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.

21/06/2011: Bilateral trade between Ireland and Russia

As promised earlier today - the latest updates on bilateral trade between Russia and Ireland, courtesy of the latest CSO release.

Imports from Russia rose from €10.6mln in February 2011 to €15mln in March, down on €18.8mln a year ago. Exports to Russia rose from €39.5mln to €40.6mln mom in March. Q2 2011 Exports now stand at €116.5mln while imports are €39.1mln implying a trade surplus in favour of Ireland of €77.4mln for Q1 2011 - up from €15.9mln a year ago. Overall, trade surplus to Russia for Q1 2011 is now above trade balance for Brazil (€19.1mln), Canada (€68.7mln), Malaysia (€56.7mln), Mexico (€69.5mln), Singapore (€54mln), South Africa (€38.5mln), South Korea (€14.6mln) and Turkey (€57.4mln). It is worth noting that trade with China, India and Taiwan registered trade deficits against Ireland.

Few charts to illustrate (note the annualized projections based on Q1 data - not for the accuracy points, but for the directionality).

So should the performance so far through Q1 continue, this will be another record year for bilateral trade with Russia both in terms of exports from Ireland and in terms of trade surplus.

21/06/2011: Trade Data for April

Per latest CSO data released today: Ireland's seasonally adjusted

• Imports rose from €3,721m in March to €4,914.3m in April (+32%)
  
• Exports decreased from €7,717.6m to €7,530.4m (-2%)
  
• Please note, these figures cover only goods trade

Ireland's trade surplus was €2,616.1m in April 2011, down on €3,758.1m in April 2010 and down on €3,996.6m in March 2011.

January-March 2011 imports rose strongly in:

• Food & Live Animals - from €1,066.1m to €1,248.0m yoy
  
• Crude Materials, Inedible, except fuels - from €152.7m to €189.9m yoy
• Mineral fuels, lubricants and related materials - from €1,347.9m to €1,748.1m yoy
• Animal and vegetable oils, fats and waxes - from €37.7m to €57.5m yoy
• Chemical and related products - from €2,131.3m to €2,524.0m yoy
• Manufactured goods classified chiefly by material - from €802.7m to €922.0m yoy
• Machinery and transport equipment - from €3,203.7m to €3,707.0m yoy
• Miscellaneous manufactured articles - from €1,408.2m to €1,494.0m yoy

Changes in imports in mineral fuels, lubricants and related materials, as well as in chemical and related products is broadly in line with MNCs demand for inputs to deliver increases in exports. Machinery and transport equipment imports increases were characteristic of some replacement of lost (depreciated) capital base in the industry.

Exports increased by 9% to €23,346m in Q1 2011 compared to Q1 2010 with:

• Exports of Medical and pharmaceutical products increased by 18% or €1,065m
  
• Exports of Organic chemicals rose by 15% or €716m.

Exports of Electrical machinery decreased by 6% or €48m.

Lastly, terms of trade deteriorated for Irish exporters from 78.0 (price of exports ratio to price of imports) in February 2011 to 77.1 in March 2011. March reading was the lowest since January 2003 and compares unfavorably to 86.3 reading in March 2010 and 86.6 reading in March 2009.
This, of course, means reduced profit margins for Irish exporters and pressure on tax returns from external trade activities, as well as potential pressure (it will take more than a couple of months of low readings) on employment in the traded sectors. Broadly-speaking (ignoring a slight rise from 80.8 in November 2010 to 80.9 in December 2010), terms of trade have been deteriorating now for 10 months.
So as chart above shows, high exports volumes are coming in at the cost of reduced profit margins. Of course, much of this can most likely be attributed to transfer pricing by MNCs, suggesting that we might see increased emphasis on booking profits via Irish operations. This, n turn, can provide artificial support for GNP in the same way as it did in Q4 2010.

07/06/2011: Irish Trade in Goods & Services

Having completed a new dataset on Irish trade - for both Goods and Services - here's the latest data we have.

Please, note, CSO does not report monthly stats for trade in services, which form a significant share of our exports and influence our trade balance and current account. Instead, CSO's monthly series make a claim about 'trade' without explicitly identifying that this 'trade' only covers goods. That identification, instead is buried in the 'fine print' methodology pages.

