5/1/21: Ireland PMIs: 4Q 2020

Ireland's economic activity improved significantly in December, and the improvements were marked across all three sectors:

• Ireland's Manufacturing PMI rose 52.2 in November to 57.2 in December, marking the third consecutive month of > 50 readings, the second consecutive month of indicator being statistically above 50.0 line. The last three months average (53.23) is on 2Q 2020 average (53.30) and this is pretty encouraging, given the weakness in the indicator over 1H 2020. 
• Ireland's Services PMI also rose in December, reaching 50.1 from recessionary 45.4 in November. 4Q average is still weak at 47.9 (contractionary) after being effectively stagnant at 50.03 over 3Q 2020. Monthly increase in December, however, is a brighter spot.
• Ireland's Construction sector PMI (data through mid-December) is at 53.5, which is strong compared to month prior (48.6) and the first time the index is above 50 line since July 2020. 
• Official Composite PMI that accounts only for two sectors of activity (Manufacturing and Services) is now at 53.4, having broken above the 50.0 line for the first time since August 2020.

As you know,  I calculate my own index of economic activity based on all three sectors PMIs and using relative weights of each sector in Irish Gross Value Added, based on the latest National Accounts data. This is plotted against Markit's Composite PMI in the following chart:

Just as Composite PMI, my index of economic activity also rose in December (to 52.9) from 48.2 in November. This marks the first month of above-50 readings after 3 consecutive months of contraction. Nonetheless, 4Q 2020 index is at 50.03 - signaling zero growth q/q and this stands contrasted to 3Q 2020 reading of 51.2 (statistically zero growth, nominally, weak positive growth).

3/12/20: Ireland PMIs: November

 

Ireland PMIs are out for November and they show the impact of the re-amplification of COVID19 impacts on the economy.

Services PMI fell from 48.3 in October to 45.4 in November, the lowest reading in 5 months and the third consecutive monthly reading sub-50. The pandemic period average is now at 39.3.

Meanwhile, Manufacturing PMI rose from 50.3 in October to 52.2 in November, marking the second consecutive month of readings above 50.0 mark. Pandemic period average is now at 48.2. 

Construction sector PMI (through mid-November) is at 48.6 - marking third consecutive month of sub-50 readings.

As the chart below illustrates, Manufacturing is the only sector that is providing growth momentum in the economy and much of that is down to multinationals. In services sector, activity of multinationals (which are doing well) is more than offset by continued declines in activities of domestic enterprises. 

Composite PMI posted a third consecutive month of sub-50 readings at 47.7 down from 49.0 in October. Markit's Composite PMI is calculated based on manufacturing and services indices. To rebalance the overall activity measure to include construction PMIs, I calculate my own 3-sectors index which is based on each sector contribution to Ireland's gross value added. With economic activity shifting toward manufacturing during the Covid19 pandemic, this index is becoming more weighted to reflect manufacturing sector PMI, hence the 3-sectors index rose in November to 50.2 from 49.7 in October.

Overall, the PMIs and my 3-sectors index are all pointing to entrenchment of the Covid19 pandemic headwinds in the Irish economic activity in November. 

3/11/20: Ireland PMIs and Economic Activity Dynamics for October

October PMI data for Ireland is showing serious strains from the pandemic and wave 2 on the economic activity: 

• Manufacturing PMI for October came at a recessionary 48.3, marking a moderation on rapid contraction in the sector activity in September (45.8). This marks the second consecutive month of the Manufacturing PMI reading sub-50, and follows two months of partial (at best) recovery in July and August.
• Services sector PMI for October was at 50.3 - a statistically indifferent reading from zero growth 50.0 recorded in September.
• Official Composite PMI was at 49.0 in October, up on 46.9 in September, but still marking a decline in economic activity for the second month in a row. 
• Since Construction sector PMI is not published until mid-month, we only have September reading for the sector. Based on this, my three-sectors activity indicator that weighs all three sectors based on their contribution to the gross value added has rise to 49.05 from 47.48 in September:

Overall, all PMIs point to a significant weakness in the economy in September continuing into October. Keep in mind that PMIs are effectively cumulative: sub-50 reading in September implies a decline in economic activity relative to August. If this is followed by a sub-50 reading in October, the new decline is being signalled is on already diminished September activity.

12/10/20: Ireland PMIs and Economic Activity Dynamics for September

 

September data on Irish Purchasing Managers Indices is now complete (with Construction sector reporting last), and the signals coming from the data are not pretty:

Services sector activity is back in contraction: September reading of 45.8 shows relatively sharp downward momentum, swinging 6.6 points on August reading. September reading is statistically below 50.0 zero growth line, and below historical mean (55.0).

Manufacturing sector reading is at stagnation 50.0 in September, down from 52.3 in August. Statistically, September reading is below historical average of 51.4.

Construction sector is posting a second consecutive month of contraction at 47.0 in September. The reading is statistically below both the historical mean and the median, as well as below 50.0 zero growth line.

This means that official composite PMI (which does not include Construction sector index) is now at 46.9, statistically signalling economic contraction. September index is statistically below index median, although it is statistically indistinguishable for the historical average (which, owing to massive volatility in recent months sits at 49.8).

