Showing posts with label IDA. Show all posts
Showing posts with label IDA. Show all posts

Thursday, February 6, 2014

6/2/2014: Rip-Off Ireland: Alive and Kicking… Courtesy of the State


This is an unedited version of my Sunday Times article from January 26, 2014.


Ninety five years ago, in his book The Economic Consequences of Peace (Chapter VI, pg.235-236), John Maynard Keynes observed that "By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens."

This week's announcement of price hikes by VHI serves as a timely reminder of the salience of Keynes' analysis.  As are the CSO release of comparative data for the cost of living and income per capita for Ireland and the rest of the EU.

The former shows the extent of the ongoing confiscation of households’ wealth through targeted price increases – a core feature of Irish response to the crisis. The latter highlights the combined effects of inflation and income declines on Irish consumers. In 2012, Ireland was the fifth most expensive state in the European Union in terms of the cost of final consumption by private households. At the same time, Irish per capita pre-tax national income, adjusting for purchasing power differentials, was only 11th in the EU.

Irish recovery from a deep fiscal and financial crisis has been a tale of financial repression. Since 2008, our successive Governments have underwritten the status quo of inefficiencies in public services, as well as the cost of recapitalizing the failed banks using the sweat and blood of Irish consumers and taxpayers. As a by-product of this, the state transferred vast amounts of wealth and income from the Middle Ireland and the less well-off households to state-protected and often state-owned producers of goods and services.


Significant parts of these transfers took form of targeted inflation.

Per CSO data, released earlier this month, average annual consumer inflation in 2013 fell to just 0.5 percent, less than one quarter of the average annual inflation recorded in 2011-2012. However, underlying these figures, there is a growing disparity between price trends in the sectors dominated by the state and the sectors where private enterprises compete directly for consumer demand. Not surprisingly, the highest inflation over 2013 was recorded in state-priced and state-owned sectors, such as Education, where prices rose more than nine times faster than across the whole economy.

Looking at the longer-range data reveals an even greater divergence between the state-controlled and market prices. Since the beginning of 2008 through December 2013, aggregate consumer prices rose by slightly more than 3 percent in cumulative terms. Over the same period of time, state-controlled prices were up 22 percent. These sectors cover goods and services that account for around one third of all household consumption in Ireland. Meanwhile, private sectors prices are up only 0.2 percent.

Take the Housing, Water, Electricity, Gas and Other Fuels category, where cost of services to Irish consumers, on aggregate, fell 3.7 percent between 2007 and 2013. This decline was driven by a 25 percent drop in Mortgage Interest costs and 13 percent decline in Private Rents. Costs also fell across virtually all maintenance and repair services associated with housing. In contrast, Local Authority Rents and state-controlled gas prices rose almost by one fifth over the same period. Cost of electricity was up 26 percent. All state-controlled or regulated prices within this group are on the rise, with majority posting double-digit inflation.  Price inflation in the energy sector is now so far divorced from underlying costs that a single new entry into the market by Energia is expected to drive prices down by some EUR 300 per annum, potentially erasing two thirds of the price hikes introduced over the last two years.

None of the above services, however, come close to the rampant inflation in Health and Education.

Since the onset of the crisis, costs of Hospital Services in Ireland rose more than 36 percent, over three times the rate of inflation for Outpatient Services. The very same policies that purposefully drove up the cost of Hospital Services are also responsible for a whooping 117 percent cumulative rise in Health Insurance costs since 2007. These policies forced health insurance purchasers to cover the shortfalls in funding available to the HSE, despite the fact that their insurance premiums and general taxes already fund state healthcare. As the result, the cost of health insurance rose at more than three and a half times the rate of inflation in home insurance costs and eleven times faster than inflation in motor insurance.

Tertiary education charges are up 60 percent since 2007. Private-sector dominated secondary and vocational education services meanwhile saw costs rise at roughly one third of the rate of inflation registered in our ITs and universities.

Based on CSO-estimated weights of different goods and services in a standardized consumer basket, inflation in controlled sectors is responsible for confiscating, using Keynes’ terms, just over 10 cents out of every euro spent on consumption of goods and services by an average household in Ireland since the beginning of the crisis. CSO and IMF reported producer prices and international exchange rates and inflation comparatives show that majority of these losses had nothing to do with increased costs of raw materials, intermediate goods and capital used in production. Put simply, they represent a crisis levy designed and imposed by the State and its semi-state companies.


Grim as they are, official inflation statistics, however, tell only a part of the story of wealth destruction imposed onto Irish consumers.

The above costs of inflation are compounded by the declines in Irish households’ disposable incomes due to various tax measures since 2008, combined with decreases in earnings and working hours. All in, Irish households’ today have around 12-15 percent lower disposable incomes than prior to the crisis. Factoring in the effects of unemployment and inflation, in terms of real purchasing power, Irish households are now down some 28 cents on the euro since the beginning of the crisis. Only around 2 cents of this decline is due to private sectors’ inflation with the rest taken up by changes to taxes, regulatory and pricing policies, plus by the monopoly power awarded to state-protected sectors.