Ok, to the numbers. Given the vast size of Irish economy, the latest data on overall trade we have comes from QNA and covers Q4 2010. By the end of Q4 2010:

• Exports from Ireland stood at €40.073bn, down 1.35% qoq and up 11.67% yoy. Annual increase in Q4 2010 was €4.187bn, making Q4 2010 the highest level of exports in Q4 of any year since 1997.
• Lowest level of exports during the current cycle (since 2007) was reached in Q3 2009, implying that growth in exports returned in Q4 2009. Highest level of exports were reached in Q 3 2010.
  
• Imports stood at €34.546bn, up 8% qoq and 12.99% yoy
• Trade balance as of the end of Q4 2010 was a positive €5.527bn, down 35.98% qoq and up 4.05% yoy (+€215mln).
• Ireland's quarterly trade balance bottomed out in Q1 2008 and grew since then, peaking at €8.633bn in Q3 2010.

Charts below illustrate:

06/06/2011: Putting IMF's comment against data

According to the report by RTE: "The acting Managing Director of the International Monetary Fund has said Ireland's economic recovery programme 'appears to be on track'... However it still requires what he described as 'forthright action by the Irish authorities to re-establish the basis for sustained growth.' Mr Lipsky said there were positive signs in the Irish economy, such as a return to export growth. However Mr Lipsky described Ireland's economic recovery as 'a difficult challenge'." [emphasis is mine]

One cannot expect RTE news to critically challenge Mr Lipsky on his pronouncements, but... can someone ask Mr Lipsky what did he mean by the 'positive signs in the Irish economy, such as a return to export growth'?

Here are two charts showing that export growth did not return to Ireland any time recently, but in fact was here for some months before IMF showed up in Dublin and certainly well before this year.
So let's give Mr Lipsjy a quick briefing:

• Irish exports reached their recession bottom at the annual value of €82.238 in 2009. Hence the growth in Irish exports returned in 2010 when annual exports value rose to €89.427bn.
• In terms of annual trade balance, local minimum occurred in 2007 when Irish trade balance stood at €25.740bn. Since then, every year throughout the crisis our trade balance grew, reaching €43.785bn in 2010.
• In monthly time series, our exports reached the bottom of the cycle in December 2009.
• Relative to 2003-present trend, March 2010 was the month when Irish exports have fully recovered from the recession. That is full 8 months before IMF waltzed into Dublin and full 14 months before Mr Lipsky discovered our return to export growth.
• In terms of Trade Surplus, Irish external trade has 'returned to growth' back in January 2009, when our monthly exports exceeded long-term trend.
• Lastly, if we are to take Mr Lipsky's phrase on its face value, the return to growth in our exports dates back to January 2010 (17 months before Mr Lipsky's statement recognizing the phenomenon) and our trade balance (monthly series) returned to growth in January 2008.
  

Economics 24/12/10: Forecasting 2010 Trade performance

As a follow up for the previous post, here are my forecasts for levels of Exports, Imports and Trade Balance as well as Terms of Trade for Ireland for 2010 - using monthly data:
Overall, Terms of Trade deterioration in October 2010 stood at -5.12% on the best reading for 2007-to date.

Economics 01/07/2010: Recovery or a triple dip?

So the recession is over… or it just went into a triple dip… you have a say.

Today’s QNA for Q1 2010 showed a 2.7% increase in real GDP compared with the final quarter of last year. This brings to an end eight consecutive quarters of economic contraction – the longest recession of all advanced economies to date.

What happened? Have you felt that warm wind of spring back in March and decided that it is time for Ireland Inc to start upward march to renewed prosperity?

Err… not really. What did happen was a simple trick: Deflation took out a bite out of the price level adjustment, as nominal GDP grew a fantastically unnoticeable and statistically indifferent from zero 0.0956%. Yes, that’s right, less than one tenth of one percent. Take a snapshot: in Q1 2010, our MNCs-led exporting economy was better off than in Q4 2009 by a whooping €37 million, while our domestic economy shed another €2,199 million. Don't know about you, I feel so much richer today than back in December 2009...