Chart above shows my own 3-Sectors Index of economic activity, integrating Manufacturing, Services and Construction sectors PMIs, weighted by their relative contributions to Gross Value Added. 3 Sectors Index has fallen from 52.1 in August to 47.5 in September. August reading by itself was not impressive: it was statistically below the historical average and the median, and was barely statistically significantly above 50.0 zero growth line. September reading is very poor, indicating a return of recessionary dynamics in the Irish economy in a critical month of September that normally marks strong growth month for the economy.

9/8/20: Ireland PMIs and Economic Activity Dynamics for August

Ireland's PMIs are signalling a cautious recovery in the growth dynamics across three sectors, with growth still underperforming historical averages.

Irish Services Sector PMI rose to a respectable 52.4 in August from 51.9 in July, with the latest index reading sitting 38.5 points above April 2020 COVID-19 pandemic lows. However, statistically, the index remains below historical average of 55.0 and the median of 56.8. In other words, second month post-contraction phase of the pandemic, Irish services sectors are still struggling to restore growth (not levels) in activity consistent with a robust recovery.

Irish Manufacturing Sector PMI fell to 52.3 in August from July's 57.3 reading. The series are generally more subdued than Services PMI, which means that August reading is statistically indistinguishable from the historical average of 51.5 and is bang-on the median of 52.31. Manufacturing activity swung 16.3 points between COVID19 trough and August reading. Overall, Manufacturing growth seems to have fallen off the post-COVID19 high.

Irish official Composite (two sectors) PMI is currently at 54.0 which is statistically at the historically median rate of growth. The series are too short to talk about averages and historical comparatives in any serious terms. 

Irish Construction Sector PMI (not included in the official Composite PMI) came in at 52.3 in August, up from 51.9 in July and 48.7 points above the COVID19 trough in April. Current reading is statistically above the historical average, but identical to the historical median. This suggests that much of the rebound can be down to seasonal and cyclical volatility, as opposed to thee genuine recovery. 

Here is a summary chart of the three sectors dynamics:

I compute my own GVA-shares-weighted 3-sectors Activity Index, using all three sectoral PMIs reported by IHS Markit. The 3-Sectors Activity Index currently sits at 52.4, down from 54.1 in July and up 30.1 points on COVID19 trough. The current growth in economic activity in Ireland is statistically below historical average, and historical median. And it has moderated from July high, suggesting that the economy is still struggling to recover levels of activity lost to the COVID19 pandemic.

20/6/18: Irish Labour Force Participation Rate: Persistency of a Problem

With the latest CSO data reporting on labour force participation figures for 1Q 2018, time to update the chart showing secular decline in the labour force participation rate in the country since the start of 2010:

As the chart above shows, despite low and falling unemployment, Irish labour force participation rate remains at the lows established at the start of 2010 and is not trending up. In fact, seasonal volatility in the PR has increased on recent years (since 1Q 2016), while the overall average levels remain basically unchanged, sitting at the lowest levels since the start of the millennium.

Taking ratio of those in the labour force to those outside the labour force as a proximate dependency indicator (this omits dependency of children aged less than 15), over 2000-2004 period, average ratio stood at 1.685 (there were, on average, 1.685 people seeking work or employed for each 1 person not in the labour force). This rose to 1.895 average over 2005-2009 period, before collapsing to 1.630 average since the start of 2010. Current ratio (1Q 2018) sits at 1.600, below the present period average.

While demographics and education account for much of this, overall the conclusions that can drawn from this data are quite striking: per each person staying out of the labour force for various reasons, Ireland has fewer people working or searching for jobs today than in any comparable (in economic fundamentals terms) period.

10/3/2014: Industrial Production & Turnover: Q4 2013 & January 2014

CSO released Industrial Production & Turnover figures for January 2014 back last week, and here is an update.

Obviously, we all are familiar with the fact that Manufacturing is booming once again, thanks for PMI signals, but... table above is not exactly cheerful, is it? On an annual production volumes data, activity is down 1.4% and turnover is up only 0.2%. On 3mo basis, production volumes are up just 0.2% and turnover is down massive 5.0%. Ugly...

Let's take the following experiment. Irish industrial production data (monthly series) is pretty volatile. So instead, let's take a look at quarterly data and augment this with the latest available data for running quarter (so for Q1 2014, let's take the only data currently at hand, that covering January 2014). Furthermore, let's look at seasonally-adjusted series to strip out even more volatility. Here are some charts with quick commentary.

Traditional Sectors:

Trend down, but January 2014 is above trend.  Beyond that:

• Current running quarter is 3.44% up on Q4 2013 and Q4 2013 was up 0.35% on Q3 2013 on volume basis. Current year on year is +6.12% on volume basis. So things might be improving.

Manufacturing:

No above luck with Manufacturing: trend down and we are below trend. Beyond that:

• By turnover, current Q1 2014 is down 1.37% on Q4 2013 and Q4 2013 was down 3.47% on Q3 2013. Year on year, current is down 2.40%, while Q4 2013 was down 1.76% y/y.
• By volume, current Q1 2014 is up 0.1% on Q4 2013 and Q4 2013 was down 1.68% on Q3 2013. Year on year, current is down 1.22%, while Q4 2013 was down 0.66% y/y.

