2/2/16: MNC Ireland: A new Documentary

A new and well-worth watching documentary on the power of multinational companies in Ireland and Ireland's status as a corporate tax haven is available here: https://vimeo.com/137175562.

Note: Strangely enough, the documentary cites me as a Chairman of the IRBA (which I was at the time). It is worth repeating again that I never speak on behalf of any organisation I am involved with and the IRBA never had a corporate opinion on any policy-related issues. I only express my own personal views.

10/12/15: Irish National Accounts 3Q: Part 1: Sectoral Growth

CSO released data for national accounts for Ireland, so in the next few posts I will be covering headline results. As usual, starting with sectoral accounts, showing decomposition of growth by sector. All data is based on seasonally unadjusted figures, allowing for y/y comparatives and expressed in real terms.

Agriculture, Forestry and Fishing sector contribution to GDP:

• Real activity in Agriculture, Forestry and Fishing sector rose strong 16.0% y/y in 3Q 2015 a rate of growth that was more robust than 9.97% expansion recorded in the sector in 3Q 2014. This is the fastest pace of y/y growth in 3 quarters, and especially welcoming given that 2Q 2015 growth came in at negative -2.87% y/y. Overall, Agriculture, Forestry and Fishing sector contributed EUR210 million to GDP growth in 3Q 2015, which amounts to 7% of total 3Q 2015 expansion in GDP y/y. On a cumulative 3 quarters basis, Agriculture, Forestry and Fishing sector expanded its activity by EUR200 million or +5.67% y/y, which is well below same period 2014 growth that stood at EUR502 million and +16.58%. 
• One key conclusion from the above figures is that Agriculture Forestry and Fishing has expanded robustly over both 3Q 2015 and on the cumulative basis over the first nine months of 2015. Which is good news.

Industry sector contribution to GDP:

• Overall Industry, including construction posted expansion of 16.08% y/y in 3Q 2015, which compares favourably to 5.15% growth in 2Q 2015 and to 4.23% growth y/y in 3Q 2014. Industry contribution to GDP growth over the first nine months of 2015 stood at EUR3.519 billion up 10.17% y/y. This is an improvement on the sector contribution over the first nine months of 2014 which stood at EUR2.25 billion (+6.95% y/y).
• Within Industry sector, Transportable Goods Industries and Utilities sub-sector activity rose 17.83% y/y in 3Q 2015 - a pace of growth well ahead of 5.51% growth in 2Q 2015 and 3.70% in 3Q 2014. Over the first nine months of 2015, Transportable Goods Industries and Utilities sub-sector added EUR3.412 billion to our GDP (+10.97% y/y), which vastly outstrips EUR1.913 billion added by the sub-sector to the economy over the first nine months of 2014. 
• So, our second core conclusion from these data is that Transportable Goods Industries and Utilities sub-sector - dominated strongly by MNCs - has been growing at unbelievably high rates of 10.97% y/y over the first 3 months of 2015. This is consistent with sector activity more than doubling in less than 7 years - a rate of expansion that consistent with a rapidly growing emerging economy, rather than with a mature economy. The Transportable Goods Industries and Utilities sub-sector was responsible for 54.3% of total growth in GDP over 3Q 2015 and 39% of total growth in Irish GDP over the period of 1Q-3Q 2015. Again, these are simply incredible figures, suggesting high degree of distortions from MNCs accounting practices and, potentially, exchange rates changes.
• Building and Construction sub-sector of Industry showed much more modest rates of growth, with 3Q 2015 y/y expansion at 3.49%, better than 1.52% growth recorded in 2Q 2015, but less than 7.8% growth in 3Q 2014. Construction sector contributed 1.47% to the overall gains in Irish GDP over 3Q period. For the first nine months of 2015, cumulative y/y growth in Building and Construction sub-sector output amounted to just EUR108 million (+3.09% y/y) which is three times slower in terms of the rates of growth recorded in the sub-sector over the same period of 2014.
• Our third core conclusion, therefore, is that traditional activity - proxied by Building and Construction sub-sector is growing in Ireland at rates probably closer to 3.5-4 percent - appreciable and positive, but not as massive as 6.8% growth recorded by the sectoral GDP (GDP at factor cost).

Distribution Transport Software and Communication (DTSC) sector activity:

• Distribution Transport Software and Communication sector activity grew at 8.28% y/y in 3Q 2015, which is slower than 11.2% growth recorded in 2Q 2015, but faster than 7.52% growth penned in 3Q 2014. The sector contributed EUR1.05 billion to GDP expansion in 3Q 2015 which amounts to 35.1% of the total growth in the GDP at factor cost. On the 9 months cumulative basis, Distribution Transport Software and Communication sector activity grew by EUR3.38 billion (+9.7% y/y) in 2015 compared to 2014.
• Once again, robust rates of growth in the sector are most likely reflective of the shifting MNCs strategies relating to tax optimisation, plus, potentially, the effects of exchange rates changes.

Public Administration and Defence sector contribution to GDP at factor cost:

• Public Administration and Defence sector activity shrunk 0.97% y/y in 3Q 2015, which is shallower contraction that -4.37% decline y/y in 2Q 2015 and -2.58% drop y/y in 3Q 2014. On a 9 months basis, Public Administration and Defence sector activity reduced our GDP at factor cost by EUR167 million (-3.59%). 
• 3Q 2015 contraction in sector activity was the shallowest in 5 quarters.

Other Services (including Rent) sector activity:

• Other Services (including Rent) activity rose 3.84% y/y in 3Q 2015, having previously posted 4.35% expansion in 2Q 2015 and 5.23% growth in 3Q 2014. 
• The sector contributed 22.9% of total growth in GDP at factor cost in 3Q 2015. 

As chart above shows, GDP at factor cost posted rates of growth above 2012 - 3Q 2015 average in every quarter since Q1 2014. Also, since 1Q 2015, rates of growth have been running above pre-crisis period average (Q4 2002-Q4 2007).

All of this is good, with positive dynamics in trends:

However, growth by sources remains unbalanced and most likely reflects skew in favour of MNCs-led sub-sectors:

Key conclusions are:

• Irish sectoral growth shows strong aggregate figures, with GDP at factor cost expansion over the first nine months of 2015 amounting to EUR8.831 billion (+6.91%) year on year, which is stronger than growth recorded over the same period of 2014 (EUR5.852 billion or +4.80% y/y).
• Sectoral contribution to growth show continued evolution of unbalanced economy skewed in favour of MNCs-led sectors, with Transportable Goods Industries and Utilities sector accounting for 38% of total growth recorded over the first nine months of 2015 compared to the same period of 2014, followed by Distribution Transport Software and Communication (38% share of total growth) and Other Services (including Rent) (+24% share). (Note: these shares add up to more than actual GDP at factor cost due to the ways in which CSO computes GDP at factor cost totals)
• All indications are that despite the MNCs bias in the figures, domestic activity did improve and is currently running at higher rates than in 2Q 2015 and over the first nine months of 2014.

