Thursday, March 26, 2009

Daily Economics 25/03/2009

Opening scene: an ICU bed in Awfully General Hospital. Senior consultant, Brian-I, his two junior colleagues - Brian-II and Mary and an army of senior nurses, all at a bed of the patient. Chart reads: "Irish Economy", but the patient is invisible under a mass of frayed cables, yellow and cracked tubes, sparks-throwing electronic equipment and dingy unwashed and holes-ridden sheets. Brian-I, eagerly staring at a pub across the road is performing some procedure on the patient. "Say, we've been out of the ward for sometime now... what are the vitals on that one?" Mary's senior nurse assistant: "Sir, I am afraid no pulse, sir. Flat-line brain activity and body temperature of near zero, sir! Tough luck, sir!" "Aha," replies Brian-I, turning to Brian-II - "Our intervention worked! The patient is stable now! Pints?!"

Today's three sets of stats confirm the Celtic Tiger has been killed by our Brian, Brian & Mary's HSE-styled treatment.

Balance of Payments
data - for Q4 2008 and the entire year of 2008. VAT, VRT, Road tax, Income tax, 'whatever-we-find-in-your-pocket' tax that the Government hiked in October and December 2008 have killed off our imports and flatlined our exports, so that in Q4 2008 we have recorded a tiny CA deficit of €133, "the lowest in four years and €2.6bn below that for the same quarter of 2007. For 2008 as a whole, the deficit was €8,375m, over €1.9bn lower than that for 2007. The merchandise surplus of €7,589m in Q4 was €2.7bn higher than one year earlier, while the invisibles deficit at €7,722m was up €116m. Within the latter aggregate, the services deficit at €2,139m was up €844m while the net income outflow at €6,104m was €721m lower."

So what does this mean?
  1. We are a nation of imports and exports. Falling imports volume is falling consumption (and Exchequer revenue). By this measure we are economically dead.
  2. As a nation that is predominantly dependent on MNCs to produce stuff for export, flatline exports is a sign that our economy's temperature is collapsing. Given that the latest data (released yesterday) shows global trade volumes falling 20% (in absolute, not relative terms - I am not kidding, see here) in Q1 2009, there is absolutely no way we can sustain positive exporting activity into 2009.
  3. Since our MNCs tend to import almost as much as they export (transfer pricing), and given that in the second half of 2008 the MNCs-dominated sectors were booking high level of economic activity, the collapse in imports due to consumer and Irish companies investment demand was even more dramatic than CSO aggregates show. This means that global shock (item 2 above) is now fully merged with domestic shock (demand contraction) and both are exacerbated by our senile tax policy.
  4. Our Financial Account Balance for Q4 2008 stood at -€3,604m - the worst quarterly performance since Q2 1999. The annual balance was €18.12bn - but that conceals massive issues of bonds in 2008 and repatriation of toxic commercial paper into IFSC by the 'bad bank' asset pools. Our direct investment balance was negative in all 4 quarters of 2008 (first time since at least 1997), and the decline is accelerating q-o-q. Portfolio investment into Ireland was negative at -€37.7bn in Q4 2008 - the worst quarterly performance in at least 12 years.
Recall that debate we were having whether IFSC should count into Irish stats or not? Well, check Table 3 in the CSO release, showing breakdown of BOP data between IFSC and non-IFSC. It turns out that IFSC is a net positive contributor to our Current, Capital and Financial accounts pretty much across all measured parameters. Non-IFSC services are the opposite.

Now, to the beef. Quarterly National Accounts released today are summarized in the graph and table below (both courtesy CSO):

I am not commenting on this in depth because there is nothing to be added to that 7.5% GDP drop figure for Q4 2008, other than - this is bad. Very bad.

Suffices to say that Q4 2008 figures were driven by:
  • consumer spending down 2% q-o-q;
  • investment down a Cowen-rrendous 15.4% q-o-q that follows after a similar drop in housing and non-residential investment in Q3; and
  • sharp declines in global trade with exports down 2.6% q-o-q.
Forecast update: I am still sticking to -6.8-7.5% real decline in GDP for 2009.

House prices:
permanent tsb/ESRI House Price Index released today shows national prices falling 0.8% in February 2009 (after 1.4% fall in January, 0.9% fall in December and 0.5% fall in November 2008) and 2.1% in January-February 2009. This brings average prices to February 2005 level. The rate of decline is obviously faster in Jan-Feb 2009 than a year ago, with Jan-Fen 2008 fall of 1.5% as opposed to 2.1% contraction in the first two months of 2009. So an average price for house nationally is €255,999 in February 2009, relative to the peak of €311,078 in February 2007 - a cumulative loss of 17.7% on peak and a real loss of ca 23%.

Of course, the drones from ptsb, commenting on this data, tell us that all is good - as 'the affordability is improving'. Clearly, these mortgage bankers can't imagine how
  • rising negative equity;
  • tightening lending standards;
  • sky-high unemployment and
  • falling after-tax incomes
might put a damper on that 'improving affordability'...

Now, Dublin house prices fell hardest in February - 2.1% down (-1.4% in January), while houses outside Dublin were down 0.9% (-0.6% in January). The average price of a Dublin house and outside Dublin in February was €339,042 and €220,741 respectively. The equivalent prices in December 2008 were €351,096 and €223,984. This might be welcoming to those who think Dublin is the seat of evil in Ireland, but be warned - this data is deceptive. I would like ptsb to come out with a detailed analysis of Dublin v outside-Dublin price dynamics by house types, and location types, as I suspect that the Dublin averages are being distorted by the collapsed market for apartments, while outside-Dublin figures are being propped by the lack of turnover in single-family housing.

House prices fell 15.2% and 9.2% y-o-y to February 2009 for first-time and second-time buyers respectively. The equivalent rates to January were-13.5% and -8.9% respectively. House prices for new and existing houses declined 0.6% and 1.0% respectively in February 2009. New and second hand house prices fell by 9.2% and 11.3% respectively y-o-y to February 2009. The latter, of course, is most likely due to the deeper falls in new homes prices during 2008.

Closing scene: pub across the road from Awfully General Hospital. Brian-I and his junior colleagues are having some well-deserved rest. "Stable, I tell ya, lads! Stable!" shouts Brian-I. "Not moving, but stable! Hey, Mary, send some boys from that Nuclear Therapy Medicine Academy - that NTMA thingy - over to Berlin to get some dosh. Tell them we have our real patient's interests in mind, not some vital signs bureaucracy, whatever..." Curtains.

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