Saturday, February 28, 2015

28/2/15: A sad day for Russia.

Tonight, in Moscow, a gunman shot dead one of the most charismatic and experienced leaders of Russian liberal opposition, Boris Nemtsov.

Here is the best obituary I have read so far (in Russian) from any source: Western or Russian:

It sums up perfectly the vision of Nemtsov, the memory of his public life that I have in my own mind.

He was legendary as the Governor of Nizhniy Novgorod - both in his managerial and reformist roles and in his ability to speak openly about his views on Yeltsin Presidency. He was given a tough lot as a Deputy PM in 1997 and he did the job, honestly and to his best ability. He was relentless in trying to build a fully functional opposition within the liberal wing in Russian politics, and he never succeeded in doing that - not for the lack of trying or the lack of talent, but for the lack of liberal tradition and culture in Russia. Despite that, he and his fellow thinker, Garry Kasparov, remained and will remain respected by many, including those who did not support them.

There is a political 'weight' to every public intellectual and leader. Nemtsov had that. Nemtsov had huge public support in the 1990s, and despite the fact that he had little popular backing after 1997, he held high moral and intellectual ground and never traded away idealism of his opposition to President Putin for pragmatism of having a shot at gradual reforms. This waining of popular support for him and his causes is sad, because he was a talented, bright, experienced, hard working politician Russia needed and needs. And he brought into public ideas and ideals that Russia needed and needs - ideas and ideals of alternative, of functional opposition.

There is an 'integrity' weight to every public intellectual and leader too - a combination of honesty, openness, transparency and willingness to learn, accept and acknowledge mistake. In that currency, Nemtsov was pure gold. And that Russia will always have as a memory of him.

The White House statements - - and I would say it is also pitch-perfect: "Nemtsov was a tireless advocate for his country, seeking for his fellow Russian citizens the rights to which all people are entitled.  I admired Nemtsov’s courageous dedication to the struggle against corruption in Russia... We offer our sincere condolences to Boris Efimovich’s family, and to the Russian people, who have lost one of the most dedicated and eloquent defenders of their rights."

Boris Nemtsov is survived by his four children, his wife and his mother. May he rest in peace!

Friday, February 27, 2015

27/2/15: Deflation and Retail Sales: Ireland 2015...

Deflation harms consumer demand?

So Irish retail sales are up 8.8% y/y in volume and 5.5% in value, implying people are buying on lower prices, not delaying buying for lower prices. And...

Irish consumer prices are shrinking (deflation).

Note, the above retail sales figures are reflective of total sales. Core sales, excluding motors were down 0.1% in value and volume m/m, but up y/y by 4.8% in volume and 0.9% in value.

More granular:

27/2/15: Of a momentary surrender and a longer fight: Greece v Eurogroup

Couple more earlier comments on Greek situation for print edition of Expresso, 31.12.2015 pages 8-9 and online, February 22, 2015.

English version of some of the comments:

# In which points did Greek delegation change its position?

Last night Eurogroup saw significant changes to the Greek Government position vis-a-vis the current bailout. Firstly, the Government has now abandoned its elections promises to achieve a debt write down and end the agreement with the Troika. Instead, the old agreement has been extended until the end of June on the basis of Greece committing to full implementation of the original Master Financial Assistance Facility Agreement (MFAFA) and, thus, Memorandum of Understanding (MOU). The dreaded austerity programme remains in place, despite the Greek Government claims to the contrary. The dreaded Troika is still there, now referenced as Institutions. Secondly, Greece failed to secure control over banks recapitalisation funding. A major point of Government plans was to use of some of these funds for the purpose of funding public investment and/or debt redemptions. This is no longer an option under the new bridging Agreement. Thirdly, the Greek Government failed to secure any concessions on the future programme. The Eurogropup conceded to allow the Greece to present its proposals for the future pos-MOU agreement, but any proposals will have to be with the parameters established by the current programme.

