10/10/15: IMF’s Macro Data and That “Iceland v Ireland” Question, again

Recently, I posted some data from the IMF Fiscal Monitor for October 2015 comparing fiscal performance of Iceland and Ireland and showing the extent tp which Iceland outperforms Ireland in terms of fiscal deficits and Government debt metrics. You can see the full post here.

Now, consider economic performance, especially of interest given recently strong performance by Ireland in terms of GDP, GNP and even Domestic Demand growth rates.

So let’s take a look at IMF's latest economic data and revisit that "Iceland v Ireland" question.

Let;s first take a look at the real GDP per capita, setting peak pre-crisis levels of 2007 (for both countries) as 100 index reading and tracing evolution of the real GDP per capita. Both countries are expected to regain their pre-crisis GDP per capita levels in 2015, with Iceland reaching 0.17% above the pre-crisis peak and Ireland reaching 0.29% above the same measure.

We are not going to dwell on the gargantuan (20%+) GDP/GNP spread or the fact that Irish Domestic Consumption per capita is nowhere near pre-crisis peak (see here). In pure real GDP per capita terms, Iceland is doing as well or as badly as Ireland so far.

The same applies to GDP per capita expressed in current prices and adjusted for differences in exchange rates and price levels (the Purchasing Power Parity adjustment). Iceland is at 112.9 index reading in 2015 forecast, Ireland at 113.1 index reading. For 2016, Iceland is forecast to be around 117.5, Ireland at 117.8. Neck-in-neck.

However, when it comes to the labour market performance, the close proximity between two countries vanishes.

Unemployment rate in Iceland rose from 2.3% in 2007 to a peak of 7.525% in 2010 and is expected to be at 4.3% in 2015, falling to forecast rate of 4.1% by 2016-2017 before rising to 4.4% in 2020. Ireland is faring much worse. Our unemployment rate was double Iceland’s in 2007 - at 4.67% and this peaked in 2012 at 14.67%. Since 2012, the rate fell, with 2015 outlook set at 9.58% - more than double Iceland’s rate, falling gradually to 6.9% in 2020 - more than 50 percent higher than Iceland’s.

Employment rate also tells the story of Iceland’s outperformance. And worse - dynamically, this outperformance is set to continue deteriorating for Ireland. In 2007, Iceland’s total employment ratio to total population was 57.5% against Ireland’s 49% - a gap of 8.5 percentage points. This year, per IMF projections Iceland’s employment ratio will be around 55.8% against Ireland’s 42.2% - a gap of 13.6 percentage points. In 2016 (the furthers forecast by the IMF), Iceland’s employment rate is projected to be 56.5% against Ireland’s 42.7% - a gap of 13.8 percentage points.

Since the beginning of the crisis, Irish policymakers extolled the virtue of our open economy and exports as the drivers for economic recovery. Aptly, we commonly regard ourselves to be a powerhouse of exporting activities. Which means that we should be leading Iceland in terms of our external balances performance. Reality is a bit more mixed. Iceland’s current account deficit stood at a whooping 22.8% of GDP in 2008 on foot of strong ‘imports’ of capital into the banking system. Ireland’s was more benign at 5.73% of GDP. However, since the peak of the crisis, both countries achieved massive improvements in their current account balances, with 2014 ending with Iceland posting a current account surplus of 3.41% of GDP and Ireland posting a current account surplus of 3.62% of GDP. However, in 2015, IMF forecast for current account balance shows Iceland pulling ahead of Ireland, with current account surplus of 4.61% of GDP against Ireland’s 3.2% of GDP. This gap - in favour of Iceland - is expected to persist (per IMF) through 2020.

Table below summarises the sheer magnitude of positive adjustments to pre-crisis and crisis worst points of performance on all metrics above, through 2015 for both countries:

In summary: 

• In absolute terms, both Ireland and Iceland have made big adjustments on low points of performance pre-crisis and at the peak of the crisis through 2015. 
• Iceland clearly outperforms Ireland in labour market terms. 
• Ignoring the caveats on composition of Irish GDP, Ireland and Iceland perform basically in similar terms in terms of economic activity recovery. 
• In terms of external balances, Iceland currently leads Ireland, after having lagged Ireland through 2012. 
• Iceland solidly outperforms Ireland in fiscal metrics of Government debt and deficit dynamics.

The evidence above is sufficient to reject the claims that Ireland outperforms Iceland in recovery.

7/10/15: IMF's Latest Fiscal Data and That "Iceland v Ireland" Question

You know, there’s always fun to be had with the IMF’s Fiscal Monitor updates. If only because they throw some light onto yet to be published WEO updates. But this time around, I was given a mission. Someone few weeks ago on twitter suggested that I should revisit some comparatives between Iceland and Ireland. And so here we are, fresh Fiscal Monitor at hand, let’s crunch the numbers.

