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.

25/02/2012: Poster-boys of Recovery?

So does this really, I mean really, look like a recovery to any one of you?

The chart above plots evolution of nominal GDP in current US dollars from the pre-crisis peak (set = 100 for every country) through years following the beginning of the crisis (t=0). All data - IMF WEO and September 2011-February 2012 country-specific updates.

OECD report blasts Irish policies

Now, that the FT busted out the OECD report released today, I can do the same. I gave it a quick preview in this yesterday's post (here) so now let's get down to the details.

Here is what I said about it's findings yesterday:
"...compared to other developed countries around the world, Ireland finds itself as:

• the worst economically governed in the world;
• in deepest trouble when it comes to housing markets declines to date;
• the country that is applying all the wrong (uniquely Irish) remedies to its fiscal problems; and
• the country that is least well positioned to come out of this recession any time soon."

In effect, OECD's report, that does not focus on Ireland alone, provides a somber assessment of Irish Government policies, exposing their complete and total failure in addressing the crisis to date. And here are the actual details per each point.

Point 1: The worst economic governance in the world:
Table 3.4:
So per the above numbers:

• Ireland has the fastest rising debt in the OECD;
  
• Ireland has the worst primary imbalances in the OECD. The US is catching up in 2010 projections, though the cumulative impact of primary imbalances over 2008-2010 will still remain the highest in Ireland (by over 1% point). Furthermore, the US imbalances are sourced from rapid fiscal spending expansion - wasteful, but nonetheless stimulative, while Irish primary imbalances arise from over bloated current expenditure - the purest form of public sector waste of all;
• Ireland has the highest fiscal gap in the OECD in both 2008 outrun and 2010 projections.

Next, move up to Figure 3.3 (below) which shows that we have blown fiscal spending policies not on healthcare or long-term care provisions, but on something else.
Ireland is managing to achieve the third highest projected spending rises through 2050 of all OECD states (after catch-up Korea and Greece), but lions share of that is being consumed by growth in pensions exposure. Why? How else do you think are we supposed to pay for Rolls-Royce pensions provisions in the public sector?

Point 2: Ireland is applying the uniquely wrong measures to addressing our fiscal and economic problems:
This is a point that links to point 1 above, so let us deal with it now. Table 3.2 below gives the data on different measures and their incidences and impact on the sectors of economy as adopted by various OECD governments.
Ireland clearly stands out here as:

• The only OECD country that, unconstrained by the IMF austerity measures, is facing a rising burden of the state (positive net effect of fiscal austerity for 2008-2010 period);
• One of only three OECD countries (Italy and Mexico being in our company) that is raising taxes (and here we are facing tax increases that are 12 times more severe than Italy and over 4 times more severe than Mexico, before the April 7 Mini-Budget hammers us even more);
• One of only two countries (Iceland being another country, but it is constrained by the IMF conditions) to raise individual taxes (our tax increases are twice those of Iceland). What is even more insulting is that our individual tax increases are by far the biggest source of fiscal burden of all other fiscal policies Messr Cowen and Lenihan are willing to adopt;
• One of only 3 countries (the IMF-constrained Hungary, and Italy being the other two) that is raising consumption taxes, with increased consumption tax burden being 5 times greater in Ireland than in Italy;
• A country with the heaviest burden of fiscal policies on households - with combined effect of individual, social security and consumption tax increases of +3.7% - 12 times the rate of tax burden increases in Italy and almost 4 times the rate of total household tax burden increases in Iceland and Hungary;
• Our fiscal expenditure measures are second worst only to IMF-constrained Iceland.
  

Figure 3.2 below illustrates, although one has to remember that Israel scores next to us because it actually has rising tax revenue and is facing the unwinding of some of the exceptional spending that occurs during military campaigns.
Another interesting aspect of the OECD findings relates to the sources of our fiscal imbalances. Figure 3.1 shows these:
Notice that according to the OECD chart, the cyclical component of the debt increases for 2008-2010 is only roughly 26% of the entire debt levels. The ESRI (see here) says it should be around 50%. I estimated (here) that it should be around 21% (here).

Point 3: The scope for recovery:
According to the OECD "On this basis, the countries with most scope for fiscal manoeuvre would appear to be Germany, Canada, Australia, Netherlands, Switzerland, Korea and some of the Nordic countries. Conversely, countries where the scope for fiscal stimulus is very limited would include Japan, Italy, Greece, Iceland and Ireland." We are in a good company here, indeed.

Point 4: Housing troubles:
Finally, Table 1.2 below illustrates my housing crisis point.
Yes, no comment needed here.