27/7/19: A Cautionary Tale of Irish-UK Trade Numbers

Per recent discussion on Twitter, I decided to post some summary stats on changes in Irish total trade with the UK in recent years.

Here is the summary of period-averages for 2003-2017 data (note: pre-2003 data does not provide the same quality of coverage for Services trade and is harder to compare to more modern data vintage).

So, overall, across three periods (pre-Great Recession, 2003-2008), during the Great Recession (2009-2013) and in the current recovery period (2014-2017, with a caveat that annual data is only available through 2017 for all series), we have:

• UK share of total exports and imports by Ireland in merchandise trade has fallen from an average annual share of 23.31 percent in pre-Great Recession period, to 18.06 percent in the post-crisis recovery period.
• However, this decline in merchandise trade importance of the UK has been less than matched by a shallower drop in Services trade: UK share of total services exports and imports by Ireland has fallen from 64.86 percent in pre-crisis period to 62.97 percent in the recovery period.
• Overall, taking in both exports and imports across both goods and services trade flows, UK share of Irish external trade has risen from 41.43 percent in the pre-crisis period to 45.4 percent in the current period.
• Statistically, neither period is distinct from the overall historical average (based on 95% confidence intervals around the historical mean), which really means that all trends (in decline in the UK share in Goods & Services and in increase across all trade) are not statistically different from being... err... flat. 
• Taken over shorter time periods, there has been a statistically significant decline in UK share of Merchandise trade in 2014-2017 relative to 2003-2005, but not in Services trade, and the increase in the UK share of Irish overall trade was also statistically significant over these period ranges. 
• Overall, therefore, Total trade and Services trade trends are relatively weak, subject to volatility, while Merchandise trend is somewhat (marginally) more pronounced.

Here are annual stats plotted:

Using (for accuracy and consistency) CSO data on Irish trade (Services and Merchandise) by the size of enterprise (available only for 2017), the UK share of Irish trade is disproportionately more significant for SMEs:

In 2017, SMEs (predominantly Irish indigenous exporters and importers who are the largest contributors to employment in Ireland, and thus supporters of the total tax take - inclusive of payroll taxes, income taxes, corporate taxes, business rates etc) exposure to trade with the UK was 51.2 percent of total Irish exports and imports. For large enterprises, the corresponding importance of the UK as Ireland's trading partner was 13.62 percent. 

In reality, of course, Irish trade flows with the UK are changing. They are changing in composition and volumes, and they are reflecting general trends in the Irish economy's evolution and the strengthening of Irish trade links to other countries. These changes are good, when not driven by politics, nationalism, Brexit or false sense of 'political security' in coy Dublin analysts' brigades. Alas, with more than half of our SMEs trade flows being still linked to the UK, it is simply implausible to argue that somehow Ireland has been insulated from the UK trade shocks that may arise from Brexit. Apple's IP, Facebook's ad revenues, and Google's clients lists royalties, alongside aircraft leasing revenues and assets might be insulated just fine. Real jobs and real incomes associated with the SMEs trading across the UK/NI-Ireland border are not.

Whilst a few billion of declines in the FDI activity won't change our employment rosters much, 1/10th of that drop in the SMEs' exports or imports will cost some serious jobs pains, unless substituted by other sources for trade. And anyone who has ever been involved in exporting and/or importing knows: substitution is a hard game in the world of non-commodities trade.

14/7/2014: Irish Banks are Open for Lending... when no one is looking?

Remember all the Irish banks advertorials in the media about the lending easing they engaged in when it comes to SMEs? The story, as it is being told by the banks, is that our banking system is approving credit to SMEs and that the SMEs just don't apply or don't draw down the loans approved.

Here is IMF chart from today's Euro area survey on the reasons for adverse outcomes of loans applications:

So we have: Irish banks are refusing loans to SMEs at rates second only to Greece. And applications fall short of business expectations at a rate that exceeds that of Greece, so overall, tightness of credit supply to SMEs in Ireland is just as abad as it is in Greece, and worse than in any other 'peripheral' economy.

But never mind, real cost of capital is now back rising in Ireland, so we can expect some additions of grey bars to the above chart too...

All with the blessing of our policymakers who keep talking about higher and higher margins for the banks...

