Friday, December 12, 2014

12/12/2014: QNA Q3 2014: Irish External Trade: Of Dodgy Numbers & Export-led Recovery

Here is the fifth post on QNA detailed analysis, covering sectoral distribution of activity in Q3 2014.

Now, onto the analysis of external trade figures. Again, y/y comparatives based on non-seasonally adjusted data. All in constant euros.

Exports of Goods and Services rose EUR53.084 billion in Q3 2014 up massive 15.52% y/y, which marks an acceleration in growth compared to Q2 2014 when the same rose 13.05% y/y. Over the 6 months through September 2014, compared to the same period of 2013, exports of goods and services rose 14.27%. This is huge growth and it comes in the face of serious global trade flows slowdown and currency headwinds.

Which, of course, begs a question: what on earth is going on? Let's try an decipher.

Exports of goods posted a print of EUR27.797 billion in Q3 2014, up 18.40% y/y and an increase on already rapid rate of growth of 16.05% recorded in Q2 2014. Over the last 6 months, exports of goods rose 17.20% y/y. This growth contributed EUR3.885 in exports in Q2 2014 and further EUR4.320 billion in Q3 2014. In other words, exports of goods growth accounted for roughly EUR8.205 billion out of the EUR13.317 billion expansion in exports of goods and services.

The balance was delivered via expansion in exports of services. These grew to EUR25.287 billion in Q3 2014, up 12.51% y/y and an improvement on 9.92% growth recorded in Q2 2014.

So exports are booming. Remember, over Q2 2014 these rose by EUR6.185 billion (of which EUR3.885 billion came from goods side of trade) and in Q3 2014 these grew by EUR7.132 billion (of which EUR4.32 billion came from good side of trade).

Here's a problem folks. Based on External Trade statistics, the value of merchandise trade in Q2 2014 was EUR22.833 billion not EUR28.095 billion recorded in the National Accounts. And in Q3 2014 the value of goods exports recorded in the trade accounts was EUR22.123 billion, not EUR27.797 billion recorded in the National Accounts. And more crucially, in National Accounts goods exports expanded at a rate of 16.05% y/y in Q2 2014 and then by 18.4% in Q3 2014. Meanwhile, in exports statistics from trade accounts the same growth rates were 3.64% y/y in Q2 and 0.95% y/y in Q3.

Remember, in Q2-Q3 2014, National Accounts book increases in exports of goods to the tune of EUR8.205 billion. In Trade Accounts, the same figure is EUR1.01 billion.

Of course, the two numbers are not exactly comparable, and there is a normal (or more like average) difference between the two, which is around EUR1 billion per quarter. But here we have EUR7 billion difference over 2 quarters.

Now, we've heard about 'strange' practices of outsourcing production by the MNCs, the pharma companies beefing up cost base shifting and other polite society's ways to create activity where none exists. May be the discrepancy is down to that. Or may be not. May be someone forgot the abacus and decided to count things using Mayan 'alphabet'… I do not know. But EUR6 billion unexplained 'gaps' are a bit too much for confidence building when it comes to reading GDP figures.

Still, let us soldier on.

As you would have noticed from the previous post, our 'recovery' ain't doing too well when it comes to people actually having much cash to spend. But we do have, at least officially, a recovery in exports. Let's chart the two:

And plotting exports and imports:

Chart above shows a curious situation: There has been a massive jump in exports in Q2-Q3 2014, but there has been no corresponding growth in imports. Now, keep in mind - imports include inputs into production of exports. And, oh silly us, they also include consumption goods. So how can there be such a dynamic trailing of exports relative to imports? Answers that are possible:

  1. Imports are not growing or may be even shrinking on the consumer demand side (plausible, given lack of real growth in private consumption); and/or
  2. Exports are growing per-unit of imports - which can only be down to the miraculous productivity growth or in plain terms - tax optimisation.

So, down to trade balance:

Overall trade balance for Ireland posted EUR11.714 billion print in Q3 2014 - up EUR1.536 billion in Q3 2013 (+15.09%) after having posted a rise of EUR1.774 billion (+17.28%) y/y in Q2 2014. Over 6 months through September 2014, Trade Surplus increased by 16.2% y/y (+3.26 billion). Which is mighty impressive.

All of this surplus was down to our huge surplus on the side of trade in goods. Trade in goods surplus rose by EUR2.694 billion in Q2 2014 (+26.4% y/y) and it was up again by EUR2.975 billion in Q3 2014 (up 30.70% y/y). Over the period of six months through September 2014, trade surplus in goods added EUR5.669 billion (+28.5% y/y) to our GDP figures.

Which is huge.

Meanwhile, trade deficit on Services side has expanded in Q3 2014 to EUR950 million from a surplus of EUR489 million in Q3 2013 - a swing of EUR1.439 billion in deficit. In Q2 2014, trade deficit on services side stood at EUR1.193 billion compared to EUR223 million deficit in Q2 2013. This meant that over the period of 6 months through September 2014, cumulated deterioration in trade balance in services in Ireland amounted to EUR2.409 billion.

All in, we have, as the first chart above shows, a robust 'exports-led' recovery. But, per discussion earlier, this recovery is suspect as it cannot be confirmed even remotely by the official trade statistics coming out of trade accounts. As Bill Gross says: "Something's fishy."

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