# In which points Germany change its hard position?

So far, Germany and the Eurogroup conceded nothing to the Greek Government. The much-discussed references in the Eurogroup statement that allow for some flexibility on fiscal targets, principally recognition of the economic conditions in computing the target primary surplus for 2015, is not a new concession. Under the MOU, present conditions were always a part of analysis performed to establish deficit targets and the current programme always allowed for some flexibility in targets application. Crucially, Greece went into the negotiations with two objectives in sight: reduction in the debt burden and reduction in the austerity burden. The fist objective was abandoned even before last night's Eurogroup meeting. The second objective was severely diluted when it comes to the Eurogroup statement and the bridging programme. There are no concessions relating to the future (post-June 2015) programme. In a sense, Germany won. Greece lost.

# What do you expect for the list of reforms to be presented on Monday?

We can expect the Greek Government to further moderate its position before Monday. The new set of proposals is likely to contain request for delays (not abandonment, as was planned before) of privatisations, a request for the primary deficit target for 2015 to be lowered to around 2-2.5% of GDP, and a request to allow for some of the past austerity measures to be frozen, rather than reversed, for the duration of 2015. The Greek Government is likely to present new short term growth strategy based on a promise to enforce more rigorously taxation, set higher tax rates on higher earners, in exchange for using the resulting estimated 'savings' to fund public spending and jobs programme. The final agreement on these will likely be in the form of a temporary programme, covering 2015, and possible extension of this programme will be conditional on 2015 debt and deficit dynamics. Beyond Monday, however, a much more arduous task will be to develop a new programme. In very simple terms, Greece still requires a debt restructuring to cancel a significant quantum of current debt. This now appears to be off the table completely. As the result, any new agreement achieved before June 2015 will be inadequate in terms of restoring Greek economy to any sustainable growth path. Both Greece and Europe, today, are at exactly the same junction as two weeks ago: an insolvent economy is faced with the lenders unwilling to recognise the basics of financial realities.  

27/2/15: Running out of cash: Greece heading into March

My comments to Portuguese Expresso on Greek agreement:

Unedited version here:

"Over the next four months, Greece is facing significant debt redemption pressures. In March, EUR5.83 billion of T-bills and IMF loans maturing and requiring a re-financing. Between now and the end of April, Greece will require to roll over EUR8.1 billion of T-bills and refinance EUR2 billion worth of IMF loans.

Currently, Greece has no money to cover its debt maturity redemptions in March and it is quite questionable if the country can find cash, outside the Programme extension facilities agreed last week but are yet to be ratified by the Eurogroup members and the Institutions, to do so in the markets. Currently Greek 10 year bonds are priced at 65.354, with a yield of 9.23% and rising. This suggests there is unlikely to be significant appetite in the markets to cover a substantial issue of new debt by Greece. At the same time, internal reserves available to the Government are virtually non-existent, especially given the rate of tax receipts deterioration in recent months. December 2014 tax revenues were 14 percent below target, January 2015 tax revenues fell 20% below target, implying a monthly shortfall close to EUR1 billion. In all likelihood, shortfall was at least as big in February as the new Government was tied up in negotiations with the Troika and deposits fled from the banks.

The key problem is that Greece has no option when it comes to delaying repayment of the above funds. IMF is the super-senior lender of last resort and T-bills markets are the bloodline for the Greek Government. Failing to redeem maturing T-bills will be a disaster for the country. In short, Syriza urgently needs to secure new funds to cover these redemptions."

Thursday, February 26, 2015

26/2/15: 'Kermit The IMF' on Irish Growth: It's Not Easy Being Greeen...

This is an unedited version of my column in the Village Magazine for February 2015

January IMF review of the economic situation in Ireland rained a heavy dose of icy water over the already overheating Government spin machine, and much of the IMF concerns centre around exactly the same themes that were highlighted in these very pages last month.

Top of the IMF worries list is growth.

Budget 2015 assumed GDP expansion of 3.9 percent in 2015, with 3.4 percent average growth from 2016 through 2018. The IMF forecasts growth of 3.3 percent in 2015, 2.8 percent in 2016 and “about 2.5 percent thereafter”. In simple terms, over 2015-2018, cumulative growth forecast discrepancy between IMF and the Government is now just shy of 3.3 percent. Put differently, based on IMF forecasts, Irish Government may be significantly overestimating economic prospects of the country.

Source: IMF and Department of Finance

The drivers behind IMF’s skeptical view of our prospects are exactly in line with those discussed in this column before. Exports growth is likely to be much shallower than the Government anticipates, while the domestic demand is still subject to massive debt overhang carried by households and companies.

As an aside, the IMF assessment of the Budget 2015 measures is far from confirming the mainstream Irish media and Irish Left’s view. The IMF had this to say about the measures: “Income tax cuts that increase the already strong progressivity of the system are the main items. While not significant to the revenue intake, reductions in property taxes by 14 local authorities, including Dublin, are a setback for collections from this recent broadening of the tax base.” Doing away with the tax breaks is fine, if it is done in the environment of falling distortionary taxes. Still, coupled with elimination of the property capital gains relief, the entire Budget 2015 was hardly a transfer from the poor to the rich, but rather a net tax increase on the upper earners, especially the self-employed professionals, relative to lower waged.

But back to the impact of growth risks on our Government’s balance sheet. Consider the IMF estimates for public debt dynamics.

Firstly, note that public debt fell from 123 percent of GDP in 2013 to 111 percent of GDP at the end of 2014. Impressive as this change might be, it is driven by one-off changes and not by any significant debt drawdowns. Consolidation of the IBRC into General Government accounts and its subsequent liquidation first pushed Irish Government debt up by 6.2 percent of GDP (EUR12.6 billion) in 2013 and then cancelled most of the same in 2014. All in, IBRC liquidation shaved off 6 percentage points off our 2014 debt to GDP ratio. In between, change in the EU accounting rules raised our 2013 GDP by 6.5 percent. Stronger economic conditions and smooth exit from the Troika Programme have meant that the Irish Government was free to spend some of the borrowed cash reserves on buying out IBRC-linked bonds held in the Central Bank. This drawdown of previously borrowed cash contributed to some 4 percentage points drop in Irish debt to GDP ratio. For all the Government’s bravado, last year’s economic recovery contributed only 1.75 percentage points to the debt decline or roughly one sixth of the overall improvement.

Still, barring adverse shocks, we remain, for now, on course to drive debt to GDP ratio below 100 percent of GDP before the end of 2019.

As IMF notes, however, a temporary drop of 2 percentage points in 2015-2016 forecast nominal GDP growth rates would push our debt to GDP ratio to 117 percent in 2016. And on the balance side, a one percent rise in primary spending by the Government can push public deficit to 3.6 percent of GDP in 2015 and 3.0 percent in 2016 instead of Government projected 2.7 percent and 1.8 percent, respectively.

The IMF is concerned that the Irish Government is suffering from the ‘adjustment fatigue’, especially once the upcoming political pressures of the general election start looming on the horizon. The danger is that “…medium-term fiscal consolidation is at risk from spending pressures, requiring the adoption of a clear strategy to enable the restraint envisaged to be realized. … As the public investment budget is already low, current expenditures will have to bear the brunt of spending restraint, while ensuring the capacity to meet demands for health and education services from rising child and elderly populations. Nominal public sector wages and social benefits must be held flat for as long as feasible and the authorities will need to continue to seek savings across the budget.”

Somewhat predictably, the Irish authorities offered no strategy for fiscal management beyond 2015 and no expenditure policy solutions that can address such risks. Instead of sticking to promised costs moderation, the authorities told the IMF that increased current spending, including on higher public sector wages, can be offset by “discretionary revenue measures”. In other words, should the Government want to fund pre-election giveaways to its preferred social partners (aka public sector wage earners) it can simply hike taxes on less favoured groups. A slip of the veil revealing the ugly nature of our politics-captured economic strategy.