One has to be sarcastic about the Government that needs a massive deflation to generate economic growth. Industry gains - again driven by MNCs manufacturing - are clearly not supported by domestic services and construction.
Oh, and subsidies-reliant sectors - Government and Agriculture - are going relatively strong. Clearly CAP is recession proof - per chart below - with Agriculture up 84% on Q4 2009. Investment continues to compress: capital formation down 14% qoq, and 30% yoy. And that’s gross! Government spending was down a paltry 0.9% qoq or €96 million – a clear slowdown in deficit reduction efforts. Give it a thought, we will be borrowing this year some €17bn - not accounting for banks alone. At the current rate of Government spending contraction, Q1 2010 reductions in public spending (net!) will cover just 10% of our annual interest bill on one year worth of borrowing!
Consumer spending contracted further by 0.2% supported from hitting much greater decline numbers by services spending and, potentially, 2010 registration plates fetish. Remember, total retail sales are down more than 6% in Q1 2010. Added support to consumer spending was winter freeze, which was a boost to the likes of state-owned ESB and Bord Gas – carbon footprint notwithstanding, good news for state monopolized energy sector.

Time for champagne, then? Perhaps not quite vintage variety yet, but some bubbly? I am afraid not.

There’s another trick to the data: Net exports boomed – as we imported fewer things to consume, invest and use in future production, while Ireland-based MNCs booked on massive profits. So massive in fact that net increases in transfers of profits abroad were literally bang on (take few euros) with net increase in our trade balance.

This has to be the fakest ‘recovery’ one can imagine.

Before charts, illustrating the above, few more points. Services exports were particularly strong (good news):

• volume of goods exports rose 2.4% yoy in Q1 2010,
• volume of services exports was up 9.5% yoy.

Services – the Cinderella of our external trade policies – now account for 46% of total exports.

As MNCs-driven economy steamed ahead, domestic economy continued to contract -0.5% in Q1 2010, in qoq terms. Profits expatriation by the MNCs reached €7.9bn in Q1, up from €7.1 in Q4, and GDP/GNP gap widened to over 20% in quarterly terms.

Should things stay on this 'recovery' course, by the end of this year some 26% of our entire economy's output will be stuff that has nothing to do with our economy. That would put us on par with some serious banana republics out there as an offshore centre. And not that I, personally mind. It's just fine that companies book profits via Ireland Inc. The problem is when we, the natives, start believing the hype that our GDP generates.

Seeing much of a recovery anywhere?

And a more detailed look at exports and imports - the causes of our today's celebration:

As I have pointed out many times before, our MNCs need imported components, goods etc in order to generate exports. So as imports fall, two things come to mind:

1. A serious concern that lower imports might reflect slowing down of MNCs-led exporting; and/or
2. A serious concern that our consumers (dependent on imports) are still running away from our retail sector.

You be the judge as to what really goes on, but either way, this is not a good omen. The 'recovery' might be a Pyrrhic victory.

At any rate, you'd need a microscope to notice that we are out of a recession in the chart below:
But you can clearly see what's going on on that side of economy which generates jobs, pays our bills and actually translates into our standards of living (aside from Government stuff, that is):

Welcome to an MNCs-led recovery, then:
If it doesn't feel like much of a boom, then don't listen to anyone saying 'We've finally turned the corner'. Or be warned it might be a dead-end alley, or worse a brick wall...

Economics 12/04/2010: The next incoming train has left its first station

My current article on the longer term prospects for global economy, published in the current issue of Business & Finance magazine. This is an unedited version.

Forget the circus of the Euro zone Government’s bickering about Greece’s bailout package and the escapist idea of setting up the EU-own EMF. The real crisis in the Euroland is now quietly unfolding behind he scenes.

Finally, after nearly 15 years of denial, courtesy of the severe pain inflicted by the bonds markets, Brussels and the core member states are forced to face the music of their own making. The current crisis affecting Euro area economy is, in the end, the outcome of a severely unbalanced economic development model that rests on the assumption that exports-led economic expansions in some countries can be financed through a continued massive build up in financial liabilities by their importing partners.

Put more simply, the problem for the world going forward is that in order to sustain this economic Ponzi game, net importers must continue to finance their purchases of goods and services from net exporters by issuing new debt. The debt that eventually settles in the accounts of the net exporters.

