Friday, March 27, 2009

Melting Down Lenihan Style & Daily Economics 27/03/2009

According to the Irish Times, Brian Lenihan is now admitting that the revenue receipts for March are going to show even further deterioration in the fiscal position. This time around, Lenihan is claiming we will fall to €34bn in receipts, as opposed to the DofF forecast issued in January, assuming receipts of €37bn. Oh, Brian, thou are an incorrigible optimist. Anyone who has read this blog knows that I predicted this much in February (see here). That was then and despite the fact that our Minister Lenihan, with his new advisers from NUI (or 'yes-men' as I would put it), are catching up with my numbers, I have to move the targets once again.

(can someone figure it out what's the value of all these paid economists working for him if they are a month-and-a-half behind this free blog in forecasting?)

So here is my latest forecast - it will be subject to a revision once the actual Exchequer returns come out for March.Notice that I have dropped expected gross tax revenue to €31.4bn (inclusive of non-tax items), consistent with tax revenue of €31bn. I have also computed the General Government Deficit as a function of my forecast for 6.5-7% drop in GDP this year. Thus, 2009 Gen Gov Deficit is now expected to reach 11.8% of GDP and by the end of 2013 this will drop to 7.13%, not 2.5% that DofF predicted in January 2009 estimates. The reason for this later-years discrepancy is to a large extent driven by the short-term debt being issued by the NTMA to finance current spending.

So, Brian, here is a challenge - how soon will you and your advisers get down to my forecast figures? Or, should you want to save some dosh for the taxpayers - you can fire a couple of them and hire myself - I'll do their jobs (obviously) better and for, say, 1/4 of their price?

Now another update - new Eurocoin forecast for Euro-area economic activity is out, so time to update my own forecasts. Here is the chart. Lines in red denote my forecast forward.

External Trade stats for December 2008 are out and things are looking bad. Jan-Dec 2008 imports down 10%, exports down 3% y-o-y.

MNCs lead in declines, with Computer equipment exports down from €12,577m to €9,322m (-26%) and Organic chemicals from €19,641m to €17,853m (-9%). These are real declines, not offset by transfer pricing. In other words - these are jobs under threat or being lost. In other MNCs-led sectors: Chemicals exports increased from €2,664m to €3,483m (+31%), Pharma from €14,749m to €16,704m (+13%) and Professional, scientific & controlling apparatus from €2,109m to €2,779m (+32%). These are transfer-pricing driven, but at least for now, jobs are being supported, if only by our Bahamas-on-the-Liffey tax shelter, if not by superior productivity. How do we know this? Look at imports: Pharma imports up from €2,397m to €2,866m (+20%), Petroleum & relateds from €4,479m to €4,813m (+7%) and Natural gas from
€1,039m to €1,378m (+33%). These are inputs into the sectors where MNCs-led exports still are growing.

Goods shipped to Great Britain decreased from €15,002m to €14,302m (-5%) - evidence that our exporters are absorbing exchange rates changes into their bottom lines - and to Switzerland from €3,251m to €2,555m (-21%). Goods to the United States increased from €15,825m to €16,657m (+5% - also evidence of significant real competitiveness improvements, given still adverse terms of trade conditions), to China from €1,989m to €2,323m (+17%), to Malaysia from €694m to €1,062m (+53%) and to Spain from €3,281m to €3,587m (+9%). These are strong geographical results, showing, amongst other things that we are moving away from intra-EU trade dependency.

Inter-temporally: December 2008 the value of exports was +10% on December 2007, while imports were down -19%. But seasonally adjusted exports were down 4% on November 2008, while imports were down 11%. Preliminary estimates for January 2009 show exports of
€7,014m, down 1% on January 2008 and imports of €3,946m, down 28%. This is (good) mixed result showing that exports in general remain relatively buoyant when compared against domestic economy collapse.

Per separate data from CSO: the volume of output in building & construction decreased by 26.7% in Q4 2008 compared with Q4 2007. The value of production decreased by 24.3% in the same period. This tells me that the anticipated Exchequer savings due to lower cost of construction are unlikely to be significant: volume falls outstripping value falls implies unit cost of construction is up!

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