20/5/2014: Irish Credit Supply to Non-Financial, Non-Property Sectors

We keep hearing about banks lending to enterprises and the recovery in the banking sector in general. And we keep watching credit supply in the economy shrinking and shrinking and shrinking. The reality, of course, is simple: our banking system continues to deleverage and alongside, our companies continue to deleverage. This means that legacy debts relating to property investments and development are being washed off the books. Which, of course, accounts for property-related credit. But…

Take a look at this chart, plotting credit advanced to Irish private sector enterprises.

The property deleveraging story is in solid orange. And not surprisingly, it is still heading down. With all the fabled foreign and domestic property buyers reportedly killing each other on their hunts for bricks and mortar assets in Ireland, there is less and less and less credit available for the sector. In part, some of this decline is now being replaced by foreign funding (lending and equity, including private equity). But the credit story is still the same: property related lending is down 6% y/y in Q4 2013 (latest for which we have data).

Deleveraging in financial sector is also there - the sector credit lines have shrunk 15% y/y in Q4 2013.

But what on earth is happening in the 'healthy' (allegedly) sectors of the economy - those ex-Property and ex-Financial Intermediation? Here, total credit is down 4% y/y in Q4 2013.

In fact, from Q2 2009 onward, Irish financial system registered not a single quarter of y/y increases in credit supply to non-financial and non-property enterprises in Ireland. That's right: credit did not go up even in a single quarter. Worse, between Q4 2011 and Q4 2013, average annual rate of decline in credit to real economy was -4.0% which is exactly the same as in Q4 2013. In other words, even in terms of growth rates, there is no improvement. 

9/1/2014: New vehicles licenses in 2013

New vehicles licenses for December 2013 were published yesterday, so we can now update figures for full year 2013.

In 2013, number of all vehicles (new and used) licensed in the state rose 13.12% compared to 2012. 2012 marked the trough of the crisis period licensing and 2013 marked the best year for the Motor Trade since 2008. However, compared to peak, all vehicles licenses were still down 50.88% in 2013.

Of the above, new private cars licenses declined 6.44% y/y, although these were up 31.1% on crisis period trough. New private cars licensed in the State posted their second worst year since the onset of the crisis in 2013 and are currently down 68.3% on peak.

New goods vehicles licenses rose 1.56% in 12 months through December 2013 compared to full year 2012, potentially signalling some improvement in the business activity in the economy. These are now 9.68% above their crisis period trough, but are still down 76.1% on pre-crisis peak.

Chart to illustrate:

14/11/2013: New Vehicles Licensed: January-October 2013

So the car sales... they are booming, right? Confidence is up, consumers are back to spending, the worst of Budgetary cuts are behind us, the economy is growing, unemployment falling, etc, etc, etc... We've heard them all. So let's think about it... we are into sixth year of the crisis; cars are getting older and replacement pressure is rising. You would expect the 'turnaround economy' to produce a rise in car sales. To accommodate such, the Government changed license plates.

So here are the numbers for January-October new licenses issued:

The uptick in new licenses in 2013 is due to used cars sales. New car registrations are down 2.62% y/y for the period, down 12.8% of 2011 (same period), down 46% on 2000-present average. New Private cars registrations are down 6.3% y/y, down 18.3% on same period 2011, down 46.2% on 2000-present average.

Back to that Consumer Confidence for some sugar buzz... 

8/8/2013: Cars licensing numbers for July are just not that spectacular

Latest data on new vehicles licensing data for Ireland was out today with bombastic headlines (see release here: http://www.cso.ie/en/releasesandpublications/er/vlftm/vehicleslicensedforthefirsttimejuly2013/#.UgPQ0GQmlF8).

So what is really going on in the data? Let me just recap what you will see below in a neat summary:

1. Increases in new licenses in July are real, but are most likely driven by timing underlying 131 vs 132 plates introduction.
2. Increases in July licensing numbers are not a signal of any significant improvement in the motor trade fortunes in Ireland.
3. Caution and patience (until we see full year numbers for 2013) are warranted on foot of total new licenses issued in January-July period of 2013 compared to past years numbers.

On a monthly basis, things are looking massively good, as the CSO release clearly indicates that 9,306 new private cars were licensed in July 2013, compared with 6,164 a year ago, an increase of 51.0% y/y - massive and strongly suggestive of some huge turnaround in demand. It should be noted that the 132 number plate was introduced from the 1st July 2013 (see note below).