Real Ireland - our lower-, middle and upper-middle classes - is paying the full price of the banking, fiscal and economic crises. Meanwhile, the State elites - senior public sector and semi-state officials, managers, politicians, state services executives and affiliated professionals - are ripping the benefits in form of jobs security, pensions and quality of life.


The economics of state confiscation of income through inflation and taxation do not end there, however. The real impact of these measures of financial and fiscal repression can only be dealt with in the context of their distribution across various households and demographics.

Normally, in response to price changes, consumers have an option to alter their demand for goods and services. In the case of ordinary consumption goods, this means that we switch away from more expensive alternatives.  Overtime, adjusting for quality of supply, our demand favors lower cost producers and suppliers, who gain market shares at the expense of more expensive, less-efficient ones. Thus, more elastic or more responsive demand helps not only to offset the painful costs of inflation in the short run, but also engenders innovation and competition in the longer term.

For example, during the current crisis, Irish consumers showed strong willingness to opt for discount stores when it comes to shopping for groceries and basic household items. Per latest reports from the retail sector, this Christmas, Tesco’s share of the Irish groceries markets shrunk by 6.2 percent at the expense of Aldi and Lidl which increased their share of the Irish market by double digits. A by-product of this is that the discounters are now offering increasingly more goods tailored to Irish tastes and are widening the breadth of offers in their stores across various segments of consumers. Another upside is that indigenous Irish competitors, such as SuperValu, are gaining the ground in this competition.

In contrast, consumers have little choice in switching away from the state-controlled or monopolised sectors. In 2013, Water Supply and Miscellaneous Services prices were up 64 percent on 2003 levels. More price hikes will come once Irish Water starts issuing charges under the state license to raise prices unabated for the first six years. All without any alternative of a different supplier being available to consumers.

Indirect effects of inflation are also stronger for consumers of goods and services with habitual or long-term demand. Healthcare and education are multi-annual commitments with little room for changing consumer behaviour in response to prices. Patterns of transport demand, linked to choices of location where one lives, are also less responsive to price changes, offering few options for trading out of the adverse effects of inflation. In all of these sectors, consumers have no choice but to pay for price increases. Demographically, younger households, usually heavily indebted via mortgages and struggling financially are the prime targets of this inflation.

Keynes had more to say about the role inflation pays in destroying households’ wealth and income. “… By this method [of inflation, the Governments] not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth."

In the case of Ireland during the current crisis, all of the above rings true, save for one important correction: Irish state-sanctioned inflation confiscates wealth and income by transferring money from productive private savings, investment, and consumption to shore up inefficient and often wasteful state services and semi-state sectors. There is little that is arbitrary in the context of the Rip-off Ireland ca 2014.





Box-out:

"You cannot corral a company to go to a particular part of the country unless it will make sense for their business ‐‐ particularly when the company's alternative location may be Amsterdam, Barcelona or Munich”. With these words the IDA spokesperson this week explained why agency-supported multinationals have been largely staying out of the regions, while flocking into Dublin. IDA made a perfectly valid point. Manufacturing exports, even stripping out patent cliff-hit pharmaceuticals, are barely expanding. Remote back office services – the bread-and-butter of so-called ‘call centres economy’ – are on decline across the advanced economies. This leaves what economists call human capital-intensive sectors – the ones largely dominated by jobs for highly-educated 22-35 year-olds coming choosing Ireland as their career stop-over. Working for Google, Facebook, Twitter and other internationally networked globally-trading multinationals, these employees do not want to live in the suburbs, let alone move to the countryside. They require cultural, social and economic amenities of large cities. Whether we like it or not, the MNCs of the 21st century inhabit the world where human capital defines productivity growth, profitability and value added. Bricks and mortar attractions of an IDA Park somewhere in the middle of nowhere do not. Time to bin Bertie’s Era Spatial Development Plans and to think how to transition our regional economic development model to a new and more sustainable basis.

Thursday, December 5, 2013

5/12/2013: Irish Services Index, October 2013

So Services PMIs are booming… they are positively booming…


…while in the real world, per CSO:

"The seasonally adjusted monthly services value index decreased by 1.4 % in October 2013 when compared with September 2013 and there was an annual decrease of 1.2%."

M/m on September 2012:

  • Accommodation and Food Service Activities (+1.6%) 
  • Wholesale and Retail Trade (+0.8%) 
  • Professional, Scientific and Technical Activities (-6.0%), 
  • Other Services Activities (-3.5%), 
  • Transportation and Storage (-2.9%), 
  • Information and Communication (-2.5%) and 
  • Administrative and Support Service Activities (-0.3%) 

On an annual basis to October 2012:

  • Administrative and Support Service Activities (+15.4%) 
  • Information and Communication (+0.9%) 
  • Professional, Scientific and Technical Activities (-14.3%), 
  • Other Service Activities (-7.0%), 
  • Transportation and Storage (-3.0%), 
  • Accommodation and Food Service Activities (-2.0%) and 
  • Wholesale and Retail Trade (-0.8%)  

Oh, and do notice the 'Smart economy' bits... the Professional, Scientific and Technical Activities down -6.0% m/m and 14.3% y/y. And the area of growth in employment known as Accommodation and Food Service Activities down -2.0% y/y... this data is bizarre and will require confirmation once we have full quarter results to make any sense of... but one thing is clear: Irish Services PMI is just not that good at measuring anything that registers as Services sector in Ireland.