One does not have to be versed in the fine arts of macroeconomics to see that something is wrong with this picture. And one does not have to be a forecasting genius to understand that after some 40 years of rising debts on the balance sheet of importing nations, the game is finally up. I wrote for years about the sick nature of the EU economy - aggregate and individual countries alike.

Last week, Lombard Street Research's Charles Dumas offered yet another clear x-ray of of the problem.


Source: Lombard Street Research, March 2010

As Dumas' chart shows, core Euro area economies are sick. More importantly, this sickness is structural. With exception of the bubble-driven catch-up kids, like Spain, Ireland and Greece, the Euro area has managed to miss the growth boat since the beginning of the last expansion cycle.

The three global leaders in exports-led growth: Germany, Japan and Italy have been stuck in a quagmire of excessive savings and static growth. Forget about jobs creation – were these economies populations expanding, not shrinking, the last 10 years would have seen the overall wealth of these nations sinking in per capita terms. Only the Malthusian dream of childless households can allow these export engines of the world to stay afloat. And even then, the demographic decline will have to be sustained through disposal of accumulated national assets. So much for the great hope of the exports-led growth pulling us out of a recession. It couldn’t even get us through the last expansion!

Over the last decade, the Sick Man of Europe, Italy has managed to post no growth at all, crushed, as Dumas’ put it, by the weight of the overvalued and mismanaged common currency. The Sick Man of the World, Japan has managed to expand by less than 0.8% annually despite running up massive trade surpluses. Germany’s ‘pathetic advance over eight years’ adds up to a sickly 3½% in total, or just over 0.3% a year. France, and the UK, have managed roughly 0.98% annualized growth over the same time. Comparing this to the US at 1.27% puts the exports-led growth fallacy into a clear perspective.

I wrote in these pages before that the real global divergence over the last 10 years has been driven not by the emerging economies decoupling from the US, but by Europe and Japan decoupling from the rest of the world. The chart above shows this, as the gap between European 'social' economies wealth and income and the US is still growing. But the chart also shows that Europe is having, once again, a much more pronounced recession than the US.

Europe's failure to keep up with the US during the last cycle is made even more spectacular by the political realities of the block. Unlike any other developed democracy in the world, EU has manged to produce numerous centralized plans for growth. Since the late 1990s, aping Nikita Khruschev's 'We will bury you!' address to the US, Brussels has managed to publish weighty tomes of lofty programmes - all explicitly aimed at overtaking the US in economic performance.

These invariably promised some new 'alternative' ways to growth nirvana. The Lisbon Agenda hodge-podge of “exporting out of the long stagnation” ideas was followed by the Social Economy theory that pushed the view that somehow, if Europeans ‘invest’ money they did not have on things that make life nicer and more pleasant for their ageing populations growth will happen. Brussels folks forgot to notice that ageing population doesn’t want more work, it wants more ‘free’ stuff like healthcare, public transport, social benefits, clean streets, museums and theatres. All the nice things that actually work only when the real economy is working to pay for them.

As if driven by the idea that economic development can be totally divorced from real businesses, investors and entrepreneurs, the wise men of Europe replaced the unworkable idea of Social Economy with an artificial construct labelled ‘Knowledge Economy’. This promised an exports-led growth fuelled by sales of goods and services in which we, the Europeans, are supposedly still competitive compared to our younger counterparts elsewhere around the world. No one in Brussels has bothered to check: are we really that good at knowledge to compete globally? We simply assumed that Asians, Americans, Latin Americans and the rest of the world are inferior to us in generating, commercializing, and monetizing knowledge. Exactly where we got this idea, remains unclear to me and to the majority of economists around the world.

The latest instalment in this mad carousel of economic programmes is this year's Agenda 2020 – a mash of all three previous strategies that failed individually and are now being served as an economically noxious cocktail of policy confusion, apathy and sloganeering.

But numbers do not lie. The real source of Euro area's crisis is a deeply rooted structural collapse of growth in real human capital and Total Factor productivities. And this collapse was triggered by decades of high taxation of productive economy to pay for various follies that have left European growth engines nearly completely dependent on exports. No amount of waterboarding of the real economy with cheap ECB cash, state bailouts and public deficits financing will get us out of this corner.

