Thursday, September 20, 2012

20/9/2012: Is 'Johnny the Foreigner' at fault? Q2 Irish trade results

In the real world, confronted with the unpleasant truth, we usually react with a denial of the facts and a desperate search for someone else, other than ourselves, to blame for the misfortune. Today's QNA data release triggered exactly this basic psychological reaction. With no reason for it, other than 'let's get Johnny the Foreigner out to blame', some of the favorite economists of our Minister for Finance decided that 'Irish economic growth is suffering from the slowdown impacting our main trading partners'.

Right... and Lehmans caused Irish banks collapse and bungalows prices deflation... that sort of malarky.

Now, that is either an uninformed error of judgement, or an outright lie, folks. In reality, exactly the opposite is happening - our external trade is still booming, while our internal, home-made depression is still raging.

I wrote about the domestic activity collapse already earlier (here's the link). Now, let's take a look at the activity arising from the allegedly falling demand from our trade partners.

First in current prices terms:

  • Exports of goods & services from Ireland to the rest of the world hit €45.01 bn in Q2 2012, up 6.21% y/y. This marks a slowdown in growth from 7.4% y/y growth in Q1 2012, but nonetheless, in Q1 2012, Irish exports of goods and services hit an absolute record since Q1 2006. I wouldn't be going around saying that a historic record is... err... a drag on our growth.
  • Exports of goods alone rose 1.26% y/y in Q2 2012, down on the 4.02% rate of annual growth in Q1 2012, but still posting an absolute record for any quarter since Q1 2006.
  • Exports of services rose 11.46% y/y in Q2 2012, faster than already blistering growth of 11.11% y/y in Q1 2012. Again, volume of exports of services hit an absolute record level for any quarter since Q1 2006.
But maybe the 'Johnny the Foreigner' baddy is pushing down Ireland's growth in real terms? Ok, in constant terms:
  • Exports of goods & services from ireland rose 2.06% y/y in Q2 2012, posting, yep, you know this much already, an absolute record in level terms for any quarter since Q1 2006.
  • Exports of goods did fall off y/y - declining 4.42%. Which amounts to a drop of €973 million which is less than €3bn plus lost to patent cliff. So, err... the demand from US, UK and EA has nothing to do with this, but rather patents expiration in pharma sector drives the decline.
  • Meanwhile exports of services grew, in constant prices terms, by a massive 9.05% in Q2 2012 compared to the same period of 2011.
As the result of these gains and also as a function of our own (not US, UK, EA, etc) demand collapse (marked by the decline in imports), our trade balance (the net positive contributor to our GDP and GNP) has actually expanded

Irish trade surplus has grown by a massive 18.98% in Q2 2012 in current prices terms and by impressive 14.47% in constant prices terms. Things are actually so good when it comes to 'Johnny the Foreigner Demanding Irish Exports' that our services sector posted an absolute historical record surplus in Q2 2012 of €1,387mln - for only the third time in the series history since Q1 2006. Our total trade balance surplus reached €11.391bn in Q2 2012 - by far the largest surplus reading in any quarter since Q1 2006. This is 14.1% higher than the previous quarterly record attained in Q3 2011.

Here are two charts to summarize trade balance changes:

The problem, of course, that our Green Jersey folks are not too keen on acknowledging is that overall, Johnny The Foreigner thirst for Irish goods and services has preciously little connection to our GDP activity. But that, illustrated below, is a different story.

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