Politics is now firmly displacing economics in both, the way we set our forecasts, as well as interpret the existent data.

Take, for example our reported nearly 5 percent growth over 2014. Various recent ministerial statements extoled the virtues of the Government that made Ireland “the envy of Germany” as the best performing economy in Europe. Largely ignored in the official rhetoric was that much of this growth came from the “contract manufacturing outside Ireland that is dominated by a few companies”. The problem is that none of it has any real connection to Ireland and, as IMF notes, much of it “could quickly turn”.

Private domestic demand, excluding aircraft leasing and investment in tech services-linked intangibles rose by closer to 3 percent. Again, according to the IMF this figure may be a more realistic estimate of the real recovery. In other words, somewhere between 30 and 40 percent of the recorded growth in 2014 was down to just one an accounting trick. And multinationals had plenty other accounting tricks up their sleeves that no one is bothering to count.

Even the 3 percent domestic growth estimate stands inconsistent with the data on household finances. Stripping out gains in household net worth attributable to the property markets, households’ financial positions hardly improved in 2014. Mortgages in arrears accounted for 23.7 percent of all house loans outstanding, when measured by the balance of loans, down from 25.6 percent a year ago. Based on the Central Bank data, at the end of Q3 2014, some 244,816 mortgages accounts (amounting to EUR46.1 billion) were either in arrears, in repossession, or at risk of arrears – a number that is roughly 4,500 higher than a year ago. Based on the Department of Finance data, 85 percent of all accounts in arrears ‘permanently restructured’ at the end of November 2014 involved arrears solutions that result in higher debt over the life time of mortgage than prior to restructuring.

Based on the Central Bank data, Q3 2014 household deposits in the Irish banking system stood at EUR85.9 billion, slightly down on EUR86.0 billion a year ago.

In part, the above figures translate into the improvement in banking sector performance at the expense of households. In the first half of 2014, Irish banks recorded their first positive return on assets since the beginning of the crisis, and the net interest margin (the difference between the bank lending rate and the cost of funding) rose to a crisis-period high of 1.5 percent. But credit growth remained negative, contracting at a rate higher than in 2011. Put this in simple terms, the banks continued to bleed their clients dry at a faster rate than the recovery was making them stronger, and there was preciously little observable improvement in households’ financial positions compared to 2013. Certainly not enough to claim the picture to be consistent with rapid economic growth.

The IMF isn’t undiplomatic enough to say that, but the Fund is clearly concerned more than the Irish authorities at this state of imbalances. As they should be: the Central Bank internal stress-testing for new mortgages being issued by the banks today is for the interest rates rising to over 6-6.5 percent over the life time of the loan.

Of course, the Central Bank is a myopic institution when it comes to telling us what effects such rates would have on existent corporate and household loans. But give it a thought. Currently, average existent mortgage on the market is priced at interest rates below 2 percent per annum. And with that, 17.3 percent of all mortgages accounts are officially in arrears, and 34.3 percent of all balances relating to mortgages loans are either in arrears, in repossessions or restructured.

Should the interest rates double, let alone triple, what mortgages default rates on currently performing mortgages can we expect? What amount of economic growth do we need to shore up our household finances sufficiently enough to escape the interest rate squeeze that even the Central Bank admits might arrive in the foreseeable future? Can the current trends in the recovery – the ones that are leaving households out in the cold, while superficially inflating official GDP figures – deliver any sense of sustainability of our economic performance across the financial, fiscal and economic areas in this country should even mild shocks take place?

One can only wonder as to the answers to these questions, as well as to the silence of our authorities on these topics.