The real problem, of course, is bigger than the Eurozone itself. Exports-led economies can sustain long-run expansions only on the back of a borrowing boom in their trading partners. It is that simple, folks. Every time a Mercedes leaves Germany, somewhere else around the world, someone who intends to buy it will either have to draw down their savings or get a loan against future savings. Up until now, the two were inexorably linked through the global debt markets: as American consumers took out loans to buy German-made goods, Chinese savers bought US debt to gain security of their savings.

This debt-for-imports game is now on the verge of collapse. Not because the credit crunch dried out the supply of debt, but because the global debt mountain has now reached unsustainably high levels. The demand for more debt is no longer holding up. Global economic imbalances remain at unsustainable levels even through this crisis and even with the aggressive deleveraging in the banking systems outside the EU.

Take a look at the global debt situation as highlighted by the latest data on global debt levels. The first chart below shows the ratio of net importing countries’ gross external debt liabilities (combining all debts accumulated in public and private sectors, including financial institutions and monetary authorities) to that of their net exporting counterparts. The sample covers 20 largest importers and the same number of largest exporters.

Source: IMF/BIS/World Bank joint data base and author own calculations

As this figure illustrates, since mid-point of the last bubble at the end of 2005, the total external debt burden carried by the world’s importing countries has remained remarkably stable. In fact, as of Q3 2009, this ratio is just 0.3 percentage points below where it stood in the end of 2005. Compared to the peak of the bubble, the entire process of global deleveraging has cut the relative debt burden of the importing states by just 9.8%.

To put this number into perspective, while assets base of the world’s leading economies has fallen by approximately 35% during the crisis, their liabilities side has declined by less than 10%. If 2007 marked the moment when the world finally caved in under the weight of unsustainable debt piled on during the last credit boom, then at the end of 2009 the global economy looked only sicker in terms of long-run sustainability.

The picture is more mixed for the world’s most indebted economies.
Plotting the same ratio for the US and UK clearly shows that Obamanomics is not working – the US economy, despite massive writedowns of financial assets and spectacular bankruptcies of the last two years remains leveraged to the breaking point. The UK is fairing only marginally better.

Of course, Ireland is in the league of its own, as the country has managed to actually increase its overall share of global financial debt during this crisis courtesy of an out-of-control public expenditure and the lack of private sector deleveraging. Take an alternative look at the same data. Ireland’s gross external debt (liabilities) stood at a whooping USD 2.397 trillion in Q3 2009, up 10.8% on Q3 2007. Of these, roughly 45% accrue to the domestic economy (ex-IFSC), implying that Irish debt mountain stands at around USD 1.1 trillion or more than 6 times the amount of our annual national income.

Chart below shows gross external debt of a number of countries as a share of the world’s total debt mountain.
Source: IMF/BIS/World Bank joint data base and author own calculations

And this brings us to the singularly most unfavourable forecast this column has ever made in its 7 years-long history. Far from showing the signs of abating, the global crisis is now appearing to be at or near a new acceleration point. Given the long-running and deepening imbalances between growth-less net exporting states, like Germany, Japan and Italy and the net importers, like the US, we are now facing a distinct possibility of a worldwide economic depression, triggered by massive debt build up worldwide. No amount of competitive devaluations and cost deflation will get us out of this quagmire. And neither a Social Economy, nor Knowledge Economics are of any help here.

Paraphraisng Cypher in the original Matrix: “It means fasten your seat belt, Dorothy, ‘cause Kansas of debt-financed global trade flows is going bye-bye”.

Economics 25/02/2010: Exports under pressure

A quick note on Ireland's trade flows for December 2009 - published yesterday.

As I warned earlier, the stellar performing Chemicals (inc Pharma) sector is now starting to retreat. Exports of Chemicals are down 9.54% in November and, per CSO statement, went further down in December. Machinery and Transport Equipment is down 38.9% in November (year on year).

Charts below illustrate the problems and showing the trends:
Overall, exports are down and the trend is also down - there goes a hope of exports-led recovery (not that it makes any sense, to be honest, given the global trends for trade). Imports are again heading South - suggesting two things:

• a renewed pressure on consumer demand side; and
• continued weakness in imports of intermediate inputs by the MNCs (signaling potential further declines in exports as a result).

