Sunday, April 21, 2013

21/4/2014: Exports-led recovery? Not that promising so far...

Regular readers of this blog know that since the beginning of the crisis, I have been sceptical about the Government-pushed proposition that exports led recovery can be sufficient to lift Ireland out of the current crises-induced stagnation.

Over the recent years I have put forward a number of arguments as to why this proposition is faulty, including:

  1. A weakening link between our GDP, GNP and national income,
  2. A worrisome demographic trend that is structurally leading to lower labour markets participation, alongside the renewed emigration,
  3. Structural weaknesses in the economy left ravaged by some 15 years if not more of bubbles-driven growth,
  4. Taxation and state policy structures that favor old modes of economic development and which are incompatible with high value-added entrepreneurship, employment creation and growth, 
  5. Substitution away from more real economy-linked goods exports in favor of the superficially inflated exports of services in the ICT and international financial services sectors, etc
But the dynamics of our exports are also not encouraging. 

Here's a summary of some trends in Irish exports since 1930s, all expressed in relation to nominal value of merchandise trade (omitting effects of inflation). Based on 5-year cumulative trade volumes (summing up annual trade volumes over 5 year periods):
  • Irish exports grew 147.8% in 1980-1984 and 86.7% in 1985-1989 - during the 1980s recession. This did not lift Irish economy out of the crisis, then.
  • Irish exports grew 56.3% in 1990-1994 period and 56.4% in 1995-1999 period. Thus, slower  rate of growth in exports during the 1990s than in the 1980s accompanied growth in the 1990s. This hardly presents a strong case for an 'exports-led recovery'.
  • Irish exports expanded cumulatively 148.0% in 2000-2004, before shrinking by 0.4% in 2005-2009 period and is expected to grow at 4.6% cumulatively in 2010-2014 (using 2010-2012 data available to project trend to 2014). 
The last point above presents a problem for the Government thesis on exports-led recovery: the rates of growth in merchandise exports currently expected to prevail over 2010-2014 period are nowhere near either the 1980s crisis-period rates of growth or 1990s Celtic Tiger period rates of growth.

Ok, but what about trade surplus? Recall, trade surplus feeds directly into current account which, some believe almost religious, is the only thing that matters in determining the economy's ability to recover from debt-linked crises. Again, here are the facts:
  • During the 1980-1984 Ireland run trade deficit that on a cumulative basis amounted to EUR5,969mln. This gave way to a cumulated surplus of EUR8,938mln in 1985-1989 period. So attaining a relatively strong trade surplus did not lift Irish economy from the crisis of the 1980s.
  • In Celtic Tiger era, during 1990-1994 period, cumulated surpluses rose at a robust rate of 155.7% on previous 5 year period, and this increase was followed by a further improvement of 113.9% in 1995-1999 period. 
  • During Celtic Garfield stage, in 2000-2004 period Irish trade surplus increased by a cumulative 245.4%. However, in 2005-2009 period trade surplus shrunk 10.9% cumulatively on previous 5 years. Based on data through 2012, projected cumulated growth in trade surplus (recall, this is merchandise trade only) grew by 43.6%.
Again, trade surplus growth is strong, currently, but it is nowhere near being as strong as in the 1990s. Worse, current rate of growth in trade surplus is well below the rate of growth attained in the 1980s.

Charts to illustrate:


Oh, and do note in the above chart the inverse relationship between the ratio of merchandise exports to imports (that kept rising during the Celtic Tiger and Garfield periods as per trend) and the downward trend in exports growth. 

3 comments:

  1. The trade surplus beginning in the 80s is the primary marker for malinvestment , this surplus is obviously because the % share of labour relative to GDP declined.

    We are now in what could be the biggest stock and flow crisis per capita in world economic history.

    The "investments" made were not wage based , so the price signal was incorrect.
    Did you check out the Irish energy balance for 2012 published a couple of days ago ?
    Oil consumption is back down to 1996 /97 levels.

    http://www.seai.ie/Publications/Statistics_Publications/Energy_Balance/2012_Provisional_Energy_Balance.pdf
    (detailed breakdown of consumption in transport , heating etc yet to be published.)

    Of course massive (probably the biggest % decline in Europe) drops are again seen – especially oil consumption.

    Total primary energy supply oil (inc non energy)
    Y2005 : 9 ,586 KTOE (Peak)
    Y2010 : 7,690 KTOE
    Y2011 : 7,101 KTOE
    Y2012 : 6,244 KTOE !!!!

    So we lost close to a million tons of oil consumption in one year ! ( 0.857 MTOE)

    Nat Gas consumption also rolling over recently
    Y2010 : 4,704 KTOE
    Y2011 : 4,138 KTOE
    Y2012 : 4,018 KTOE

    Coal consumption up just a bit but no where near 1990 levels when we has much less oil & gas central heating.
    (The only coal fired electricity plant in the south of Ireland came on stream around 1987 ~)
    Y1990 : 2,085 KTOE ( max post 1990)
    Y2009 : 1,154 KTOE (min)
    Y2010 : 1,240 KTOE
    Y2011 : 1,264 KTOE
    Y2012 : 1,482 KTOE

    Milled (industrial) peat up a bit these last couple of years.
    Sod peat down (Euro boys & girls banning harvesting ?)

    Milled peat
    Y1992 : 804 KTOE (peak)
    Y2010 : 643 KTOE
    Y2011 : 619 KTOE
    Y2012 : 676 KTOE

    Sod peat
    Y1990 : 617 KTOE (post 1990 peak)
    Y2010 : 165 KTOE
    Y2011 : 158 KTOE
    Y2012 : 128 KTOE

    How many private cars did we have back in 1996 ?
    Just over a million
    Now ?
    800,000 more !!!!!

    The crisis is so obvious - its painful to watch economists going around in circles with their cars.

    This is a conflict between labour / beer consumption and credit / car consumption.

    ReplyDelete
  2. Hi Constantin,

    Out of interest- why does this graph show an exponential growth of trade since early 1970s?

    Without looking at the details, could one make the observation that debt based money creation by private banks was no longer restrained by the gold standard (first by Nixon in 1971), leading to an explosion in debt based fiat creation since then?

    It would be interesting to see the growth in trade since then by Volume, rather than as represented by fiat! Would it be linear?

    Regards,
    Kevin
    Researcher
    Sensible Money

    ReplyDelete
  3. Hi Constantin,
    Most of Irelands exports are not actually exports in the real sense of the word. They should be classified as RE- EXPORTS. As most of the addon value is carried out else where. There is very little quantitive relationship between the addon value of and the increase in these exports /decrease and the number of jobs created or lost.The primary purpose of most of these exports? is to gain access to the Irish Corporation Tax Rate of 12.5%. Not to add employment. People are employed as a means of corporate tax access not to add real value.

    Sean O'Dubhlaoigh

    ReplyDelete