Wednesday, February 25, 2015

25/2/15: QNHS Q4 2014: Employment, Part-Time, Full-Time, & Underemployment

In the first three posts covering the QNHS results for Q4 2014, I discussed

  • Labour Force Participation Rate (poor news showing decline in the already historically low participation) and Unemployment Rate (goods news with unemployment - absent seasonal adjustment falling to 9.9% and the rate of decline in unemployment on quarterly basis accelerating):
  • The size of labour force (which is worrying and static at and around crisis trough) and broader measures of unemployment (at high enough levels to arrant concern, but declining rapidly, although inclusive of the state training programmes participants and emigration figures the declines are shallower than across the officially reported numbers), here:
  • Employment growth overall and by sectors was covered here: Employment grew by 29,100 over 12 months of 2014 and the rate of growth has accelerated between Q3 and Q4. Private non-agricultural employment is rising faster than total employment and the rate of employment growth here also accelerated in Q4 2014. High value-added sectors employment is also rising, at a rate faster than the overall employment is increasing.

Now, let's consider labour force breakdown by economic status.

Total number of working age adults residing in Ireland (age 15 and over) rose to 3,601,900 in Q4 2014 from 3,595,600 in Q3 2014, up 0.13% y/y (+4,500).

Of these, numbers of those at work rose to 1,877,900 in Q4 2013, up 1.56% y/y or 28,800. This is a key number as it reflects total creation of jobs in the economy. The rate of increases in the number of those at work was slower in Q4 2014 than in Q3 2014 (+1.7%). Compared to Q1 2011 (when the current Government took office), there number of those at work in Q4 2014 was up 4.27% or 76,900.

Number of those unemployed fell 13.05% y/y in Q4 2014 to 263,900 - a rate of y/y decline that is faster than 9.76 drop recorded in Q3 2014. Which is very good news. Overall, there were 39,600 fewer unemployed in Q4 2014 than in Q4 2013. Which is also a good number.

Now, between Q1 2011 and Q4 2014, 76,900 more adults went to work, but unemployment fell by 101,800, which shows that 24,900 adults have moved out of unemployment but did not go to work.

Number of students in Q4 2014 stood at 415,100 which is down 0.1% y/y (-400) and is up 3% (+12,100) on Q1 2011.

Number of those engaged on home duties stood at 476,300 in Q4 2014, up 0.55% y/y (+2,600). This increase stands contrasted by a 1.63% drop in Q3 2014 y/y. Since Q1 2011, the number of those engaged in home duties fell 10.17% (-53,900).

417,800 individuals of age 15 and over were officially in retirement in Q4 2014, up 2.93% (+11,900) y/y and up 19.95% (+69,500) on Q1 2011 - a massive increase clearly driven in part by early retirement schemes deployed in the public sector.

The mysterious category of 'Other' - those neither working, nor studying, nor unemployed, nor working on home duties, nor retired - was at 150,800, up 0.8% (+1,200) y/y and down 100 (-0.07%) on Q1 2011.

Recall that there were 1,877,900 individuals at work in Ireland in Q4 2014, a number that is 28,800 higher than in Q4 2013 and 76,900 higher than in Q1 2011. Of these, 1,474,300 individuals were in full time employment - an increase of 38,300 (+2.67%) y/y and a rise of 91,300 (+6.6%) since Q1 2011. Which shows clearly that new employment growth has been more significant in full-time category and there have been some transitions from part-time to full-time jobs. This is excellent news.

Meanwhile, number of those in part-time employment dropped to 383,600, down 2.34% (-9,200) y/y but up 3,100 (+0.81%) on Q1 2011.

Taking a closer look at part-time employment: In Q4 2014, number of part-time workers who reported themselves not underemployed was 276,000, up 5.59% y/y or 14,600. Compared to Q1 2011, there were 11,000 (+4.15%) more phis too is good news. And it confirms the suspicion that jobs quality has improved in recent quarters. Further indication of same is the number of those who are employed part time but do report themselves to be underemployed. This number stood at 107,600 in Q4 2014, down 18.17% y/y (-23,900) and down 7,900 (-6.84%) on Q1 2011.

Two charts to illustrate the aforementioned trends:

Overall conclusion: the quality of employment is improving, with more increases in full time employment and in part time not underemployed jobs. Rapid rate of growth in those in retirement (+65,900 on Q1 2011) relative to those at work (+76,900 over the same period) is worrying, however.

25/2/15: QNHS Q4 2014: Employment Growth by Sectors & Activity

In the first two posts covering the QNHS results for Q4 2014, I discussed

Now, let's take a look at employment.

Total employment across all sectors stood at 1,938,900 in Q4 2014, up 1.52% y/y - a rate of increase that is slightly faster than 1.45% rise y/y recorded in Q3 2014. In level terms, employment rose 29,100 in 12 months through the end of 2014. Taking annual average, employment over 2014 rose 1.74% compared to 2013 average level of employment.

Despite this, Q2 2014 employment was still down 2.88% on crisis period peak employment although it is 6.24% above the crisis period trough. Relative to 2008 average, current employment levels are down 8.9%.

In simple term, to sum this result up, things are improving, but they are far from normal or where they should be.

Stripping out agriculture and public sector, private sector non-agricultural employment stood at 1,335,400 in Q4 2014, up 2.6% y/y, beating 1.32% rise in the same over 12 months through Q3 2014. In level terms, employment in non-agricultural private sectors rose 33,900, beating the headline total employment figures - a major good news.

Nonetheless, compared to 2008 average, private sector non-agricultural employment remains down 13.19%, while public sector (including sectors dominated by public employment) employment is up 4.8%.

As chart above shows, total employment is doing well, rising to the levels that are above the pre-crisis average and close to the difference between Q3 and Q4 2009. However, private non-agricultural employment is lagging, current at the levels well below pre-crisis average and between Q4 2009 - Q1 2010 levels.

Public and state-controlled sectors employment rose to 487,600 in Q4 2014, up 1.24% y/y (slower growth than in Q3 2014 when it expanded by 2.33% y/y), adding 6,100 jobs. Full year 2014 average employment levels here are 1.13% higher than full 2013 average. Q4 reading marks the highest level of non-private non-agricultural employment for the entire crisis period and is 4.8% above the 2008 average.

Meanwhile, agricultural employment shrunk 9.33% y/y in Q4 2014, having posted a decline of 0.81% y/y in Q3 2014. Loss of employment in the sector in 12 months through the end of Q4 2014 was 10,900, which was most likely partially responsible for gains of 13,100 in construction jobs. Still, over 12 months of 2014, agricultural employment levels were averaging 2.08% above the same for 2013.

Chart above shows basically flat employment in the state and state-controlled sectors, which, when contrasted with official public sector employment figures suggests shift of some public sector jobs from state to private contracting.

High value-added sectors also added jobs in Q4 2014, with 14,000 new jobs additions y/y a rate of employment growth of 2.03% y/y, virtually identical to 2.02% growth recorded in Q3 2014. As with state-controlled sectors employment, employment in high value-added sectors posted peak reading in Q4 2014 for the entire crisis period and stood 6.56% above 2008 average.

Table below provides summary of changes in employment across all sectors reported:

To summarise, we have healthy employment growth of 29,100 over 12 months of 2014 and the rate of growth has accelerated between Q3 and Q4. However, some sectors did post declines y/y in Q4 2014 and some posted weak performance to the upside. Good news is: private non-agricultural employment is rising faster than total employment and the rate of employment growth here accelerated in Q4 2014. High value-added sectors employment is also rising, at a rate faster than the overall employment is increasing.