Trade balance is not improving despite imports fall-off. There is a clear flattening out of the upward trend, suggesting that we are now close to exhausting the stage when collapsing demand drove trade balance up. It is down to exports from here on to influence the trade balance and the signs are pretty poor.
Chart above shows that the adverse changes in exports are not coincident with changes in terms of trade which continue to improve since Summer 2009. However, as the next chart clearly indicates, we are now away from the historic relationship between exports and terms of trade:
This implies that decline in exports we are experiencing is driven by other factors. Might it be a longer term pressure on MNCs activities in Ireland? Global trade flows changes? Or both?

Either way, there is no sign of exports-led growth. Irish exporters have performed miraculous well in 2009, compared with the rest of this economy. But one cannot hinge all hopes, as the Government is doing, on exporting sectors. Even more importantly, one cannot take exports performance for granted (as our Government is doing as well) - we need coherent strategy to get exporting back onto its feet.

Economics 22/12/2009: On-line advertising, Mortgages Arrears and Exports

Few interesting bits of news.

Chart below (courtesy of Economist, hat tip to Ronan Lyons) shows the sorry state of affairs in the 'knowledge' economy. Online advertising is an instrumental indicator for the extent of e-commerce in the country. Although rising this year (the only area of advertising holding up in this recession), our online advertising is lagging that of other countries.
In fact, we are languishing at the bottom of the league table - next to South Africa and way off from the peer group of advanced economies. One can only speculate as to the causes of this underperformance, but here are the potentials:

• conservative attitude by advertisers (anecdotal evidence suggests that Irish advertisers are yet to seriously commit to the web even in the context of market research);
• lack of infrastructure (my own experience shows that even having two connections to 'broadband' - with one through optical cable to boot - at home does not guarantee that you can sign onto the web);
• lack of competitiveness (years of roaring Celtic Tiger have resulted in lazy and uncompetitive attitude by retailers);
• inability to offer tax free shopping on the web (American retailers use the web to reduce the cost of goods to consumers by availing of the 'no sales tax' clause which allows them to ship goods tax free from one state to another);
• lack of anything to sell (with indigenous brands squarely concentrated in the area of butter, cheese, milk, crisps and the likes - what's there to advertise to the global web-based market place?)

Whether these are the real reasons or not, the signs are not good for Ireland's efforts to enter information age.


On finance side - the FR issued new data on mortgage arrears today (the details are here). You've heard the main headlines by now (note: the actual data was released once again in the same un-usable pdf format as the one employed by the DofF - another sign of information age illiteracy, one presumes).
Table above summarises FR's data. Given that we have no time series to compare against, the only thing one can say is that the data above, as bad as it might appear, is lagged by some 6-12 months in the case of court proceedings and by around 1-2 months in the case of arrears. This suggests that as time elapses, the above numbers will rise substantially.

Other reasons to expect significant increases in distressed mortgages:

• hike in the mortgage rates in January-February 2010 as the banks go on offensive to rebuild profit margins after Nama is fully operational (nothing to hold them back once taxpayer cash is flowing in); and
• over time, as redundancy payments and savings are exhausted, more households will fall into distress.

The only net positive in today's news is that after 29 months of financial crisis, FR finally decided to collect data on mortgages distress. Where were they over the last two years, one might inquire.


External trade data released today by CSO is showing that our (seasonally adjusted) exports were down 14% in October, relative to September 2009. back in September, exports rose by a robust 11% compared to August.

Imports fell by 7% in October 2009 relative to September and were down 1% in September
compared with August.

The value of exports in September 2009 was stable compared with September 2008 (down just €35 million from €64,469 million) and the value of imports was down 25%.


Computer equipment exports fell 25%, Electrical machinery by 28%, Industrial machinery by 33%. In contrast, medical and pharmaceutical products increased by 22%, Organic chemicals
by 11%, and Professional, scientific and controlling apparatus by 14%. The MNCs, in other words, were still firing on all cylinders in the pharma and pharma-related sectors, and medical devices.

Goods to Great Britain decreased by 15%, Germany by 21%, Northern Ireland by 22%, but goods to Belgium increased by 30% (a transit port for much of our trade with the rest of the world), the United States by 14% and Japan by 10%. So, apparently, there is little evidence of lasting adverse effects of the dollar devaluation on Irish exports then? Not so fast - remember that MNCs book transfer pricing through exporting to the US, and the strong Euro is just the added ingredient they need to cover the tracks.

