Monday, October 24, 2011

24/10/2011: Euro area competitiveness indicators update

ECB posted updated Harmonized Competitiveness Indicators data for Q2 2011

Chart above shows that euro area HCI (unit labour cost adjusted) have deteriorated (higher values in the graphs reflect lower competitiveness) from 96.4 in Q1 2011 to 99.2 in Q2 2011. Q2 2011 reading was 2.5% above Q2 2010 reading, but 6% below Q2 2009 reading. Relative to Germany, euro area HCI(ulc) index now stands at 17.4% premium, reflecting relatively much stronger competitiveness of German economy.

Considering the charts above (note that the top chart reflects annualized data, while quarterly data is shown in the second chart above), Ireland retains its relatively uncompetitive position vis-a-vis all 'old' euro area countries. For larger economies:

  • Germany's HCI(ulc) rose from 82.6 in Q1 2011 to 84.5 in Q2 2011, marking deterioration in competitiveness qoq. Year on year, index is not 3% higher, and the gains in competitiveness since 2009 have been virtually erased, as Q2 2011 index reading is just 0.3% below Q3 2009 reading. However, Germany remains the most competitive economy in the euro area in terms of HCI(ulc) index with own index reading currently 14.8% below euro area overall index.
  • Spain's HCI(ulc) was virtually unchanged, rising from 107.3 in Q1 2011 to 107.4 in Q2 2011. Spain's competitiveness index has fallen (improved) by 2.0% yoy in Q2 2011 and is down 5.0% on same period 2009. Spain remains 8.3% less competitive than the euro area and 27.1% less competitive than Germany.
  • France's HCI(ulc) deteriorated from 102.6 in Q1 2011 to 104.2 in Q2 2011, rising (deteriorating competitiveness) 1.8% yoy and 0.1% no Q2 2009. Relative to Germany, France is 23.3% less competitive in terms of HCI(ulc) and 5% less competitive than euro area.
  • Italy's HCI deteriorated from 110.1 in Q1 2011 to 111.2 in Q2 2011, rising (deteriorating competitiveness) 1.65% yoy and improving (falling) 1% on Q2 2009. Relative to Germany, Italy's HCI is now at 31.6% premium (poorer competitiveness) and Italy is 12.1% less competitive than euro area average.

Smaller economies are charted above.

For Ireland, HCI(ulc) also posted deterioration in Q2 2011 rising from 113.2 in Q1 2011 to 113.8 in Q2 2011, marking decline in Ireland's competitiveness as measured by HCI. Ireland's competitiveness, however, improved yoy by 1.6% and is up on Q2 2009 level by 12.1%. Despite these gains, Ireland remains the least competitive 'old' euro area economy with Ireland's competitiveness gap of 34.7% compared to Germany and 14.7% compared to euro area.

As I have noted on numerous occasions before, much of the gains in our competitiveness in 2009 can be explained by the wholesale destruction of less competitive sectors: construction and domestic services (retail, security etc). The concern is that our future competitiveness gains will be compressed by the fact that from here on, we will need much harder to attain productivity growth in remaining sectors. So far, some nascent costs inflation in other economies have helped us to continue improving compared to euro area average. But in absolute terms, it is clear that since Q2 2010 we have lost momentum in gains in HCI(ulc) measures.

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