Stay tuned for more analysis. 

25/10/15: Grifols and the Ghosts of OECD

An interesting set of contrasts: one company, one move, two reports.

Last week, Irish and Spanish press reported on the Spanish Multinational pharma Grifols moving most of its operations from Spain to Ireland. Here are two examples of reports:
- One from Spain (http://economia.elpais.com/economia/2015/10/24/actualidad/1445711002_780890.html?id_externo_rsoc=TW_CM) focusing on tax optimisation reasons behind the Grifols' move; and
- One from Ireland (http://www.irishtimes.com/business/health-pharma/spanish-healthcare-firm-grifols-to-create-140-jobs-1.2401541) without a single mentioning of tax issues. You can also see this one from the Irish Examiner (http://www.irishexaminer.com/business/grifols-creates-140-jobs-in-dublin-360972.html) which also fails to mention tax issues.

Spanish report quotes Grifols CFO on the issue of tax optimisation. Irish reports say absolutely nada about the topic.

Spanish report references the statement that Grifols will channel all of its non-Spanish and non-US revenues via Ireland (a practice used for tax optimisation by many MNCs based here). But both Irish reports linked above fail to mention this quite material fact.

Remember OECD BEPS ‘reforms’? When someone doesn’t want to know the obvious, one doesn’t have to worry about the obvious…

25/3/15: As Bogus Is, Bogus Does... IMF on Irish MNCs-led Growth

The IMF has published its Article IV consultation paper for Ireland and I will be blogging more on this later today. For now the top-level issue that I have been covering for some time now and that has been at the crux of the problems with irish economic 'growth' data: the role of MNCs.

My most recent post on this matter is here: http://trueeconomics.blogspot.ie/2015/03/24315-theres-no-number-left-untouched.html

IMF's Selected Issues paper published today alongside Article IV paper covers some of this in detail.

In dealing with the issues of technical challenges in estimating potential output in Ireland, the IMF states that "Irish GDP data volatility and revisions make it difficult to assess the cyclical position of the economy in the short-run. Ireland’s quarterly GDP growth data are among the most volatile of all European Union countries, more than twice the variability typically seen."

The IMF provides a handy chart:

And due to long lags in reporting final figures, as well as volatility, our GDP figures, even those reported, not just projected, are rather uncertain in their nature:

However, as IMF notes: other structural issues with the economy, besides poor reporting timing and quality and inherent volatility, further 'complicate' analysis:

"Multinational enterprises (MNE) accounting for one-quarter of Irish GDP can vary their output substantially with little change in domestic resource utilization. As shown in a recent study, MNEs represent only 2.1 percent of the number in enterprises in Ireland but slightly over half of the value added in the business economy. MNE output swings, sometimes related to sectoral idiosyncratic shocks (e.g., the “patent" cliff” in 2013...), can occur with little apparent change in
domestic resource utilization."

In other words, there is little tangible connection between output of many MNEs and the real economy. And the latest iteration of tax optimisation schemes deployed by the MNCs is not helping the matters: "The sharp increase in offshore contract manufacturing observed in 2014 is another example of such a shock. Such shocks to the productivity of the MNE sector may be best treated as shifts in potential GDP, because the result is a change in GDP without any significant change in resource tensions or slack in the
economy."

But MNCs are important for Ireland's tax base, right? Because apparently they are not that important for determining real rates of growth. Alas, the IMF has the following to say on that: "Swings in the value added of MNEs contribute substantially to variations in Irish GDP. Yet such swings are not found to have a significant effect on [government] revenues."


How big of an effect do MNCs have on the real economic growth as opposed to registered growth? IMF obliges: "The gross value added excluding the sectors dominated by MNEs behaves quite differently from aggregate GDP in some years. For example, in 2013 it grows by 3 percent at a time when official GDP data
were flat." In other words, the real, non-MNCs-led economy shrunk by roughly the amount of growth in the MNCs to result in near-zero growth across the official GDP.

However, since 2013 (over the course of 2014) a new optimisation scheme emerged as the dominant driver of manufacturing MNCs-led growth: contract manufacturing. IMF Article IV itself contains a handy box-out on that scheme, so important it is in distorting our GDP and GNP figures. Per IMF: "In 2014, multinational enterprises (MNEs) operating in Ireland made greater use of offshore
manufacturing under contract."

A handy CSO graphic illustrates what the hell IMF is talking about:

As covered in the link to my earlier blog post above, "Goods produced through contracted manufacturing agreements are treated differently in the national accounts than in customs measures of trade. As these goods do not cross the Irish border, they are not included in customs data on exports. If, however, the goods remain under the ownership of the Irish company, they are recorded as exports in the national accounts. Payments for manufacturing services and patent and royalty payments are service imports in the national accounts, offsetting in part the positive GDP impact of contracted manufacturing."

And to confirm my conclusions, here is IMF on the impact of contract manufacturing (just ONE scheme of many MNCs employ in Ireland) on Irish growth figures: "Contracted manufacturing appears to have had a significant impact on GDP growth in 2014 although it is difficult to make a precise estimate. Customs data on goods exports rose by 2.8 percent y/y in volume terms in the first nine months of 2014. In contrast, national accounts data on exports rose 12 percent in the same period. The gap between these two export measures can be attributed in part to contracted production, but could also reflect other factors like warehousing (goods produced in Ireland but stored and sold overseas) and valuation effects." Note: I cover this in more detail in my post.

"Assuming conservatively that contract manufacturing accounted for about half of the difference between customs and national accounts data, the implied gross contribution to GDP growth in the first three quarters of 2014 from contract manufacturing is 2 percentage points. However, there is a need to take into account the likelihood that service imports were higher than otherwise, but it is not possible to identify the volume of additional service imports linked to contract manufacturing."

One scheme by MNCs accounts for more than 2/5ths of the entire Irish 'miracle of growth'. Just one scheme!

And now… to the punchline:

Update: Seamus Coffey commented on the 2013 figure for domestic (real) economy cited above with an interesting point of view, also relating to the broader issue of the Contract Manufacturing: http://twishort.com/DTShc and his blogpost on the subject is here: http://economic-incentives.blogspot.ie/2015/03/the-growth-effect-of-contract.html

21/5/2014: Ireland Ranks 14th in Economic Connectedness

McKinsey Global Institute Global Connectedness Index was published in April this year, scoring countries connectedness index and overall flows based on data through 2012.