Charts below show the trends (these are not seasonally adjusted, but the trends are exactly identical to those in the seasonally adjusted series) - falling exports and collapsed imports.
Of course, the trade balance is rising which is due to the facts that

• as consumers we are worse off today than we were a year ago (consumer-related imports are down),
• as exporters our MNCs are really, really good, and
• transfer pricing is rampant (driven by the rising gap between imports of inputs and exports of outputs).
  

I leave it to the readers to make a call if these are the signs of an economy in a recovery.

Economics 30/04/09: Crime, Dive Reg, Trade Stats & Cars Regs

Crime stats are out today and there are surprises. In particular, a big surprise is the lack of up-tick in property-related crimes in Q1 2009.
The first picture illustrates crime stats for broad categories 1-5: all down, except for sexual offences and kidnappings etc. Nasty stuff, but at least some good news on murder, homicide, assaults etc.
The second chart shows categories 6-12, most are property related and all are down except for robbery7, extortion and hijacking. Given the current economic climate, this is surprising as crime rises in general as recession intensifies. Anecdotal evidence - like local authorities representatives in my area - are telling me that in the last 2 months some 23 burglaries took place in Ringsend, Irishtown and Sandymount area. This is a huge increase. But we shall see if this is matched in the Q2 2009 stats for the rest of the country. For now, however, except for the state robbing us blind, other criminals are staying out of our pockets... or are not being caught...


Live Register is out and is worth a closer look. The pace of increases in LR is abating, but remains furious. The first observation is expected, given massive increases in previous months. We are seeing a technical correction, not an inflection. January-April 2009 we have added 96,000 of freshly un- and under-employed to welfare rolls. Same period 2008 it was 'just' 28,000. April monthly rise was 15,800 or 52% down on the record-breaking January increase of 33,000. Now, this might be some sort of 'good' news for some spin masters, but if April pace continues to the end of the year, we are looking at 515,000 unemployed by January 1, 2010. DofF Supplementary Budget figures estimate unemployment to close off at 12.6% in 2009. Yeah, right...

Below is a chart with data up to date and my forecasts. First forecast is basically a repeat of last years rates of rise for the following months. The rest of 2009 monthly average for this case is 4.88% - much lower than the 4-months average to date which is 7.34%. One slight departure - in this scnario I assume that December 2009 rise in Live Register will be lower than that for December 2008. Just to be nice... The second forecast is Adverse Scenario, corresponding to the next 8 moths of 2009 running along the rates of increases in the previous 8 months (since September 2008 through April 2009), with January record rise being moderated by roughly 1/2. The average monthly rate of increase for this scenario for the months of May-December 2009 is 5.87%, still below the current running average of 7.34%.

A worrying thing about this is that, as you have probably noticed - both scenarios yield LR figures well above 515,000. Benign scenario produces end of year unemployment rate of 16.7% or 568,842 on the Live Register, and adverse scenario provides for 18% unemployment with 613,200 on the Live Register...

These are plotted in the chart below.

Finally, it is worth mentioning that April saw an increase in the females rate of signing onto the LR, relative to males. 41% of new claimants signing up are now women, the largest proportional increase since May 2008. This is likely a sign that:

• white collar jobs are now evaporating at a faster pace, thanks to the Government heroic efforts to support the 'knowledge' economy;
• redundancy payments are wearing thin (with families beginning to run out of redundancy payments cash and thus being forced to sign members onto LR); and
• tax bills for formerly two-earner households are rising, necessitating more women to sign onto the register.

