Saturday, December 12, 2015

12/12/15: Irish National Accounts 3Q: Post 5: External Trade

In the first post of the series, I covered Irish National Accounts 3Q: Sectoral Growth results. The second post covered year-on-year growth rates in GDP and GNP, while the third post covered quarterly growth rates in GDP and GNP. The fourth post covered Domestic Demand.

Now, consider external trade side of the National Accounts.

Irish Exports of Goods & Services stood at EUR62.52 billion in 3Q 2015, a rise of 12.4% y/y, after posting growth of 13.5% y/y in 2Q 2015 and 15.5% growth in 3Q 2014. Over the last four quarters, Irish Exports of Goods & Services grew, on average, at a rate of 13.4%, implying doubling of exports by value roughly every 5.5 years. If you believe this value to be reflective of a volume of real economic activity taking place in a country with roughly 1.983 million people in employment, you have to be on Amsterdam brownies. Over the 12 months through 3Q 2015, Irish economy has managed to export EUR235.67 billion worth of stuff, or a whooping EUR27.828 billion more than over the same period a year before. That’s EUR118,845 per person working at home or at work in Ireland.

Now, moving beyond the total, Exports of Goods stood at EUR34.062 billion in 3Q 2015, up 16.07% y/y - a doubling rate of 4.5 years. Exports of goods were up 16.03% y/y in 2Q 2015 and 16.9% in 3Q 2014, so over the last 12 months, average rate of growth in Exports of Goods was 18.01%. In other words, Irish Exports of Goods (physical stuff apparently manufactured here) are running at a rate of increase consistent with doubling of exports every 4 years.

Exports of Services are still ‘lagging’ behind, standing at EUR28.458 billion in 3Q 2015, up 8.2% y/y in 3Q 2015, having previously risen 10.5% in 2Q 2015. Both rates of growth are below 13.9% heroic rate of expansion achieved in 3Q 2014. Over the last four quarters, average rate of growth in Irish Exports of Services was 8.6%, to EUR107.29 billion.

However, in order to produce all these marvels of exports (and indeed to sustain living and consumption), Ireland does import truck loads of stuff and services. Thus, Imports of Goods and Services overall rose to EUR52.788 billion in 3Q 2015, up 18.9% y/y and beating 16.5% growth in 2Q 2015 and even 18.75% growth in 3Q 2014. Over the last four quarters average rate of growth in Imports of Goods and Services was impressive 17.6%.

Some of this growth was down to increased consumer demand. Imports of Goods alone rose 5.1% y/y in Q3 2015, compared to 8.1% in 2Q 2015 and 16.7% in 3Q 2014 (over the last four quarters, average growth rate was 10.1%). Imports of Services, however, jumped big time: up 27.9% y/y in 3Q 2015, having previously grown 21.8% in 2Q 2015 and 20.2% in 3Q 2014 (average for the last four quarters is 22.6%). Of course, imports of services include imports of IP by the web-based and ICT and IFSC firms, while imports of goods include pharma inputs, transport inputs (e.g. aircraft leased by another strand of MNCs and domestic tax optimisers) and so on.

Both, exports and imports changes are also partially driven by changes in the exchange rates, which are virtually impossible to track, since contracts for shipments within MNCs are neither transparent, more disclosed to us, mere mortals, and can have virtually no connection to real world exchange rates.

All of which means that just as in the case of our GDP and GNP and even Domestic Demand, Irish figures for external trade are pretty much meaningless: we really have no idea how much of all this activity sustains in wages & salaries, business income and employment and even taxes that is anchored to this country.

But, given everyone’s obsession with official accounts, we shall plough on and look at trade balance next.

Ireland’s Trade Balance in Goods hit the absolute historical record high in 3Q 2015 at EUR15.602 billion, up 32.4% y/y and exceeding growth rate in 2Q 2015 (+27.5%) and 3Q 2014 (+17.2%). Meanwhile, Trade Balance in Services posted the largest deficit in history at EUR5.87 billion, up almost ten-fold on same period in 2014, having previously grown by 154% in 2Q 2015.

Thus, overall Trade Balance for Goods and Services fell 13.4% y/y in 3Q 2015 to EUR9.732 billion, having posted second consecutive quarter of y/y growth (it shrunk 0.51% y/y in 2Q 2015).

As chart above shows, overall Trade Balance dynamics have been poor for Ireland despite the record-busting exports and all the headlines about huge contribution of external trade to the economy. On average basis, period average for 1Q 2013-present shows growth rate averaging not-too-shabby 5.1% y/y. However, this corresponds to the lowest average growth rate for any other period on record, including the disaster years of 1Q 2008 - 4Q 2012 (average growth rate of 24.3% y/y).

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