Thursday, September 5, 2013

5/9/2013: Irish Services Sector Activity Index: July 2013

Monthly Services Activity Index from the cSO is out for July. Some interesting movements in the series.


  • Wholesale and retail trade sub-sector activity expanded m/m on seasonally adjusted basis by 2.46% in July 2013, having posted a m/m decline of 1.49% back in June 2013. 3mo MA through July 2013 was down 2.19% on 3mo MA through July 2012 and 6mo MA is down 4.21% y/y.
  • Transport and storage sub-sector posted a m/m expansion of 1.86% in July 2013, following a contraction in June 2013 of 2.08%. 3mo MA is up 3.84% y/y and 6mo MA is up 4.36%.

  • Accommodation and food services sub-sector activity contracted 0.76% in July 2013 m/m, having posted an expansion of 1.06% in June 2013. 3mo MA is now up just 0.32% y/y and 6mo MA is up 1.27% y/y.
  • Administrative and support services sub-sector activity shrunk 1.24% m/m in July 2013, having posted 5.25% growth in June 2013. 3mo MA is now up a massive 23.76% y/y and 6mo MA is up 22.04%.


  • Information and communication sub-sector activity shrunk 4.01% m/m in July 2013, having posted growth of 1.71% in June. 3mo MA is now up 8.01% y/y and 6mo MA is up 9.23% y/y.
  • Professional, scientific and technical activities sub-sector is down 4.68% m/m in July, having posted an 1.74% expansion in June. 3mo MA is down 6.64% y/y and 6mo MA is down 3.23% y/y. 


Lastly, overall index:
  • Services sector activity fell 0.82% m/m in July after posting growth of 0.37% m/m in June 2013.
  • 3mo MA through July 2013 was up 2.73% y/y against previous 3mo period MA growth of 2.09% y/y.
  • 6mo MA is up 2.41% y/y.


 Overall, still solid performance in the Services sector, with monthly (seasonally adjusted) changes not exactly stellar, but gains of the previous months continue to carry the sector to annual expansion.

Thursday, July 4, 2013

4/7/2013: Irish Services Sector Activity Index: May 2013

Irish Services Index for May was out today, so here are the updated trends.

Wholesale Trade activity rose from 114.7 to 116.7 between April and May 2013, with index up 1.74% m/m having posted a 7.9% rise m/m in April. 3mo average through May 2013 is down on 3mo average through May 2012 by some 7.45% and 6mo average through May 2013 is down 6.47% y/y. Thus, two last months' readings are encouraging, but not yet enough to reverse overall slower activity recorded y/y.

Wholesale and Retail Trade and Repair of Motor Vehicles etc sector activities also improved m/m in May 2013, rising 1.22% after posting a 3.61% rise m/m in April. 3mo average through May 2013 is down 5.27% y/y and 6mo average through May 2013 is down 4.22% y/y. Relative to historical max (history here references period from January 2009), the index is still down 4.27%

Transport and Storage sector is up 1.49% m/m in May 2013 having posted a 1.06% increase in April 2013. 3mo average through May 2013 is up 5.79% y/y and 6mo average is up 6.62% y/y. Relative to historical max, the index is down 5.84%.


Accommodation and Food services activity dipped 0.58% m/m in May, having recorded a 3.38% drop in April. 3mo average through May is still up 1.40% y/y and 6mo average is up 1.72% y/y. The sector is down 17.78% on peak for the period from January 2009.

Administrative & Support services activity rose 0.68% m/m in May, having recorded a 2.42% rise in April. 3mo average through May is still up 20.67% y/y and 6mo average is up 18.06% y/y. The sector is currently at a peak for the period from January 2009.


Information & Communication services activity dipped 3.23% m/m in May, having recorded a 2.11% drop in April. 3mo average through May is still up 10.31% y/y and 6mo average is up 7.72% y/y. The sector is down 5.28% on peak for the period from January 2009.

Professional, Scientific and Technical services activity dropped 4.40% m/m in May, having recorded a 0.11% decline in April. 3mo average through May is down 3.72% y/y and 6mo average is down 4.34% y/y. The sector is down 35.0% on peak for the period from January 2009.


Overall services sector activity declined 0.74% m/m in May, having recorded a 1.21% expansion in April. 3mo average through April 2013 was up 1.83% y/y and this improved to 2.31% growth for 3mo average through May 2013. 6mo average through May 2013 was up 1.72% y/y. Relative to peak, overall services activity is down 1.64%.