Take General Government Overall Balance as % of GDP. In 2014, Ireland (best pupil in the Euro class) had a deficit of 4%. This year, IMF forecasts a deficit of 2% (significantly outperforming our Troika allowance). Which is great news. Iceland (the ‘bad pupil in class’ judging by its desire to burn bondholders in the past) had deficit of 0.2% of GDP in 2014 and is forecast to post a surplus of 1.3% in 2015. Add two numbers together and you get 2 years cumulative deficit of ca 6% for Ireland and cumulative surplus of ca 1.1% for Iceland. Iceland will be posting its first full budgetary surplus in  2015 according to the IMF latest figures, Ireland will get there in… well, not any time before 2021 as IMF projects our best performance to be 0% deficit in 2018-2020. Who’s that pupil at the back row?..

Now, take General Government Primary Balance (so stripping out the pesky payments of interest on debt). Ireland had a deficit of 0.6% of GDP in 2014, moving onto a forecast surplus of 0.8%. So net over two years, roughly 0.2% primary surplus. Take Iceland now: 2014  primary surplus of 3.5% and 2015 projected primary surplus of 4%. Net over two years, roughly 7.5% surplus. Which is, sort of, kind of 37.5 times better than Ireland?.. But wait, Iceland reached its first primary surplus in 2013. Ireland will reach its first primary surplus in 2015. Best, you know, in the class… may be not quite in the school, but…

Onto Cyclically-adjusted Balance (government balance accounting for business cycles). Ireland to start with again: -2.5% of potential GDP deficit in 2014 and -1.4% of potential GDP deficit in 2015. Not bad. Poor Iceland: cyclically adjusted deficit of 0.1% in 2014 and projected surplus of 1% in 2015. Cumulative two years for Ireland: deficit of ca 3.9% of GDP, for Iceland: surplus of 0.9% of potential GDP.

Soldier on. Next up, Cyclically-adjusted Primary Balance. Ireland: 0.9% surplus in 2014 and 1.3% surplus in 2015. Iceland: 3.8% surplus in 2014 with projected surplus of 4.1% in 2015. Two years cumulative: Ireland’s surplus of ca 2.2% of potential GDP, Iceland’s surplus of 7.9% of potential GDP.

Both countries took on hefty debt beating in the crisis. Back in 2006, Gross Government Debt in Ireland was 23.6% of GDP and in Iceland it was 29.3% of GDP. Iceland was underperforming Ireland. In 2014 gross government debt in Ireland was 107.6% of GDP and in Iceland it was 82.5% of GDP. In 2015, as IMF projects, the figures will be 75.3% of GDP for Iceland and 100.6% for Ireland. Oh dear… but perhaps things are going to catch up for us in the medium term future? Ok, IMF projects Gross Government Debt out to 2020. This is, of course, no guarantee, but the best we can go by. In that somewhat not too distant future, Iceland’s Gross Government Debt is projected to be around 54.9% of GDP. Ireland’s - at 82.9% of GDP. Here’s a bit of farce: at the peak of debt crisis for both Ireland and Iceland - in 2012, our debt to GDP ratio was 27.5 percentage points higher than that of Iceland. Per IMF projections out to 2020, the difference will be… 28 percentage points.

Of course, nowadays it is fashionable to remind ourselves that despite having lots of debts we have some assets (AIB shares and stuff). IMF partially accounts for these by estimating Net Government Debt. So let’s take a look at that metric. Per IMF data, peak of net debt levels in Iceland and Ireland took place around 2012 (for Iceland) and 2013 (for Ireland). Back then Icelandic Net Government Debt was 25 percentage points lower than our Net Government Debt. This year, IMF projects, it will be 31.6 percentage points lower (50.8% of GDP for Iceland and 82.4% of GDP for Ireland). But may be we are on track to watch up with Iceland by 2020? Not really, per IMF forecasts, our Net Government Debt will be 29.6 percentage points higher then than Icelandic Net Debt.

So I’ll sum up for you the IMF latest data in 2 charts. Self-explanatory. In both charts, positive values showing Iceland outperforming Ireland in fiscal metrics. Enjoy:

While Ireland did deliver impressive adjustments on fiscal side post-crisis peak, it is simply incorrect to identify our adjustments as being consistent with achieving performance better than that found in Iceland over the same period.

29/12/2013: Icelandic Model for Debt Crises Resolution?

A very comprehensive paper analysing the Icelandic approach to personal debt and corporate insolvency crises resolution:
http://hhi.hi.is/sites/hhi.hi.is/files/W-series/2013/WP1310.pdf

Latest comparatives between Icelandic and Irish economic performance: http://trueeconomics.blogspot.ie/2013/10/27102013-ireland-v-iceland-full-deck.html

27/10/2013: Ireland v Iceland: Full Deck

Here's the deck for comparatives between Iceland and Ireland. You can click on every slide to enlarge. Enjoy!

17/5/2013: Ireland v Iceland 2013

Ireland vs Iceland macroeconomic comparatives in 15 simple charts that DofF wouldn't want you to see...

All data is either IMF direct-sourced or based on IMF data. Click on the charts to see more detailed comments imbedded in them.

Three charts on GDP comparatives:

Investment:

External trade and balance:

Unemployment and Employment:

Government Finances: