Friday, September 28, 2012

28/9/2012: Two points of note from today's economics news

Two points of note today (and no, none relating to the non-scientific fiction of the Spanish banks stress tests):

Point one: IMF assessment of Iceland's economy (in a second post-programme note):

"Growth has recovered and the outlook is good. Following a deep and protracted recession, the economy grew by 2.6 percent in 2011—a performance that looks set to be broadly repeated in 2012 and sustained over the medium term. The output gap is closing, unemployment has decreased, and inflation, though still high, is expected to converge toward the Central Bank’s target of 2½ percent in the medium term if monetary tightening resumes. Public and external debt ratios are on a downward path and financial sector conditions are improving."

Now, I did stress in italics few bits there…

IMF continues by pointing out that Iceland - to guard against downside risks - should aim to continue current fiscal path and 

"For the 2013 budget, additional measures amounting to about 0.2 percent of GDP would put the overall balance firmly on track for a balanced position in 2014"

Now, the best-in-class Ireland, of course, is aiming to deliver a budgetary deficit of 5% in 2014 - not a balanced budget and to achieve the same target that IMF suggests would take Iceland a precautionary cut of 0.2% of GDP for Ireland would imply dropping deficit by at least 7.7% in 2013. Hmmm… right… the 'bad boy' Iceland = 0.2%, the 'good boy' Ireland = 7.7%…

But wait, the real point two to consider is not about Ireland-Iceland 1-letter difference comparatives, but about Iceland v Euro area ones. Today, Eurocoin - the CEPR and Bank of Italy joint-run leading economic indicator for the Euro area economy came out for September, showing that Euro area economic growth has stabilized at around -0.3-0.5% GDP. Now, run this by me again? Iceland stabilized at around +2.6% growth, Euro area stabilized at around -0.3%… Oh, dear.

See Eurocoin details in the next post...

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