That was the 'good' news. Was it really dramatic? Not if you look at the entire history of sales:

The only thing that was extraordinary about the July licensing figures was that in a historical context, these were not that extraordinary at all. Let's run through some numbers in more details:

• Year on year, all vehicles new licensing rose 43.9% in July 2013. These were also up 29.1% on July 2011 and 25.1% on July 2010.
• Alas, cumulative sales for 3 months May-July 2013 were down 13.9% on cumulative sales for 3 months of February-April 2013 although they were up 11.7% y/y. Good rise y/y but not as dramatic as 43.9%. 
• July 2013 licenses came in at 10.2% below the monthly average for January 2000-present, putting some cold icy water between the headlines reported and actual levels achieved.
• New private cars licensing was up, as noted above 50.8% in July 2013 compared to July 2012, but 3mo cumulative licensing numbers for new private cars were down 30.6% for the period of May-July 2013 compared to February-April 2013, although these were up 0.32% y/y.
• Let's think in monthly volumes terms: July 2013 licensing numbers were highest in only 4 months for all vehicles and new vehicles, and in new private cars, and in only 2 months for goods vehicles. I don't see drama here, folks. Just none...

Aside: the number of new goods vehicles licensed in July 2013 was 953, down 6.2% from July 2012 and these signal activity (or lack thereof) in SMEs sector.

But back to core numbers. The omitted news is that monthly sales might tell us something, but they don't tell us as much as we would like them to. The reason for this is that possibly July 2013 was the month when buyers hunting for 132 plates came into the market, having delayed their purchases from prior months. To correct for this we need to look at y/y comparatives for cumulative licensing January-July. For the sake of taking a short-cut, let's just look at data from January 2000 through latest. Chart below plots this data:

As you can see from the above, things are not getting better in the market, at least not so far. In January-July 2013, 

• Licensing of all vehicles declined 0.34% on 2012 and was down 11.8% on 2011. It was down 37.5% on average for the first seven months of the year for the period 2000-present and was down 5.45% on average for the crisis period from 2009 through present. Conclusion: January-July 2013 all vehicles licenses are down not up y/y and are running below the crisis period average.
• Licensing of new vehicles (private and goods vehicles) declined 9.6% on 2012 and was down 20.5% on 2011. It was down 48.5% on average for the first seven months of the year for the period 2000-present and was down 6.6% on average for the crisis period from 2009 through present. Conclusion: January-July 2013 all new vehicles licenses are down not up y/y and are running below the crisis period average.
• Licensing of new private vehicles declined 9.7% on 2012 and was down 22.8% on 2011. It was down 46.7% on average for the first seven months of the year for the period 2000-present and was down 6.7% on average for the crisis period from 2009 through present. Conclusion: January-July 2013 new private vehicles licenses are down not up y/y and are running below the crisis period average.
• Licensing of goods vehicles declined 9.6% on 2012 and was down 9.2% on 2011. It was down 62.3% on average for the first seven months of the year for the period 2000-present and was down 4.8% on average for the crisis period from 2009 through present. Conclusion: January-July 2013 goods vehicles licenses are down not up y/y and are running below the crisis period average.

I am not so sure we should be rushing out to congratulate our motors trade for delivering a magic turnaround on the above numbers, although we should stay cautious in terms of interpreting the overall sales until we have full year picture. Thus: caution, not celebration, is in order.

Note: Some are telling me that the industry is benefiting from 'spreading' the demand more evenly across the year under the new registration plates. In other words, allegedly, the industry was lobbying to introduce the 131 and 132 plates in order to reduce the rush of buyers in the first half of the year that took place under the original 13 plates (full-year plates) and transfer that 'surplus' demand to the second half of the year. This makes little sense to me. Suppose you transfer some sales from H1 into H2 (i.e. delay them by up to 6 months). What does this imply? By the time you do sell these 'spread-out' vehicles that you normally would have sold in H1, the money you do receive from the sales have been devalued by up to 6 months of inflation and you have incurred an opportunity cost of losing the interest on earnings that would have accrued were you to sell these 'spread-out' vehicles in H1. Is the motor trade sector that dumb? I don't think so.