Rank of participation by flow as measured by flow intensity and share of world total.

Couple of things to notice: Ireland's position is strong at 14th rank, but it is not as strong as one would have expected. And certainly would not be anywhere near the 14th rank were we to consider Ireland's indigenous enterprises, as opposed to MNCs.

Another point: Ireland's strengths are in only one segment: services flows. Which are, of course, skewed very heavily by a handful of MNCs trading out of ICT services and IFSC. In fact, we rank below Russia in Data and Communications flows, despite being a global hub for ICT services MNCs.

Scarier bit: we rank below virtually all our direct competitors in the global markets.

9/8/2013: Irish ICT Services: Geniuses & Jobs Creators?..

The latest annual services inquiry for Ireland, published yesterday by the CSO and available here: http://www.cso.ie/en/releasesandpublications/er/asi/annualservicesinquiry2011/#.UgTpe2QmlF8 offers a fascinating read into the workings in the bizarrely-distorted world of MNCs-led exporting services in the country.

Here is one interesting set of facts, not shown by the CSO.

As chart above shows, in 2008-2011, Gross Value Added in ICT Services sector in Ireland (the sector heavily dominated by the likes of Google and other tax transfer-driven MNCs) has boomed, rising 30%. This growth, as the Government et al love reminding us, is allegedly translating into jobs, jobs and more jobs.

Alas, the facts speak for themselves:

• Over 2008-2011 wages and salaries paid out in the sector rose just 8.2% or a tiny fraction of growth in value added.
• GVA per person engaged in the sector rose 29.9% an
• d GVA per full time employee rose 31.1% - both by far the fastest rates of growth of any sector in the economy.
• The numbers engaged in the sector dropped (not rose) in 2008-2011 by 5.0% while numbers of full-time employees in the sector dropped 5.9%.

Can someone explain these miracles to me, please? By anything other than ongoing substitution of activity away from actual production of services toward more tax optimisation?.. Anyone?..

While at it, here is another illustrative chart to consider:

The above shows that Irish ICT Services workers constitute a truly miraculous breed of employees - so vastly more productive than any other type of human being in Ireland. Next time, walking down the Barrow Street, do marvel at all the geniuses walking about.

7/8/2013: Sunday Times, July 28, 2013: Ireland's Polarised Paralysed Economy

This is an unedited version of my article in the Sunday Times from July 28, 2013.


The latest news from the economy front both in Ireland and across the Euro area have been signaling some shallow improvements in growth outlook for the second and third quarters of 2013. However, the end game of a recovery currently building up will be a greater polarization of the real economy and little net new jobs creation. As supply of skills by indigenous workers remains mismatched to the demand for skills by exporting sectors, restart of exports-led growth of the future will not trickle down to the ordinary families. Meanwhile, long-term unemployment is hitting harder our older indigenous workers, and our entrepreneurship is in a structural decline. Responding to these problems will require a radical shift in the way we enable entrepreneurship, support professional labour mobility and increase investment in education and skills.


To see this, first consider the drivers for the latest improvements in the news flows. June Purchasing Managers’ Index (PMI) for Manufacturing in Ireland has finally reached just a notch above 50.0, signaling expansion for the first time since February 2013. Services PMI jumped to 54.9, marking 11th consecutive month of index readings above 50. Across the Euro area, Spanish Manufacturing PMI reached above 50 in June for the first time in 27 months. Italian PMI posted a rise for the third month in a row, although it remains below the expansion mark of 50.0. Germany's July composite PMI estimate for services and manufacturing hit a 17-month high at 52.8 and French estimate came in at 48.8 - an improvement on 47.4 in June.

Even though the end to the longest recession in euro area's history might be in sight, the recovery is unlikely to be strong. Euro area economies, Ireland included, genuinely lack sustainable drivers for growth. In addition, the processes of establishing new sources for future growth - new entrepreneurship and investment cycles – have been severely delayed both by the crises and by our policy responses to these crises.

In normal recessions, higher unemployment leads to higher involuntary entrepreneurship, as laid off workers deploy their skills and expertise into the market through self-employment and as sole-traders. In Ireland, in part due to tax hikes hitting the self-employed the hardest, this did not take place. According to the Enterprise Ireland report published earlier this month, the proportion of early stage entrepreneurs here has fallen from 8.1% average over 2003-2008 period to 6.1% in 2012. Ireland now ranks 18th out of 34 OECD countries in terms of entrepreneurship, just as the Government is expending millions on PR campaigns extolling the virtues of its pro-entrepreneurial policies and culture.

Beyond shrinking entrepreneurship, Irish labour markets are continuing to show signs of long-term, structural distress. The headline figures on Irish unemployment tell the story.

At the end of June 2013, there were 516,751 recipients of Live Register supports, including those in state and community training programmes. Some of the latter are involuntary in so far as they are linked to continued receipt of unemployment benefits. In June 2011, the same number was 517,187. The Government is boisterously claiming the economy is creating 2,000 new jobs per month. The same Government has spent hundreds of millions on enterprise supports and investment schemes, published series of programmes promising new jets in tens of thousands. Amidst this PR circus, the unemployment supports counts have declined by less than 500 over two years.

Based on the Quarterly National Household Survey data, we can take a more granular look into the jobs creation dynamics in the economy.

Between Q1 2011 and Q1 2013, the latest period for which data is available, total non-agricultural employment in the country fell by 9,200. In 12 months through March 2013, Irish economy added only 4,900 non-agricultural jobs. Some 19,000 shy of what our ministers in charge of jobs creation and enterprise policies allege. Controlling for health and education jobs, private sector saw destruction of 11,600 non-agricultural jobs since Q1 2011 when the Government came to power. Even in the booming Information and Communication services, overall employment fell by 1,100 in 12 months through Q1 2013, despite robust hiring in the exporting MNCs operating in the sector.

Underneath the surface, the trend is for displacement of Irish workers by age cohorts and by skills. This means that more and more foreign workers are taking up new positions created in sectors such as ICT and IFS to replace positions lost in domestic sectors. It also implies that older Irish workers are now being consigned to the risk of perpetual unemployment.

On the first point, while there is virtually no net new jobs additions in the economy, the positions that are being created to replace those being destroyed by the crisis, are getting progressively worse in terms of their quality. In the higher value-added private sectors, such as ICT services, professional, scientific, and technical activities, financial, insurance services and the likes, employment shrunk by 6,100 in Q1 2013 compared to Q1 2011 and by 900 compared to Q1 2012. Year on year there have been some 9,300 new jobs created in the top three professional occupations when ranked by earnings. However, more than half of these were part-time jobs. These are hardly the jobs that are attracting foreign talent into Ireland, suggesting that of the full time jobs in ICT and IFSC sectors created, the vast majority are taken up by non-Irish workers.