Trade stats for January and February showed an increase in trade surplus - at a 7 year high now - driven by the declines in imports. February exports were up 6% - good news, imports rose as well up 4% in monthly terms. Table below illustrates.
Per CSO release January figures for 2009 when compared with those of 2008 show that:

• Electrical machinery exports decreased by 51%, imports fell by 24% - MNCs are shrinking their production levels;
• Power generating machinery imports increased by 49%, while electricity imports were up 101%;
  
• Computer equipment exports were down 22%, imports fell 35% - ditto for MNCs;
  
• Edible products by 34% - domestic exporters are suffering here;
  
• Industrial machinery fell by 44% for exports and by 34% for imports, specialized machinery imports fell 56%, iron and steel imports down 43% - more MNCs cuts and these are savage;
• Medical and pharmaceutical products exports increased by 15%, which means imports also rose by 6% - MNCs in this sector are firing on all cylinders and transfer pricing is abating - a cyclical component due to accounting timing;
  
• Organic chemicals increased 10% for exports and but fell 22% for imports - again foreign firms cut production while drawing down surplus inventories;
  
• Other transport equipment (including aircraft) exports rose by 610%, while imports fell 43% (one wonders if this was due to fire sales of old aircraft and helicopters as Celtic Tiger developers are starting to shrink their consumption);
• Imports of road vehicles down 71% - say by-by to VRT and VAT receipts and thank you to the Greens and VAT increases;
• Telecom equipment imports fell 26%;
  
• Exports to China decreased by 39%, to Great Britain by 13%, to Germany by 14% and to Malaysia by 44%
• Exports to the United States increased by 5%, to Belgium by 4%, to Bermuda by €70m and to Switzerland by147%.
• Imports from Germany decreased by 43%, the United States by 25%, Great Britain by 19%, China by 29% and Norway by 55%.
• Imports from Argentina increased by 29%, Poland by 10%, Indonesia by 47%, India by 12% and Egypt by 55%.

Chart below shows the extent of imports destruction in Ireland since the beginning of 2008. There is, of course, very little imports-substitution, so any decline in imports demand is a direct hit for our retail sector and no gains to domestic producers.
And imports losses are, of course, lost production by our MNCs and therefore a future loss of exports... and jobs.


New vehicles registrations site (that's right - a new dynamic face of CO with low-res masthead, but much better analysis of data is here) is full of interesting stats - primarily concerning the decline in motor trade since Brian, Brian & Mary decided to horse around with new VRT, increase VAT and rob households of their cash. You can see these for yourselves. But what got me thinking are the longer run trends. Here are some charts:
First, look at all vehicles registered in Ireland. Despite a dramatic fall-off in numbers, long-term moving average shows a clear twin-peaks pattern with sales peaking in and around 2000 - the vanity demand (given our license plates), followed by the fatter peak in 2007 - the SSIAs demand. There is no serious justification for asking for some emergency measures, e.g a scrappage scheme, for the sector as no amount of subsidy will bring us back to the boom days of 2005-2007. There is a room to argue against the VRT, but not on the grounds of some car sales jobs protection.
Second, look at the relationship in sales of new and used vehicles. A 'vanity' dip in sales of second hand vehicles around 2000 was followed by a much more sensible realisation in 2006-2007 that there is no need to pay through the nose for new cars. Gradually, we built up a knowledge curve that our own Irish-based dealers are:

• taking fatter profit margins that those in the UK; and
• providing no better service in return.
  

Hence, more people migrated to buying cars abroad and once there, they were buying used cars. This should have been a good news for the environmentalists (buying a used car implies no added CO2 emissions associated with manufacturing). But it was not, so the tax-hungry Greens followed the tax-hungry FF and hiked VRT levies on all cars. If there is a room for economically justifiable tax reduction - it is in cutting VRT on used cars. Why? Environmental reasons aside, when an Irish person buys a used car from the UK, the cost to this economy of the finds diverted to imports (as opposed to, say, domestic investment) is much lower than when they buy a new car from an Irish showroom.
Chart above dispels the myth of the 'Killer SUV-driving Yummy-mummies' on our roads. Remember the slew of articles in 2007 telling us that we should be ashamed of driving big 4x4s and that Blackrock and South Dublin Yummy-Mummies were out in tens of thousands on our roads for school runs, driving an ever bigger SUVs? Irish Times, as always a guardian against consumerism, led this yellow journalism pack. Now, see the share of vehicles with 2000cc or bigger engines that are on our roads? It is negligible! In fact, chart below illustrates this point in detail.
At no time did vehicles with engines in excess of 2,400CC represent more than 4.5% of the total vehicles numbers registered.
Lastly, the chart above shows how out of touch are our public sector purchasing managers with reality. 2008 recorded an absolute record in new vehicles registrations by the public sector, just as the economy was spinning into a recession. Well done lads.