Tuesday, June 11, 2013

11/6/2013: Irish Services Index: April 2013

Good news is: on an annual basis, per CSO, in April 2013:

  • Administrative and Support Service Activities rose +21.3%, 
  • Information and Communication went up +15.4%, 
  • Other Service Activities +4.2%, 
  • Transportation and Storage +1.4% and 
  • Accommodation and Food Service Activities (+0.3%) increased 
On bad news front:
  • Wholesale and Retail Trade were down -4.2% and 
  • Professional, Scientific and Technical Activities fell -0.6%.
The seasonally adjusted monthly services value index increased by 1.2% in  April 2013 when compared with March 2013 and there was an annual increase of 4.1%.

As you would know, I am not covering Services PMIs anymore, as these are no longer being released in any useful data format (Markit has decided to exclude reporting of actual levels of sub-components for PMIs, preferring to practically give instead its analysts personal opinion about these levels). 

However, I will continue reporting CSO data.

So here's more detailed analysis:
  • Wholesale Trade sub-index rose from 106 in March to 114.1 in April, marking a 7.64% rise m/m and a decline of 4.68% y/y. 3mo MA through April 2013 stood at 110.23, down on 116.67 3mo MA through January 2013 and down sharply on 122.07 3mo MA through April 2012. 6mo MA through April 2013 is at 113.45, down on 121.10 6mo MA through April 2012.
  • Wholesale and Retail Trade, repair of vehicles sub-index improved from 102.3 in March 2013 to 105.7 in April 2013 (+3.32%), but the index is down 4.17% on April 2012. 3mo MA through April 2013 is at 104.3 against 3mo MA through April 2012 at 111.27; 6mo MA through April 2013 is at 106.32 against 6mo MA through April 2012 at 110.80.
  • Transport & Storage sub-index is at 113.4 in April 2013 up marginally (+0.62%) m/m and up 1.43% y/y. 3mo MA through April 2013 is at 111.83 up on year ago 3mo MA of 106.83. 6mo MA through April 2013 is at 111.18, up on 6mo MA through April 2012 at 106.73.


  • Accommodation & Food Services slipped from 105.9 in March 2013 to 102.7 in April 2013 (-3.02%) and the index is up only 0.29% y/y. 3mo MA through April 2013 is at 103.2, which is up on 3mo MA through April 2012 at 101.2. Similarly, 6mo MA through April 2013 is at 103.77 which is up on previous year level of 101.3.
  • Much of the improvements in the above sector was driven by rising value of food services, up 3.51% y/y. Accommodation services actually fell 1.35% y/y and were down 9.07% m/m.
  • Administrative and support services activity also improved m/m (+1.66%) and rose strongly by +21.31% y/y. Huge gains were recorded in the activity on 3mo MA basis y/y and 6mo MA y/y basis. I have no explanation to this other than possibly reclassification of some activities into this category, plus boom in on-line services centres in Dublin (much of google and other ICT services firms activities here relate to support and admin, rather than R&D or professional work).



  • ICT services continue to boom, rising 15.42% y/yin April, although slipping 1.59% m/m from the historical record-breaking levels in March 2013. on 3mo MA basis, April 2013 stood at 122.13 strongly up on previous year levels of 109.87. On 6mo MA basis, April 2013 came in at 120.42, up on 110.42 a year ago.
  • In contrast to ICT services and Admin services, Professional, scientific and technical activities index declined for the third month in a row, falling to 91.0 in April 2013 from 91.2 in March 2013 (-0.22%) and is marginally lower (-0.55%) y/y. 3mo MA through April 2013 is at 91.4 and it is virtually flat on 3mo MA through April 2012 (91.2). 6mo MA through April 2014 at 91.0 is down on 94.5 6mo MA through April 2012.



  • Overall Services sector activity index rose 1.21% m/m from 107.7 in March 2013 to 109.0 in April 2013, and is up 4.11% y/y. 3mo MA through April 2013 is at 107.63 which compares marginally positively against 105.4 3mo MA a year ago. 6mo MA through April 2013 is at 107.62, also marginally up on 105.47 6mo MA through April 2012. However, 3mo MA through April 2013 was identical to 3mo MA through January 2013, implying zero growth, and 6mo MA through April 2013 was slightly ahead of 6mo MA through October 2013 (107.6 relative to 105.9).


Tuesday, May 7, 2013

7/5/2013: Irish Services Index, Q1 2013 data

Irish Services Index is out today for Q1 2013 and here are some details (monthly data analysis to follow). Keep in mind, data only starts from Q1 2009, so when referencing current levels of activity to peak, that refers to peak from Q1 2009 and not relative to pre-crisis activity.