Regarding the last point, in June 2013, compared to June 2010, by age, the only cohort of Irish workers that saw a decline in Live Register numbers are those under the age of 35. All other age cohorts saw increases in Live Register participation. Between June 2010 and June 2013, numbers of long-term unemployed and underemployed rose 20% for workers under 35 years of age, 54% for workers of 35-54 years of age, and 106% for workers older than 55. In effect, we are currently assigning older workers to spend the rest of their working-age life in unemployment.

All of the above is best summed by the quarterly data on unemployment. At the end of March 2013, 25% of Irish workforce was either unemployed, underemployed or marginally-attached to the workforce, up on 23.7% in Q1 2011. Adding to the above those in state training schemes pushes the true broad unemployment rate in Ireland to 29% in Q1 2013, up on 26% in Q1 2011.


As I asserted at the top of the article, evidence shows that there is basically no net jobs creation going on in Ireland since Q1 2011. It further shows that older and predominantly Irish workers are experiencing an ever-rising risk of perpetual unemployment. Amongst the younger cohorts of workers, the main beneficiaries of the ICT and IFSC exporting sectors boom are temporary residents from abroad. Of the jobs still being added in the economy, majority are of low quality and cannot be relied upon to sustain long-term financial viability of Irish households. Lastly, skills mismatches between indigenous workers and exporting sectors demand are offering little hope that exports-led growth of the future will trickle down to ordinary families in Ireland.

The response to the above problem will have to be a structural shift in the way we support and treat entrepreneurship, professional labour mobility and investment in education and skills.

Currently, government policies overwhelmingly disfavor self-employed, indigenous entrepreneurs, and risk-taking professionals. In return, our policies promote development of tax optimizing FDI-backed large enterprises. Thus, early stage entrepreneurs face higher direct and indirect taxes than mature corporations and PAYE employees. Risk-taking, mobile, highly skilled professionals face lower quality and higher cost safety nets than immobile, old-skills-reliant tenured employees. Both mobile employees and entrepreneurs are also facing higher risks of unemployment, greater prospects of disruptive shocks to their incomes and larger exposure to health and family shocks. Meanwhile, for would-be entrepreneurs and flexible markets employees currently in underemployment or unemployment, life-long learning systems are costly to access and, with few exceptions, are of dubious quality.

These obstacles to increasing functional mobility of workers and human capital investments in our workforce can only be dealt with via a drastic, costly and disruptive reforms of our welfare system.  In part, the Government is currently attempting to undertake some of these reforms, albeit against the rising tide of internal discontent between the coalition partners.

But the current reforms proposals are not going far enough. Specifically, we will need to separate unemployment supports from general welfare and make these supports available to self-employed and flex-employment workers at no increase in cost of provision to these workers. The test for accessing all benefits – unemployment insurance and general welfare – should include skills levels and the entire past history of employment and entrepreneurship. Thus, higher unemployment supports should be given to those who have contributed more in the past in terms of taxes paid and entrepreneurship or human capital investment efforts undertaken. Conversely, they should have lower access to welfare benefits. To afford the strengthening of the safety net at the front end of unemployment, we will have to cut back the general social welfare benefits for able-bodied adults.

Parallel to these reforms we also need to change the way we do business in the areas such as childcare and life-long-learning. The goal of such reforms should be to increase access and supports for families at risk of unemployment in the 30-35 years of age and older cohorts. One possible long-term improvement would be to incentivize on-shoring of corporate training services into Ireland by the multinationals, coupled with requirement that such services take on a set percentage of Irish workers for training purposes and apprenticeships. Another reform can see greater and more strategic engagement of multinationals with indigenous entrepreneurs and SMEs.

A deep re-think of our current policies on dealing with unemployment requires breaking down traditional siloes in public policy and management that exist between various departments. The last two years – filled with good intentions and loud policies announcements show that the strategies deployed to-date are not working.

Box-out:

The latest data from the Residential Property Price Index (RPPI) shows that Dublin property prices posted a year on year price increase of 4.15% in June and a 1.69% cumulative rise over the last six months. However encouraging this might sound, the data must be treated with caution for a number of reasons. Firstly, the main driver for the latest improvement in the RPPI was sales of Dublin apartments. These are highly volatile and are based on few transactions. Secondly, outside Dublin, the markets remain weak. Thirdly, latest mortgages data shows that while borrowing posted a cautious rise in the first half of 2013, mortgages affordability is falling. Lastly, current sales levels and valuations are not pricing in the upcoming wave of foreclosures (starting with Buy-to-Let markets around Q4 2013 and running though 2014) that will be required to deleverage banks balance sheets. The fact is: in June 2013 the All-Properties RPPI, was still down 1.5% on Q1 2012 average and is basically unchanged on December 2012-January 2013 levels. In other words, while pockets of strength might emerge in Dublin market, overall property market is currently bouncing at the bottom of the negative cycle, looking for a catalyst either up or down.

11/11/2011: Industrial Production & Turnover - September

Industrial production and turnover figures for September provide some interesting reading. Monthly figures are significantly volatile, so some comparisons are tenuous at best, but overall, despite some downward pressures, the figures are encouraging. Here's why.

Industrial production index for manufacturing has declined from 116.4 in August to 113 in September - monthly drop of 2.92%. Year on year, September 2011 is still up 0.18% although index is down on September 2007 some 0.1%. The average of the 3mo through September 2011 was 2.2% ahead of the average for 3mo through June 2011 and 2.1% ahead of the 3mo average through September 2010. September 2011 reading is ahead of 6mo MA of 112.3 and 12mo MA of 111.7.

All of the above suggests the slowdown in activity in September was not as sharp as we might have expected given the adverse news flow from the rest of the Euro area.

All industries index has fallen from 115.2 in August to 111.2 in September, registering a yoy decline of 0.1% and mom drop of 3.47%. The index is down 1.67% on September 2007. Just as with Manufacturing index, All industries index 3mo average through September 2011 was up 2.59% on previous 3mo period and also up 1.82% on 3mo period through September 2010. The index was also above its 6mo MA of 110.7 and 12mo MA of 110.2. Again, this suggests that the slowdown is still shallow and there is some robustness in the series.

Both indices are still ahead of their readings in July and June. In fact, Manufacturing sub-index is resting at the second highest level since January 2011. The same holds for All Industries index.