25/2/15: QNHS Q4 2014: Broader Measures of Irish Unemployment

In the previous post ( I covered the QNHS results for Q4 2014 from the point of Labour Force Participation Rate (poor news showing decline in the already historically low participation) and Unemployment Rate (goods news with unemployment - absent seasonal adjustment falling to 9.9% and the rate of decline in unemployment on quarterly basis accelerating).

Here, let's consider actual size of the labour force and the broader measures of unemployment, including numbers on state training programmes (e.g. JobBridge) and factoring in estimates of inward and outward migration.

Few definitions are provided in the note below the post, so feel free to consult these.

Now, onto numbers.

Total size of Irish labour force at Q4 2014 stood at 2,152,500 down from 2,172,400 in Q3 2014 and down 10,600 on Q4 2013. This is not good. Compared to peak, current Labour Force is down 147,600 and compared to crisis period trough it is up 15,000. Over the last 12 months, irish labour force average levels were down 117,100 on pre-crisis average. All indicators point to a decline in labour force, consistent with the weak labour force participation rate reported in the previous post. All of this suggests that some share of improvements in unemployment performance is down to people dropping out of the labour force rather than the unemployed finding jobs.

As chart above highlights, remarkably, there has been basically no change in labour force numbers from H2 2010 through Q4 2014, something that is not consistent with our natural demographics, but is consistent with the story of outward emigration and dropping-out from the labour force by working age adults.

Now onto more pleasant news. All broader measures of unemployment have registered declines in Q4 2014 both y/y and q/q:

PLS1 indicator - basically a measure of unemployment fell 2.0 percentage points y/y in Q4 2014 to 10.5%, marking an acceleration in the rate of decline from 1.9% drop in Q3 2014.

PLS3 indicator, capturing those employed, unemployed, discouraged, plus all those not seeking a job for reasons other than being in Education & Training - has fallen from 15.1% in Q3 2014 to 13.3% - a drop of 2.7 percentage points y/y accelerated from 2.4 percentage points decline back in Q3 2014.

PLS4 - the broadest officially reported measure of unemployment that includes PLS3, and also underemployed - has fallen to 18.5 in Q4 2014, marking the first reading below 20% since Q1 2009. The measure is down 3.8 percentage points y/y and this marks a major acceleration in decline compared to 2.9 percentage points drop in Q3 2014.

Adding State Training Programmes participants to PLS$ to produce PLS4+STP puts the broader unemployment measure to 22.34%. This is the lowest reading since Q4 2009 and also marks acceleration in decline exactly matching that for PLS4.

Accounting (and this is rough estimation, so be warned) for net outward emigration, however, PLS4+STP measure of broad unemployment rises to 29.8% in Q4 2014. This marks a decline of 2.8 percentage points y/y and acceleration of decline from 2.0 percentage points drop in Q3 2014. However, the rates of decline in both Q3 and Q4 were shallower than for other measures, save PLS 1.

To summarise, labour force levels are worrying and static at and around crisis trough. Broader measures of unemployment show significant improvements, but the levels of unemployment, especially adjusted for state training programmes and potential adverse effects of net emigration are still high and more worrying than the headline unemployment measures suggest. While we do not know exactly, indications are - the data is consistent with at least some declines in unemployment officially recorded by the CSO coming not from jobs gains, but from emigration, state training programmes and exits from the labour force.

For example, compered to H1 2011, there were 23,373 more individuals that were participating in state training programmes who are not counted as unemployed. Furthermore, estimated net 94,800 individuals of working are have left Ireland between end of Q1 2011 through end of Q1 2014. They too are no longer counted in the labour force or in employment/unemployment statistics.


