27/03/2011: Annual GDP and GNP - few lessons to be learned

I haven't had time to update QNA numbers on the blog, but here's a nice preview charts of analysis to come.

First annual GDP and GNP:
When I often say that over the last 3 years we've lost a war, I mean it: relative to peak 2007 levels, our real GDP is down 12%, our GNP is down 16%. Our 2010 GNP clocked the level of 2003-2004 average, erasing 7 years of growth. Our GDP is now at the level of 2004-2005.

What about the composition of our GDP and GNP?

The above is just a snapshot. Here are headline figures:

• Agriculture, forestry & fishing sector output in constant prices is now 10% down on 2007 (remember - we were supposedly having a boom in this sector in 2010 according to the various CAP-dependent quangoes, and still the preliminary output came out at a miserly €3,328 million - the lowest in 8 years).
• Industry had a better year, with output rising to €48,111 million, up on €45,841 million in 2009, but still 7% down on 2007.
  
• Building & construction sector shrunk 58% on 2007 levels, posting output worth just €5,754 million in 2010, down on €8,433 million in already abysmal 2009.
• Distribution, Transport and Communications sector shrunk 13% in 2010 relative to 2007. 2010 sector output was €21,509 million against 2009 level of €21,845 million.
• Other services have fared better than other sectors, posting a decline of 6% on 2007 levels. In 2010 the sector brought into this economy €71,828 million against €73,823 million recorded in 2009.
• Public Administration and Defence - the sector that has been allegedly (per our Government and Unions claims) hit very hard by the austerity has managed to "contribute" €6,243 million in 2010 - slightly down on €6,416 million in real euros in 2009. Relative to peak 2007 levels, Public Administration and Defence "contribution" to our GDP/GNP has fallen by a whooping ZERO percent. That's right - zero percent. In 2007 the 'sector' posted GDP contribution of €6,266 million.
• Taxes, net of subsidies, have fallen 31% in 2010 relative to 2007 and 'contributed' just €16,027 million in 2010 compared to €16,807 million in 2009. Tax hikes are working marvels for the Government, then. Keep on the course, Captain!
• Net Factor Income from the Rest of the World has increased steadily from 2007 levels, posting an outflow of -€29,313 million in 2010, up on outflow of -€28,184 in 2009 and a massive 31% above 2007 levels. These outflows represent the GDP/GNP gap that has expanded from 15.17% local minimum in 2006 to 21.67% today.
  

Now, let's take a look at percentage contributions to GDP and GNP from each line of QNA:
So while economy shrunk, Public Administration and Defence grew in overall importance as a share of GDP.

19/03/2011: Retail sales & Consumer confidence

In the previous post I suggested that the latest inflation figures do not bode well for 'growth-linked inflation, but signal instead the worst kind of inflation - inflation that is driven by either imports or regulatory factors. Here's more evidence - consumer confidence and retail sales figures:
Larger markers in the above chart show February values - clearly, no sign of demand drivers for price increases anywhere in sight here. Same holds for consumer confidence as a driver.

19/03/2011: CPI update for February 2011

Some belated data charts updates. Irish CPI:
The chart above shows the uptick in February CPI (up 0.9%mom and 2.2% yoy) and HICP (up 0.9% mom and 0.9% yoy).

Annualized rates below:
Should we read this as a welcome catch up of prices due to demand changes or due to factory gates tightness? Not really. Take a look at components:

Housing, Water, Electricity, Gas & Other Fuels up +9.5% yoy, Miscellaneous Goods & Services +4.8%, Health +4.1% and Transport +3.5%. Deflation continued in Clothing & Footwear -4.6%, Education -2.9% and Furnishings, Household Equipment& Routine Household Maintenance -2.6%.