Modern Sectors sub-index fell from 130.2 in August to 128.4 in September (-1.38%mom) but is up 1.18% yoy and 11.3% ahead of the reading for September 2007. 3mo average through September is 3.1% ahead of the 3mo average through June 2011 and is 1.8% ahead of the 3mo average through September 2010. The sub-index is ahead of its 6mo MA of 127.3 and its 12mo MA of 126.2. Modern Sector production activity remains at the second highest level since July 2010.

Per chart above, traditional sector production sub-index has fallen to 89.8 in September from 98.5 in August. The overall trend in the sub-sector is uncertain. Massive break out from the long term decline trend in August - with index posting the strongest performance since November 2008 is now followed by a contraction of 8.8% yoy and 1.8% mom in September. However, September reading still rests comfortably above the long term trend line and ahead of 6mo MA of 89.3 and 12mo MA of 89.1. This is the second strongest reading for the sub-index since September 2010.

Having shrunk to 31.7% in August, the gap between Modern and Traditional sectors has widened once again to 38.6%.

In terms of turnover, Manufacturing industries saw a significant decline in overall turnover activity from 104.3 in August to 100.5 in September. The index is now down 0.4% yoy and 3.64% mom. The index is also down 6.8% on September 2007. However, 3mo average through September is up 3.5% on 3mo average through June 2011 and also up 1.2% on 3mo average through September 2010. The good news is that September was the third consecutive month with turnover index at or above 100, which means that September reading is ahead of 6mo MA of 99.9 and 12mo MA of 99.5. But the gap is extremely small.

Transportable goods industries turnover also declined in September 2011 from 103.8 in August to 100.1. Mom, yoy and relative to September 2007 dynamics are virtually identical to those for Manufacturing sector. Similarities persist in comparatives for 3mo averages and for 6m and 12mo MA.

Hence, overall, turnover data is less encouraging than volume data, which is expected during the overall build up of pressures in global trade flows.

Also per chart above, new orders index came in at disappointing 99.6 in September down from 102.1 in August (decline of 1.09% yoy and -2.45% mom). Compared to September 2007 the index is now off 8.93%. 3mo average through September 2011 is 2.1% ahead of the 3mo average through June 2011, but is only 0.1% ahead of the 3mo average through September 2010. Current reading is very close to 6mo MA of 99.52 and to 12mo MA of 99.18.

So on the net, I am reading the numbers coming out for September as rather positive developments, signaling some resilience in Irish manufacturing and industrial production in the face of challenges across the euro area and other core trading partners. Of course, this data requires some confirmation in months ahead before we can pop that celebratory cork...

26/10/2011: Irish GNP projections under new US tax proposals

Much ignored by irish media so far, the US Congressional proposals to reform corporate tax system are gaining speed and have serious implications for Ireland. In the nutshell, today, US House Ways & Means Committee Chairman Dave Camp described some of his report proposals (see Bloomberg report here), which include:

• Lower corporate tax rate to 25 from 35%
• Exempting 95% of overseas earnings from US tax
• Introducing a tax holiday on repatriated profits

For US MNCs operating in Ireland this will serve as a powerful incentive to on-shore profits accumulated in Ireland. While the full impact is impossible to gauge - it is likely to be significant, running into 50% plus of retained earnings. 

This will, in turn, translate into higher Net Income Outflows from Ireland (see QNA) and thus directly depress our Gross National Product.

I run two scenarios - based on IMF WEO (September 2011) forecasts for Irish GDP, current account and Government expenditure and on historical data from CSO QNA. The baseline scenario assumed that MNCs will expatriate the same share of their profits relative to GDP as they have done before (3 year moving average). The first adjustment scenario adds a 10% uplift on the above scenario and expected growth in GDP to repatriation of profits. The second adjustment scenario adds a 25% uplift. The results are in the charts below.

Pretty dramatic. And this is for rather conservative assumption on increased outflows.

11/10/2011: Industrial Production & Turnover: Ireland August 2011

Production for Manufacturing Industries for August 2011 surprised to the strong upside rising 11.4% higher on August 2010 (unadjusted basis) and 1.2% (seasonally adjusted) over three months from June through August, compared to 3 months prior to June. Industries volume of production rose 10.4% year on year in August, also a strong gain. Monthly increase in volume in Manufacturing (3.6%) was the strongest monthly gain recorded since 9.0% increase in September 2010, and 4.4% monthly gain in Industries was also the strongest since September 2010 monthly rise of 6.9%.

Manufacturing and Industry indices, as shown above, rose well above the shorter-term average. However, the core break out from the previously established pattern of volatility around the flat trend was in the Traditional Sectors. Specifically, Modern Sector volume of production expanded by 10.2% year on year and 0.9% monthly. These were the strongest yearly gains in the series since December 2010 and introduce a break from annual contractions posted in three months between May and July. Traditional Sectors posted a massive 16.7% jump in volume of production in monthly terms - the largest monthly gain on the record and 10.8% annual rate of growth - also the strongest growth on record.

As the result, the gap between Modern and Traditional sectors activity by volume has closed substantially in August, from 43.3 in July to 30.3 in August posting the shallowest gap since August 2010.

Equally importantly, the seasonally adjusted industrial turnover index for Manufacturing Industries

was 7.0% higher in August 2011 when compared with August 2010, and 4.9% higher mom. The annual rate of growth in August was the highest since February 2011 and the monthly rate was the highest since May 2010.

Again, as per chart above, both series now have broken well above their flat recent trend, although the breakout is consistent with volatility in the Q4 2010-Q2 2011.

Another encouraging sign is that Modern Sector employment grew from 64,700 to 66,000 between Q2 2011 and Q1 2011, although it remains below 66,300 in Q3 2010. All other sectors employment expanded from 129,600 to 129,900 Q2 2011 to Q1 2011 and All Industries employment grew from 194,300 in Q1 2011 to 195,900 in Q2 2011.