  • PLS1 indicator is unemployed persons plus discouraged workers as a percentage of the Labour Force plus discouraged workers.
  • PLS2 indicator is unemployed persons plus Potential Additional Labour Force as a percentage of the Labour Force plus Potential Additional Labour Force
  • PLS3 indicator is PLS2 plus others who want a job, who are not available and not seeking for reasons other than being in education or training as a percentage of the Labour Force plus Potential Additional Labour Force plus others who want a job, who are not available and not seeking for reasons other than being in education or training.
  • PLS4 indicator is PLS3 plus part-time underemployed persons as a percentage of the Labour Force plus Potential Additional Labour Force plus others who want a job, who are not available and not seeking for reasons other than being in education or training.
  • PLS4+STP is the indicator combining PLS4 above and State Training Programmes Participants but excluding those of working age who emigrated (net of those who immigrated). 
  • PLS4+STP+migration numbers reported below are reflective of PLS4+STP measure and add estimates of net emigration from Ireland based on latest available data extrapolated linearly over the year from May 2014 and adjusted for working age and labour force participation rate in the economy.

25/2/15: QNHS Q4 2014: Labour Force Participation Rate and Unemployment Rate

Some good news today from the QNHS report for Q4 2014 covering labour market conditions in the Irish economy. I will be detailing these throughout the day today, so stay tuned for more posts.

To start with, consider the labour force participation and unemployment rates - two key aggregate metrics for labour markets.

In Q4 2014, Labour Force Participation Rate in Ireland stood at 59.8%, down 0.3 percentage points from 60.1% in Q4 2013. By definition: The labour force participation rate is computed as an expression of the number of persons in the labour force as a percentage of the working age population. The labour force is the sum of the number of persons employed and of persons unemployed, but it excludes people in education and training, unless training is directly associated with employment. Currently, Labour Force Participation Rate is 125 basis points below the Q1 2000- Q4 2007 average of 61.23% and full 490 bps below the historical maximum. Which is not good news.

On seasonally-adjusted basis, Labour Force Participation Rate fell 0.1 percentage point quarter on quarter in Q4 2014 to 59.9%, matching the previous lowest point over the last 8 consecutive quarters.

Meanwhile, the official Unemployment Rate fell to 9.9 percent, the first sub-10 percent reading in 24 quarters. Which is great news. Year on year, unemployment rate is down from 11.7% in Q4 2013. Seasonally-adjusted unemployment rate, however, remained above 10 percent marker at 10.4%, but is down from 11.1% in Q3 2014.

In terms of unemployment rate, quarterly rate of decline registered in Q4 2014 stood at 0.7 percentage points, which is the strongest performance for any quarter since Q3 2013 when it posted a decline of 0.8 percentage points. Year on year decline in unemployment rate was 1.8 percentage points, slightly better than 1.7 percentage points decline in Q3 2014, but lower than 2.1 percentage points drop in Q2 2014.

All in, the news are good on unemployment statistics front, but poor on labour force participation side.

More analysis to follow.

25/2/15: Baltic Dry Index: Another Poor Day for EUrecovery Stroy

Two weeks ago, Baltic Dry Index was at 556. Which was bad ( Now, it is at 516 or below late 1980s trough. And the European economy is allegedly picking up.

H/T to @moved_average 

What can possibly go wrong with the 'EUrecovery' story?

Monday, February 23, 2015

23/2/15: Ukraine CDS-implied Default Rate Shoots Above 97%

As noted by @Schuldensuehner Ukraine's probability of default is now just shy of 97.1%:

Which is spectacular in its own right. But one has to consider what this market pricing really implies.

As we know, Ukraine will receive super-senior debt injections courtesy of the IMF. This will alleviate the immediate crunch on Government liquidity (Ukraine FX reserves are now below scheduled debt redemptions for March-September). So the above risk spike cannot be attributed to the risk of liquidity crisis.

As I explain here: , this liquidity support comes at a hefty cost: the debt burden that will result from the international lenders intervention will be non-sustainable and it can exacerbate popular discontent with current Government.

Now, the latest news from the Eastern ATO are pretty disastrous, and, arguably, also unlikely to go well with the Ukrainians.

This is of course speculative, but given lack of the risk around future liquidity crunch, the latest spike in the CDS spreads suggests that the markets see serious political risks ahead soon.