Food & Non-Alcoholic Beverages prices were up +0.7% mom and +1.2% yoy to February 2011. This compares to deflation of -8.0% yoy in February 2010. Mom, food prices increased by 0.7% while non-alcoholic beverages prices increased by 2.0%. So we know it wasn't the commodities prices inflation that drove our food prices. Especially since commodities-linked prices of bread&cereals deflated by -3.8%, other milk products -0.9%, other cereals -0.7%, cheese -0.6% and margarine & low fat spreads -0.5%, while butter rose +3.8%, preserves by +15.3%, as sweets and chocolate fell 1.3%. And so on... all over the place, really.

Housing, Water, Electricity, Gas & Other Fuels costs increased by 0.5% mom and by 9.5% yoy. There was a decrease of 10.6% yoy to February 2010. Mom, prices rose for liquid fuels (i.e.
home heating oil) +2.7%, materials for maintenance & repair of dwelling +1.5%, rents +1.0% and bottled gas +0.5%. A price decrease was recorded for mortgage interest -0.1%. But wait, yoy rents rose 0% and mortgage interest rose 20.3%. Clearly, credit crunch is raging for homeowners. One of the core remaining construction-related sub-sectors still standing is maintenance & repair of dwelling. This was down 0.1% yoy in terms of materials, but a significant -5.5% in terms of services - so work wages are down, but inputs on materials side is basically flat. Materials were up 1.5% mom and services were flat in February 2011. Given we import much of the former and retain domestically much of the latter, the news of overall monthly inflation in this category is really not good for Irish economy. We got the wrong end of inflation, folks - inflation that undermines our real incomes without supporting new jobs!

Electricity, gas and other fuels were up 10.5% yoy as a category, electricity up 3.2%, natural gas double that at 6.4%, liquid gas up 37.3% yoy. Again, wrong inflation for growth and much of it is due to changes in taxation structures, state companies surcharges and so on.

Health is a standout in the above chart. Down 0.6% mom but up 4.1% yoy. No need to explain why the cost of hospital services rose 11.5% - say 'Thanks' to our semi-state insurance company policies and the Budget, but not for the insurance prices increases - those are in the Miscellaneous Goods & Services where health insurance rose a massive 17.6% yoy and 14.4% mom.

Now - my exclusive - as usual, the breakdown of inflation by state v private sectors:
Or cumulative Rip-Off Government Policies effects:
Yet another legacy of the Social Partnership folks - as the Big Domestic Business (aka semi-states), State Quangonoids and Unions - the Real Golden Circle - take another bite at the economy's pie. The real economy is still on the edge of continued deflation (+0.1% mom), while the surreal Social Partnership-controlled economy is roaring ahead with 1.04% mom inflation, to 2011 fat bonuses. Happy times, as Borat would put it.

19/03/2011: Updated probabilities of default

Updated probabilities of default and spreads on Irish bonds. As usual, a preventative disclaimer - this is just simple mathematical estimate - what the numbers say. No comment to be added.
Cumulative spreads tell us how much more we are expected to pay for our borrowings over Germany's cost of fiscal deficit financing, over the period of bond maturity. 85% more for 10 years borrowing currently.

17/03/2011: 20 years ago

Twenty years ago, 70% of the Soviet citizens freely - with no physical coercion, no vote rigging (although with psychological pre-conditioning/anchoring), in a virtually spontaneous referendum voted to keep a reformed USSR. Ten months later, the USSR was no more. However, the vote only counted in 9 out of 15 republics as a number of republics have decided not to take part in the referendum.

12/03/2011: Updated probabilities of default

Weekly close data-based estimates of the probability of default on Irish sovereign bonds, based on yields. Note: these are mathematical estimates based on what the markets price in. All complaints should be addressed to the markets.

Marked in black bold are probabilities in excess of 40% (or statistically indistinguishable to 40%) - the benchmark that in the CDS markets considered to be crisis levels of probability of default.

Most of the risk is now concentrated, based on spreads in 3-year horizon, while in absolute terms the markets perceive risk peaking at or before 5 year horizon.