In 3 months between June 2011 and August 2011, in year-on-year terms, the following notable gains and declines in volume activity were recorded in:

• In Food products and Beverages there was 0% growth in volume - an improvement on preceding 3 months period which recorded a yoy contraction of 5.4%, with Food Products contracting 2.4% yoy (improving on 8.5% yoy contraction in 3 months from May through Jul 2011), while Beverages grew by a substantial 12.2%, building on 10.6% yoy expansion in May-July.
• Textiles and wearing apparel volumes declined 28.5% yoy
• Printing and reproduction of recorded media sub-sector volumes shrunk 14.7%, a slight improvement on 15% contraction recorded in yoy terms for May-July period.
• Chemicals and chemical products grew 27.3% (there was 23.9% rise recorded in May-July period), while Basic pharmaceutical products and preparations sub sector volumes grew 2.0% offsetting 2.9 contraction in May-July.
• Computer, electronic, optical and electrical equipment sector volumes contracted 10.9% yoy, virtually unchanged on 11.0% decline recorded in May-July, primarily driven by Computer, electronic and optical products which account for 90%+ of total value added in the sector and which declined in volumes by 10.5% yoy (worse decline than 10.1 contraction in May-July)
• Machinery and equipment not elsewhere classified expanded by 19.1%
• Transport equipment grew by 14.8%
• Other manufacturing contracted by 8.8%
• Electricity, gas, steam and air conditioning supply volumes were up 1.5% yoy
• Capital goods sector volumes posted another contraction of 1.0% yoy, improving on 1.3 decline recorded in may-July
• Intermediate goods production volumes fell 13.2%, also better than 14.1% decline in May-July
• Consumer goods production grew 3.0%, reversing 1.8% decline in May-July, of which durable goods production volumes were up 12.2% although these account for 1/32nd of the total value added in the category, non-durable goods grew by 2.9%.
• 
  

10/08/2011: Industrial Production and Turnover: June 2011

Industrial production for June confirms the trend spotted here few months ago: Irish economic recovery (or rather the nascent signs of it) is now running out of fuel.

Industrial production has been a bright spot on our economy's horizon, primarily thanks to the MNCs. In annual terms:

• 2010 index of production for Manufacturing Industries rose to 110.1 up on 2009 level of 101.7 and regained the 109 mark reached in 2007.
  
• All Industries index too reached to 108.7 - above 108.4 in 2007.
  
• Modern Sectors - MNCs-dominated area of industrial production - were the core drivers, starting with the reading of 111.2 in 2007, falling only slightly to 109.8 in 2008, then climbing to 112.6 in 2009 and rocketing off to 124.7 in 2010.
  
• Meanwhile Traditional Sectors were just beginning to lift their head in 2010: after posting the reading of 104.7 in 2007, the sector fell to 100.4 in 2008, followed by a collapse to 86.2 in 2009 and a slight rebound to 87.8 in 2010.

All of these positive dynamics are now changing and not on a monthly volatility - along a new trend.

First the latest data on Production indices:

• Manufacturing sectors production have risen to 111.4 in June, relative to May 2011, however, the index remains flat since June 2010. The 6mo average and the 12mo average for the series are both at 111.2.
• All Industries index for production is now at 109.9, slightly up on May 109.3, but again, the series are not going anywhere in the medium term. The index is basically flat since June 2010 and 6mo average is at 109.5, while 12 months average is at 109.6.
• Modern sectors index for production volumes is now at 125.6, up from 123.8 in May. Again, as above, this is now flat on July 2010 with the 6mo average of 124.9 and 12 months average of 125.6
• Traditional sectors posted a monthly contraction in June to 89.8 from 91.8 in May. Again, the index is broadly flat since August 2010 and 6mo average for the series is at 89.3, although 12 months average is at 88.9

Chart below illustrates:

One continued trend has the widening gap between the Modern sectors and Traditional sectors. The gap between two series increased from 32 points to 35.8 points in May to June 2011. However, as the chart below illustrates, this gap is now trending along the flat since September 2010.
Turnover data paints a slightly different picture. First, consider annual indices:

• Manufacturing Industries turnover peaked in 2007 at 106.9 before falling to 93 in 2009. 2010 saw the index regaining some of the lost ground at 97.5
• Transportable Goods Industries turnover peaked at 107.3 in 2007 before falling to the trough of 92.8 in 2009 and then rising to 97 in 2010.

Now, on to monthly readings:

• Manufacturing Industries turnover index stood at 98.6 in June 2011, down from 99.5 in May. The index average over the last 6 months stands at 98.7 and for the last 12 months the index average is 99.5. In other words, once again, we are seeing a relative flattening of the trend for already shallow gains since the trough.
• Transportable Goods Industries turnover index fell from 99.1 in May to 98.3 in June and confirms the relatively flat trend over the last 12 months.
• In line with the above, New Orders Index has fallen from 99.8 in May to 99.3 in June. Again, as the chart below shows, the series is running along the flat trend since mid 2010
  

Overall, while monthly changes on volumes were somewhat in-line with previous growth trends (except for Traditional sectors), the volumes growth is now appearing to have established a flat trend since mid 2010. Exactly the same applies to Turnover indices (which are also showing monthly deterioration) and to the New Orders index.

10/07/2011: Irish Trade Stats: some interesting points

Here are some interesting end-of-year numbers for 2010 in terms of our external trade. Note - these are from OECD stats via ST Louis Federal Reserve database, so slightly off compared to CSO data. All are reported in Euro, unless otherwise specified.

First, consider the flows of trade and trade balance:
There is a clear regime shift in the data since 2009 with a rise in trade surplus. This confirms that Irish net external trade has entered a recovery stage post-crisis in 2009, not in late 2010-early 2011 as the IMF officials claimed recently. The second thing the chart highlights is the dramatic rise in trade balance in 2009-2010, even compared to the strong performance pre-2002. In fact, we reached beyond our trend (for 1997-2010 period) back in 2009.

This might suggest validity to the 'exports-led recovery' thesis, except for two issues:

1. Two years are hardly a trend, especially if coincident with extremely robust global trade recovery post-crisis, and
2. The trade balance is only relevant to Irish economy as a whole if we actually get to keep it here - in other words, if it accrues to companies with really sizeable investment and employment activities here. Note that in the chart above, the last two years have actually seen a negative relationship between growth in the economy and growth in the trade balance.
   

The latter issue is easy to see if we net out of the trade balance the remittances of profits and payments abroad, as done in the chart below:
Notice the decline in Net Factor Income from Abroad (NFIAF) in 2009-2010 period. This is linked directly (more closely than in the case of GDP and GNP changes) to our trade balance:
In other words, what gets produced here in terms of trade surplus gets remitted out of here. As we become more open to trade - as shown below - by any metric possible, we get more open to exporting profits and surpluses accumulated in the economy.
This is similar to an analogy of draining water out of a sinking boat with a coal bucket - when you scoop up water, the bucket is full, by the time you turn it overboard, the bucket is empty...

Some interesting correlations to that effect - all for data from 1997 through 2010, so small sample bias obviously is there:

• Trade balance correlations with GDP and GNP are 0.613 and 0.543, but with NFIFA it is -0.866
• NFIFA itself is correlated with GDP and GNP at -0.904 and -0.861.

So NFIFA has more sgnifcant links to GDP and GNP than our trade balance. In other words, the propensity of our MNCs to take out profits from Ireland has more effect on our GDP and GNP than the trade balance. The recovery, therefore, if it were to be driven by external trade, has less to do with our Exports and Imports, than with profits expatriation decisions by MNCs.