  • Value in Wholesale & Retail Trade, Repair of Motor Vehicles & Motorcycles sector declined in Q1 2013 to 105.2 q/q (down 3.22% from 108.7 in Q4 2012) and is down 5.40% y/y. Q4 2012 value index was down 1.36% y/y, so things are getting worse faster. Relative to peak (since 2009 Q1 data start) the index is now down 5.40%. 
  • Value index for Transportation and Storage sector slipped marginally from 110.5 in Q4 2012 to 110.0 in Q1 2013 (-0.45% q/q) and is up 5.97% y/y. However, rate of annual growth declined in Q1 2013 compared to Q4 2012 when it stood at 8.97%. Relative to peak the index is still down 9.39%.
  • Accommodation and food services activities index also slipped marginally from 104.7 in Q4 2012 to 104.3 in Q1 2013 (down 0.38% q/q). Y/y index is up 3.48% in Q1 2013 and this is a slight gain on 3.05% y/y growth in Q4 2012. However, relative to peak index reading is still down 14.86%.


  • Information and communication sector index remained practically flat in Q1 2013 in q/q terms at 116.6 which is only 0.09% up on 116.5 in Q4 2012. Y/y index is up 3.83% and this shows deceleration in growth from +8.47% growth posted in Q4 2012. Despite this, Q1 2013 marks the peak of activity in this sector for any quarter since Q1 2009.
  • In contrast with ICT sector activity, the knowledge economy core services sub-sector, Professional, scientific and technical activities index has suffered steep declines since 2009. In Q1 2013 the index stood at 91.2 (up 0.22% q/q) up only 0.55% y/y. This marks a minor reversal of a significant decline of -8.36% recorded in 12 month through Q4 2012. The index is down massive 29.14% on peak.



  • Administrative and support service activities index has been a surprising performer during the crisis. In Q4 2012 it stood at 104.7 and Q1 2013 this increased to 110.4 a gain of 5.44% q/q. Index is now up 20.92% y/y and this compounds 11.38% y/y growth recorded in Q4 2012. Q1 2013 marks the peak quarter on record for the sub-sector.
  • Overall services index slipped from 107.2 in Q4 2012 to 106.2 in Q1 2013 (-0.93% q/q), although activity is still up 0.85% y/y. Y/y growth in Q1 2013 marks a slowdown from 2.19% y/y expansion in Q4 2012. The index overall is 0.93% below the peak and is currently running slightly behind the level of activity recorded in Q1 2009.


Overall, quarterly data shows weakening in Services sectors performance, and stripping out the effects of ICT (dominated by tax transfers-booking MNCs), Services side of the economy is showing weaknesses that are alarming. Recall that exports of services growth in 2010-2012 acted to compensate for declines in domestic demand and weaker growth (turning negative) in exports of goods. Should Services activity continue to suffer even modest declines, our GDP and GNP growth will be impaired. 

To see more forward-looking data, read my analysis of Services PMI for April: http://trueeconomics.blogspot.ie/2013/05/352013-irish-services-pmi-april-2013.html

Sunday, April 7, 2013

7/4/2013: Irish Services Activity Index - February 2013


Irish Services activity fell in February 2013 per latest CSO data, marking second consecutive month of decline. In February 2013, Irish services index dropped 1.03% m/m and was down 0.45% y/y. The index 3mo MA is now at 106.43, only slightly ahead of 106.07 in 3mo period through November 2012, and still ahead of 105.43 3mo MA through February 2012. The same dynamics are repeated at the 6mo MA level.



Largest m/m declines were recorded in Wholesale Trade (-7.17% m/m and down 10.71% y/y), Accommodation & Food Services (-1.89% m/m and down 0.69% y/y). Largest m/m increases were in Administrative & Support Services (+2.95% m/m and up 15.74% y/y) and in Professional, Scientific & Technical Activities (+1.68% m/m and 2.02% y/y). 
In annualised terms, largest increases were recorded in Administrative & Support Services (+15.74% y/y), Accommodation Services (+6.92% y/y) and Transport & Storage (+5.61%).





One interesting point in terms of longer range analysis:


As chart above shows, the PMI data for Services Activity continues to bear no relations to the actual Services Activity Index measurements. Recall that in January and February, Services Activity Index posted two consecutive declines in activity. Over the same months, PMI for Services posted robust growth signals at 56.8 in january and 53.6 in February.

Monday, March 11, 2013

11/3/2013: Irish Services Activity: January 2013

In an earlier post I covered annual figures for Services Index for Ireland (link here). Today's release from CSO also provides data for January 2013 (monthly series) and here is the detailed analysis of shorter-term series.


