with my budget plan. At this early stage it is unwise to draw too much from the monthly data as there is considerable volatility in the figures. My Department continues to analyse the emerging trends and I have no reason to change my view in relation to budget day targets. When data for the first half of the year become available, a clearer picture will become evident.