20/06/2011: Two good news from Minister Bruton

It's not all doom and gloom, folks, so when good news do arrive, or at least there is a hint at such news..., time to share. (A major HT to the fellow twitterati: @BriMcS).

The first piece comes from Minister Richard Bruton (see full release here). Let me focus on few points of interest:

"The Minister held individual meetings with 22 companies across a number of targeted sectors, including five of the top ten technology companies in the USA. The companies he met include several top internet companies with household names. The 22 companies employ a total of over 350,000 people worldwide, with combined revenues of over $230billion."

This suggests that the Minister was meeting with large MNCs, which is good. But importantly, he also met with "several rapidly growing “new technology” companies which are characteristic of the new Silicon Valley boom". This suggests that the Minister has met with some younger and faster growing internet companies, especially companies past the first/second round of fundrasing and only starting their operations outside the US. The domain of such companies is a new territory for IDA and they represent hige untapped potential for Irish market.

Also encouraging is the fact that the Minister also met a number of "companies in international services, entertainment and aviation" - areas outside the traditional focus on ICT and life sciences.

Also crucially, the Minister explicitly recognized one of the core problems faced by Irish companies and MNCs in the ICT sector today - the problem of skills shortages. "... it is estimated that there are currently approximately 3,500 vacancies in the ICT sector in Ireland. The Minister for Education and Skills has recently announced over 2,000 one-year ICT training places as part of the Springboard programme from this September. However we must also go beyond immediate needs, and I together with Minister Quinn will shortly start an ambitious process of examining measures we can take to respond to the future requirements of the ICT sector."

I recently spoke at the Irish Internet Association annual conference where the issue of specialist skills shortages in ICT and the lack of incentives for entrepreneurs in the sector were raised repeatedly. It is clear from my sources that:

1. We are currently experiencing net outflow of high end skills in ICT due to absolutely regressive, skills- and entrepreneurship-penalizing changes in personal income taxation in the Budgets 2010 and 2011. In particular, high upper marginal tax rate and absurd USC rates and penalty for self-employed workers and entrepreneurs are having dramatic effect of pushing the younger and most skilled high-end ICT specialists out of the country.
2. Skills base of indigenous workforce in the area of high-end ICT specialists cannot be improved significantly within reasonable time frame (less than 4-5 years) as such skills require a combination of education (beyond 3rd level) plus on-the-job training.

Another excellent change comes also courtesy of Minister Bruton (details here). Minister Bruton will legislation facilitate formation of co-operative societies to further facilitate formation of new enterprises. The move is aligned with the publication of the new Companies Bill and is designed to reduce red tape (which, is welcome, but incidentally, is not as important to the entrepreneurs and companies operating in Ireland, despite FG's excessive focus on 'red tape'). But the value of the new changes to co-operative societies regulations is of great value in itself.

Co-operative ownership represents one of the oldest forms of alternative enterprises and having more streamlined, easier regulatory environment for co-ops can be a net positive for entrepreneurship. Co-operative ownership is also rather efficient in the conditions of constrained credit availability for SMEs because it allows for better anchoring of household savings into investment.

Here's some interesting literature on co-operatives:
Link 1: The study of co-operatives in modern economics: a methodological essay
Link 2: A study into co-operative enterprise for instrumenting and marketing auctions in agricultural produce and a related later study which is even broader here.
Link 3: An interesting study on co-operative's reforms in Italy (where co-operative ownership stretches from traditional agricultural and tourism sectors to banking and distribution)
Link 4: Another study from Italy focusing on the future of financial co-operatives in relation to post-crisis financial services recovery
Link 5: An excellent discourse on the issue of co-operative firms role in bridging the gap between social and market objectives, containing some best practice in regulatory frameworks to support co-operative efficiencies (which might be of help to Minister Bruton as well).

Economcis 18/01/2010: Sunday Times 10/01/2010

The following article was published in the Sunday Times on Janaury 10, 2010. This is an unedited version.


Since the beginning of the current crises, through the abandoned economic policy programme of December 2008, to Budget 2010 our Government has been paying lip service to Irish exporters. The rhetoric, however, never matched the reality when it came to providing support for the sector.

Irish aggregate exports have performed in exemplary fashion through the downturn despite a number of very severe external shocks and some new internal bottlenecks affecting the sector.

Per latest CSO data, total Irish exports declined by only 1% in 2009: from 155.4 billion to €153.9 billion. In the mean time, Irish GDP has fallen by an estimated 7.5% and GNP collapsed by a massive 10.4%. And the role of exports in this economy continues to grow. In 2008, Ireland exports amounted to 99.5% of GNP, contributing 0.9% to our economic growth – the highest contribution in the year. Last year, the value of our exports rose to 116% of GNP, with exports accounting for an estimated 2.7% of the decline in GDP. Once again the best performance of all components to growth.

This stellar performance came at the time when external environment was rapidly deteriorating – in terms of both demand and overall trading conditions.

Over the course of 2009 as goods exports flows from 67 developed and middle-income economies have contracted by 23%, Irish merchandise exports were down only 1%. Two sub-sectors – pharmaceuticals and medical devices – have posted robust growth of 12% and 4% respectively over the course of 2009. Excluding these two sub-sectors, merchandise exports from Ireland (down 16% year on year) were still more resilient than overall world trade.

Credit and banking crisis had a direct impact on our trade. In the first half of 2009, Irish exports of services have experienced a severe contraction due to the collapse in international financial services activities. Only a strong performance by the business services and above-average performance by computer services have allowed for some recovery from this shock, with the value of overall services exported from Ireland falling just 1% to €68.4 billion over the course of full year.

Much has been written about devaluation of the dollar and sterling. The deterioration in our terms of trade vis-à-vis the rest of the world was indeed dramatic, contributing to a severe fall off in exports to the UK and Northern Ireland. Irish exporters also faced a significant shift in purchasing by the UK retailers away from Ireland. This was particularly noticeable amongst food and drink exporters – the sector that has the largest penetration by our indigenous companies.

Another factor much overlooked amidst financial markets turmoil was the drying up of the export credit facilities from the banks. Irish Exporters Association, other bodies and a number of economists, including myself, have for two years advocated the need for putting in place a meaningful programme of Government export credit guarantees. Per international data on trade credit flows, such programmes operate in some 57 countries These programmes are usually viewed as being low cost or even revenue-neutral. The risk to the Exchequer from guaranteeing a short-term credit for signed contracts for shipments is minimal if properly implemented and structured.