  • Wholesale Trade activity index rose in January 10 118.8 from December 2012 level of 115.2 (+3.13% m/m). The index is down 1.49% y/y. 3mo average is at 117.23 up on previous 3mo average of 115.93, but down on 3mo average through January 2012 which stood at 120.47. 6mo average is 116.6 against previous 6mo average of 120.9 and a year ago 6mo average of 119.9. Thus, at 3mo average activity through January 2013 is slower than through January 2012. Ditto for 6mo average.
  • Wholesale & Retail Trade, Repair of Motor Vehicles and Motorcycles activity index increased to 108.9 in January 2013 - up 1.02% m/m, but down 1.27% y/y. 3mo average through January 2013 is static compared to 3mo average through October 2012 and is down on 3mo average through January 2012. 6mo average through January 2013 is down on 6mo average through July 2012 and down on 6mo average through January 2012. Slowdown in the broader category, therefore, is more pronounced and stretched over the last 12 months than in Wholesale Trade alone.
  • Transport & Storage services activity index dipped from 112.1 in December 2012 to 111.5 in January 2013, a decline of 0.54% m/m. However, the index is up 10.29% y/y. 3mo average is statistically indifferent in 3mo through January 2013 (111.3), as in 3 mo through October 2012 (111.9), but is significantly ahead of 3mo through January 2012 (101.2). 6mo average through January 2013 (111.62) is ahead of 6mo average through July 2012 and ahead of 6mo average through January 2012.
  • Accommodation & Food services index declined in January 2013 to 103.5, down 1.33% m/m and marked second consecutive monthly decline. The index is up 2.38% in y/y terms. 3mo average through January 2013 is at 104.6, which is lower than 3mo average though October 2012 (105.63) but above 3mo average through January 2012 (101.6). On 6mo average basis activity through January 2013 was ahead of activity through July 2012 which itself was ahead of activity in 6 months through January 2012.
  • Information & Communication services activity declined in January 2013 from 121.7 in December 2012 to 119.8 (decline of 1.56% m/m) although activity was strongly up (+11.76%) on January 2012. 3mo average through January 2013 was at 118.7, well above 3mo average through October 2012 (112.23) and 3mo average through January 2012 (108.43). Similar increases are traceable to 6mo averages.
  • Professional, Scientific & Technical activities index rose to 90.2 in January from 89.4 in December 2012 (+0.89% m/m) although the index is down 1.85% y/y. 3mo average through January 2013 is at 90.53, ahead of 3mo average through October 2012 (87.83), but behind 3mo average through January 2012 (98.13). Similar dynamics can be traced across 6mo averages.
  • Administrative & Support services index rose strongly from 100.7 in December 2012 to 104.2 in January 2013 (+3.48% m/m). The index is up incredible 19.63% y/y and I am at a loss as to how this can be explained given the current economic environment and fiscal consolidation. on 6mo average basis index is up from 91.88 average for 6mo through January 2012 to 102.63 average for 6mo through January 2013.
Charts to illustrate:



  • Total services activity inched up to 107.9 in January 2013 from 107.7 in December 2012. Year on year, the index clocked a rise of 4.35%. 3mo average through January 2013 was at 107.57 - ahead of 3mo average a year before (105.73).

Despite these above improvements, overall services activity remains below the long-term recovery trend, albeit, owing to the strength of Wholesale Trade and ICT sectors (see the annual data analysis for these) and to the surprise uptick in Admin & Support services, the sector is tracing a shallow U-shaped recovery path so far. From January 2009, it took the index 16 months to hit the bottom, and we are 32 months into the recovery now, with still 1.55% to go (1.86% on 3mo average basis) before regaining January 2009 levels of activity. We will, barring unexpected events, close this gap in the next 2-3 months, but do keep in mind that January 2009 was already 1 year into contracting services activity in the first place.

11/3/2013: Irish Services Sectors Activity in 2012

Data for 2012 end of the year index of activity in Irish Services sectors is out and before I cover monthly data for January 2013, here are some annual results:

  • Wholesale trade services activity expanded 4.03% in 2011-2012, after growing 14.2% in 2010-2011. In 2012 the sub-sector activity was up 31.6% on 2009 and up 18.8 on 2010 making this the fastest growing sub-sector in all Irish services since 2009.
  • Wholesale and retail trade, repairs of motor vehicles and motorcycles sub-sector activity grew 2.24% in 2012 compared to 2011 after having expanded 7.2% in 2010-2011. Over 2009-2012 the sub-sector activity grew incredible 14.6% all of which was driven solely by growth in wholesale trade, offset by shrinkages in retail and other sub-sector activities.
  • Transportation and storage sub-sector activity expanded 5.39% in 2011-2012 period, having grown at 3.8% in 2010-2011 period. Since 2009 through 2012 sub-sector activity shrunk by 1.88%.
  • Accommodation and food services activities expanded at 2.27% in 2011-2012, following growth of 1.4% in 2010-2011 period. Between 2009 and the end of 2012, sub-sector activity was down 6.74%. Accommodation sub-sector alone grew 2.18% in 2011-2012 after posting growth of 5.4% in 2010-2011 and the index is on the aggregate still down 3.67% on 2009. Bizarrely, Food services activities grew since 2009 through 2012 at 1.76%, and this sub-sector posted expansion of 6.80% in 2011-2012 that followed growth of 2.9% in 2010-2011 period.
  • Information and Communication sub-sector activity was the star of the show in 2011-2012, rising 8.40% on foot of 3.6% growth in 2010-2011. The sub-sector is now up 20.11% on 2009 making this the second fastest growing sub-sector in Irish services after Wholesale trade.
  • Professional, scientific & technical activities sub-sector activity was the worst performing sub-sector in 2011-2012, shrinking 10.39%. This followed growth of 1.1% in 2010-2011. The sub-sector activity is now down 23.80% on 2009 making it overall the worst performing sub-sector, even worse than the Services (68, 92 to 96) sub-sector described below.
  • Administrative and support services activity sub-sector clearly doesn't have much in common with the sub-sectors that usually require significant admin & support (e.g. professional, scientific and technical areas of activities) as it posted an robust growth rate of 7.54% in 2011-2012, albeit on foot of strong contraction of 7.2% in 2010-2011 period.The sub-sector activity is cumulatively up 2.67% on 2009. Either Irish exports are becoming more bureaucratised to warrant increases in Admin & supports, or there's some sort of substitution from shrinking public sector employment to temps and outsourced services. Otherwise, why on earth would an economy in a deep slowdown post growth in this category on 2009 figures?
  • Services (68, 92 to 96) encompassing Real Estate activities, Gambling and betting activities and Other personal service activities were down 3.48% in 2011-2012, following virtually zero (+0.7%) expansion in 2010-2011. The grouping is down 19.67% on 2009 levels of activity.

Overall, for all services covered in the CSO data, sector growth clocked at 2.52% in 2011-2012 period, down from 3.3% growth in 2010-2011. Not a good sign, but better than posting negative growth, I guess. Compared to 2009, sector activity is up miserly 3.52%. And that is despite increases in R&D spending, massive hikes in availability of state-financed VC and angel investment (via Enterprise Ireland), big-time focus on incentives (including tax incentives) in 'key' sectors etc. Not exactly an achievement to brag about, but, again, could have been worse.

Here's another interesting chart:


As I mentioned above, Professional, scientific & technical activities sub-sector activity was down 23.80% on 2009 making it overall the worst performing sub-sector in all services sectors covered. Which isn't going well with the claims we keep hearing about our 'knowledge economy' and 'smart economy' and the rest of the hoopla surrounding branding like 'Innovation Island'. Looks like stripping ICT, there is not much of 'knowledge'-intensive trading going on out there. And we take out IFSC, the whole landscape of 'knowledge-based economy' might just as well start resembling a veritable desert? Instead, the 'traditional' (aka not 'smart' according to our Government policies priorities) wholesale trade is driving the sector activity, plus the 'smart' ICT sector.

And one last point. Here's the Services PMI data for Ireland for the period covered above in the index (see latest data here: http://trueeconomics.blogspot.ie/2013/03/533013-irish-services-pmis-february-2013.html) ...

Strange that a lift-off in PMI from ca 35 average in 2009 to 52 average in 2012 should be translating into only 3.5% increase in actual services activity, no? Sort of suggests something bizarre going on in PMI data, right? Hello, Markit!.. Station Earth paging...

Saturday, August 18, 2012

18/8/2012: What the IDA forecasts don't tell us?

I waited for several days before posting about the latest mystery of Irish statistics. 

This presentation from IDA contains the following chart:




Now, IDA is correct in highlighting the Current Account as a key to our recovery 'policies'. For a number of reasons:

  1. In virtually all debt overhang recessions in the past, return to positive surpluses on current account were required as a necessary, albeit not always sufficient, condition to restore economy to a stable path
  2. In Ireland, we have witnessed some significant improvements in the Current Account so far during the Great Recession
Alas, the above chart is a mystery to me. Let me explain.

Firstly, it cites CSO as the source of the chart. I have contacted CSO about their 'forecasts' for 2012-2017 period for the Current Account and their reply was: 
"Having consulted with my colleagues they assure me that they do not produce forecasts, let alone five year forecasts. Furthermore, my colleague suggested that the figures might be derived from a paper published by the Dept. of Finance (page 9): http://budget.gov.ie/budgets/2012/Documents/Economic%20and%20Fiscal%20Outlook.pdf It should be stressed, however, that these figures are the department's and not the CSO's."

Now, here are two forecasts for Ireland's Current Account known to me, sourced from the updated IMF database (July 2012 update to WEO database) and the above link from the Department of Finance:



Clearly, no source, bar IMF projects anything beyond 2015. Also, clearly, even the IMF projections appear (one can't really properly read IDA chart) to be as 'upbeat' as IDA's chart in 2013-2017 projections range. 

But wait, recall that IMF is providing a forecast, based on their central tendency scenario. They also provide useful assumptions and data that went into their scenarios assessments which allow us to compute historical confidence intervals for their own forecast. And, ahem, it turns out the IMF 'central' tendency forecast - illustrated above - firmly falls outside the reasonable 90% single tail confidence interval (adjusting for sample size, but caveating this). In other words, it is improbable, were historical Irish performance on current account balance to be out guide. The same applies to the stress-testing metric on current accounts used by the IMF - the primary current account balances (current account ex-interest payments).