Initially, the Government has promised to allocate funding for the programme back in October 2008. By January 2009, its scale was cut to a meagre 1.5% of our indigenous exports. The plan was finally shelved just two weeks before Budget 2010 day. In place of trade credit supports, the Minister for Enterprise Trade & Employment has offered Irish exporters a promise to look into providing and ‘employment subsidy’ scheme. The Minister never explained what such a scheme can do for the exporters, nor how she arrived at the conclusion that a long-term jobs subsidy undertaking is less risky than a short-term export credit insurance. Of course, evidence from our European counterparts shows that jobs subsidies have virtually no positive impact on sustainable employment even at the time of robust jobs creation.

On December 1, just as Brian Lenihan was putting final touches to his Budget speech that contained sugary references to Irish exporters, the UK Government announced an extension to the Fixed Rate Export Finance facility through a specially-designated Export Credits Guarantee Department (ECGD). ECGD which also provides “insurance against non-payment risks and guarantees for bank loans to buyers of UK goods”, allows exporters to provide medium and long-term finance to their overseas buyers at fixed rates of interest. The rates charged under the scheme are established through the OECD, and are adopted by all major export credit agencies worldwide. These schemes are more risky than short term credit insurance rejected by the Irish Government.

Of course, the irony has it, Minister Lenihan also contributed to the exporters woes by placing a new charge on transport costs in the Republic and internationally via the Carbon Tax. This Government has already introduced one export-impacting tax back in October 2008. The so-called travel tax of €10 per departing passenger has now been linked to declining Exchequer revenue and the damages done to Irish tourism, hospitality and transport exports by a group of international transport economists, through my own analysis and Government-appointment panel of industry experts. With Carbon Tax we now have two measures that explicitly threaten our exports.

These policy contradictions set the stage for 2010.

Overall, 2009 marked the worst year on record for domestic food and drink exporters, as well as computer hardware and other manufacturers. Given that these sectors account for over 50% of the total exports-supported employment in the country, there is increasing urgency for enacting some meaningful support policies aimed at sustaining our export activities and employment. The idea that we first let companies sink on the lack of trade finance and then provide them with subsidised unskilled labour through employment support schemes run by our fabulously ineffective Fas, as the Government is suggesting, makes absolutely no sense.

Another significant concern for 2010 relates to the lagging imports by MNCs-dominated sub-sectors, such as pharma, medical devices and computer hardware. These sectors import majority of material inputs into their production from abroad and low imports relative to exports here suggest two possible trends.

Firstly, increased volumes of exports from some of these sectors in 2009 are most likely driven by record transfer pricing bookings through Irish operations. This is normal for any international operation in a recession, when companies scale back on capital investment and ramp up their tax optimization operations. While such developments have benefited Ireland in 2008-2009, continuation of these activities is not assured in 2010. Should there be a restart of global investment cycle (with some signs already pointing to improved capital investment in the BRIC economies and Asia), the incentives to book artificially inflated profits through Ireland will decline in relative importance.

Second, lagging imports growth shows that the MNCs might be unsure about the need to maintain high levels of inventories in Ireland. This in turn indicates the relative fragility of the expanded exports levels for these companies and puts overall Irish exports further at risk.

Lacking any real policy supports for the exporters, the Irish Government has resorted to the tactics of deflection and evasion. For example, in December 9, Minister for State with responsibility for international trade, Billy Kelleher TD was forced to defend the Government unwillingness provide exports credit insurance scheme proposals by referring in the Senad to Nama, banks recapitalization and even the nationalization of the Anglo Irish Bank.

In 2010, even the expected return to global growth in trade volumes is unlikely to push Irish exports beyond 2% annual growth mark, according to the latest forecasts from the Irish Exporters Association released this week. And even this forecast is predicated on continued improvements in Irish economic competitiveness and no further adverse changes in the euro position vis-à-vis other major currencies.

Instead of empty rhetoric, our exporters deserve a real chance to drive this economy out of the slump. Hoping that Nama will solve all of our problems simply won’t do.

Box-out:

Per latest CSO release, in Q3 2009, the gross external debt of all resident sectors in Ireland stood at €1,637bn or €51bn down on the Q2 2009 level. But, per same CSO release, the liabilities of Ireland-based monetary financial institutions (aka our financial system inclusive of IFSC) were virtually unchanged quarter on quarter at €691bn with their share of total debt rising from 41% in Q2 2009 to 42% in Q3. Similar dynamic took place in Other Sectors – comprising insurance companies and other financial enterprises, plus non-financial companies – where debt as of Q3 2009 stood at €618 billion or 38% of the total, up from 37% in Q2 2009. Direct investment sectors liabilities rose over the quarter by 2 billion and General Government increased. This implies that virtually all of the quarterly decrease in our indebtedness came from the Central Bank funds changes. This is why excluding the Central Bank and Government liabilities, total economy debt rose from 1.513 trillion in Q2 2009 to 1.508 trillion in Q3 2009.

But what the CSO and the media reporting on the figure didn’t tell us is since Q3 2007, the overall debt levels in Other Sectors rose by a cumulative of 15.6%, in Direct Investment sector by 9.3%, and our total debt rose by 8.33%. Only banks have so far managed to de-leverage in Ireland (down 9.8% on Q3 2007) thanks to the taxpayers’s cash. Which brings us to a sad but inevitable conclusion – while banks use our money to write down their bad debts, is it any surprise that the real debt burden in the Irish economy is not declining?

Economics 11/01/2010: Manufacturing Activity Sliding

Once again, spot on with the general trend toward renewed deterioration in Q4, industrial production posted a 9.1% decline in November 2009. Per CSO: “The seasonally adjusted volume of industrial production for Manufacturing Industries for the three month period September to November 2009 was 3.1% lower than in the preceding three month period.” Monthly change was -9.1% as well in November, for Manufacturing Industries as contrasted with 1.6% decline in October. In all industries, November decline was 8%, compared with October monthly decline of 1.4%.

The sectors contributing most to the change in November were: Computer, electronic and optical products (-36.1%) and Food products (-12.5%). The “Modern” Sector, comprising a number of high-technology and chemical sectors, showed an annual decrease in production for November 2009 of 3.7% while a decrease of 17.7% was recorded in the “Traditional” Sector. In seasonally adjusted terms, the picture was slightly less poor: Modern Sectors declined 10.5% in monthly terms, marking second consecutive monthly decrease (the index fell 5.8% back in October 2009), while Traditional sectors fell 2.2% in November, after registering an increase of 5.5% in October. The series are obviously volatile – analysis of volatility is to follow later (grading times for both UCD & TCD) – but all signs point to a renewed deterioration taking hold.