So the IMF forecasts above assume massive change in Irish current account performance relative to history, the change that - may be IDA can expand on this - is supposed to come in the environment of adverse global trading conditions, pharma cliff hitting Irish exports, and re-orientation of trade flows worldwide away from North-South shipments of higher value added goods and services toward South-South flows.

But wait, things are actually worse than that. DofF forecasts deviate from the average for the above sources ex-DofF by a cumulative 1.7% of GDP and from those by the IMF by a cumulative of 2.5% of GDP for the period 2011-2015, which means that DofF forecasts are even less probabilistically likely to materialise than those for the IMF.

Even were the IMF to materialise, Ireland's current account surplus in 2012-2017 will be 2.78% of GDP on average - an impressive swing from a recent historical performance, yet contrasted by the economy with ca 120% debt/GDP metric on Government side alone! Anyone out there really thinking this is going to be a silver bullet for our economy?

So things are a bit less rosy than the IDA seems willing to admit to the prospective Foreign Direct Investors and the media. 

Monday, August 13, 2012

13/8/2012: Telling tales about our 'Productivity'?


IDA recently used the following chart in the context of Irish competitiveness comparatives to the rest of EEC:

According to the above, Irish labour productivity per person employed is at 136.9% of the EU27 average, which makes us the second most productive economy in the Euro Area and the third most productive in the EEC. Of course, the thing that jumps out in the chart is the massive over-performance in output terms by two other 'special' countries: Luxembourg and Norway. This should ring lots of alarm bells when it comes to trusting the above data to base actual comparative assessments on.

It turns out that adjusting our productivity performance for GDP/GNP gap so as to remove the portion of our output that has absolutely no anchoring in Ireland (net after-tax factor payments to foreign investors) implies Irish productivity index at around 102-106% of the EU27 average, placing us below-to-just-above Germany and ahead of Greece.

I wouldn't argue that that is indeed where we are positioned, but rather that the chart used by IDA is simply reflective of vastly over-inflated real productivity of our workforce, just as it is for Norway (petro-dollars economy) and Lux (an economy with massively undercounted non-resident workforce and an industrial scale 'dry cleaning laundry' for European, EEC & Eastern European corporates).

13/8/2012: National Competitiveness: Not Exactly Good Numbers for Ireland


An interesting paper, THE DETERMINANTS OF NATIONAL COMPETITIVENESS by Mercedes Delgado, Christian Ketels, Michael E. Porter and Scott Stern (NBER Working Paper 18249) looked at three broad and interrelated drivers of foundational competitiveness:

  • social infrastructure and political institutions (SIPI),
  • monetary and fiscal policy (MFP), and 
  • the microeconomic environment. 

The study defined foundational competitiveness as "the expected level of output per working-age individual that is supported by the overall quality of a country as a place to do business".  The paper focused on output per potential worker, which is "a broader measure of national productivity than output per current worker". This "reflects the dual role of workforce participation and output per worker in determining a nation’s standard of living".


Using data "covering more than 130 countries over the 2001-2008 period", the authors found "a positive and separate influence of each driver on output per potential worker". Specifically, "we find significant evidence for the positive and separate influence of SIPI, MFP, and the microeconomic conditions on national competitiveness":

  • Consistent with prior studies, institutions (SIPI) positively influence national output per potential worker;
  • However, microeconomic conditions have a strong positive impact as well, even after controlling for current institutional conditions;
  • Microeconomic conditions have a positive influence on competitiveness even after controlling for historical institutional conditions and incorporating country fixed effects (which offer a broader measure of a country’s unobserved legacy);
  • Current institutions and macroeconomic policies "seem largely endogenous to historical legacies";
  • "Overall, the findings strongly suggest that contemporaneous public and private choices, especially those that relate to microeconomic competitiveness, are an important driver of country output per potential worker and, ultimately, prosperity".




The paper also defined a new concept, global investment attractiveness, "which is the cost of factor inputs relative to a country’s competitiveness".

Using the new metric, the authors rank the countries with respect to their global investment competitiveness:

The unpleasant bit is that in 2010, a year after we began the process of 'competitiveness improvements' that has stalled since around mid 2011, we were ranked just 24th. The pleasant bit... we still made it into top 25.

And in terms of other comparatives, here are few charts:



Oh, the naughty, naughty authors did get some things right: "In the case of Ireland, we used GNP instead of GDP because of the size of dividend outflows to foreign investors".

And here's what they had to say in terms of their analysis of the Global Investment Attractiveness scores (GIA): "Countries with high GIA tend to experience a strong positive growth, including China and India (with growth rates above 8% and 4%, respectively).  In contrast, countries with low GIA tend to experience a high contraction in output with growth rates below the median value, including Italy, Spain, Ireland, and Venezuela, among others."

Now, wait, is that really the neighborhood we (Ireland) are in? You wouldn't think so from our policymakers/IDA/EI/Forfas/ESRI/CBofI/... statements.