Do tell me where those PMIs are now?

Worse, you can't really blame Pharma and Chemicals for this alone. Trend in this sector is down, and we are below trend, but Q1 2014 so far showing a slight uptick"

• By turnover, current Q1 2014 is down 4.36% on Q4 2013 and Q4 2013 was down 10.19% on Q3 2013. Year on year, current is down 10.60%, while Q4 2013 was down 3.54% y/y.
• By volume, current Q1 2014 is up 1.39% on Q4 2013 but Q4 2013 was down 5.98% on Q3 2013. Year on year, current is down 2.05%, while Q4 2013 was down 1.58% y/y.

Things are ugly in Pharma, true. But this is not the sole driver of manufacturing.

Modern Sectors aka MNCs that are, allegedly, supposed to benefit from the global upturn:

Trend down, series below trend, shrinking still:

• By volume, current Q1 2014 is down 0.35% on Q4 2013 but Q4 2013 was down 4.78% on Q3 2013. Year on year, current is down 3.52%, while Q4 2013 was down 1.62% y/y.

Unpleasant. 

10/1/2014: Irish Industrial Production & Turnover: November 2013

Production for Manufacturing Industries for November 2013 in Ireland was up 13.0% on October 2013 and on an annual basis production increased by 15.9%. Turnover rose 1.2% in November 2013 when compared with October 2013 and an annual basis turnover increased by 0.7% when compared with November 2012.

These are big numbers. Which is good news. But they come with huge volatility in the series overall, so better comparative is on 3mo rolling basis. Here things are less pleasant:
- The seasonally adjusted volume of industrial production for Manufacturing Industries for the three months September 2013 to November 2013 was 0.1% higher than in the preceding quarter.
- Year on year All Industries production indices for 3 months period through November were still up robustly by 7.3%
- Turnover was 0.2% lower.

Per CSO: "The “Modern” Sector, comprising a number of high-technology and chemical sectors, showed a monthly increase in production for November 2013 of 13.4%. There was a monthly increase of 0.4% in the “Traditional” Sector."

Good news here is that y/y figures for production are up on a 3mo basis. Chemical and pharmaceuticals sector posted 21% rise. Basic metals a gain of 23.9%. But Food products fell 0.3% and Beverages fell 8.3%. Also, Computer, electronic, optical and electrical equipment production shrunk 16.2%.

Poor news came on q/q dynamics side. For September-November 2013, compared to 3 months period through August 2013, Capital goods production was down 3.6%, Intermediate goods production was up just 0.2%, Consumer goods production fell 1.0% with Durable Consumer Goods output down 30.4% and Non-durable Consumer Goods up 4.8%.

Full details here: http://www.cso.ie/en/media/csoie/releasespublications/documents/industry/2013/prodturn_oct2013.pdf

Summary:

6/9/2013: Euromoney Country Risk Survey: Upgrading Irish Banking Sector Risks Outlook

Some good news for Ireland out of a number of surveys today. First, BlackRock Investment Institute survey of country experts shows Ireland improving economic outlook 6 months forward - details here: http://trueeconomics.blogspot.ie/2013/09/692013-blackrock-institute-survey-north.html

Now, Euromoney Country Risk survey shows significant improvements in market experts assessment of Irish banking sector stability:

While both reflect opinions of experts, including experts within the specific sectors, the two are good indicators of the general direction toward gradual improvement in country economic outlook. Let's hope the Budget 2014 and mortgages arrears workouts do not derail this trend.

29/8/2013: Credit to Private Enterprises in Ireland: Q2 2013

Credit supply figures for credit extended to Irish businesses are out and make a depressing reading, once again.

Taken from the top, here's the summary of all latest (Q2 2013) changes:

I marked in green bold only those observations where there has been any sort of a positive movement either y/y or q/q. There are only five such subsectors: Water, Sewage & Waste Treatment, etc (although q/q the sector is again down on credit), Transport & Storage (although the sector is down y/y), Information & Communication (solid y/y rise, with a big question as to whether the credit increase is accounted for by the Eircom going back into leveraging up), Education (solid y/y gain, weak q/q growth) and Health and Social Work (down q/q, but up y/y).

We hear much about the fabled revival of fortunes in the construction sector and property investment sector. I am afraid there is none visible in the credit supply data:

Unless Russian oligarchs with suitcases of cash are rolling into town, where's the fabled 'pick up of building activity' being funded from? Mars? Or cash piles of our farmers?

Total credit is still shrinking, most critically, in the sectors excluding Financial Intermediation and Property:

Credit in Primary Industries and Manufacturing has flat-lined some 33-39 months ago and is showing no life since, which is sort of suggests that the PMIs (Manufacturing) 'boom' is a signal of skewed PMI metric, capturing more of the MNCs than of domestic activity:

When it comes to the 'brighter' spot of Transport - credit pick up is off extremely weak position:

In short, as credit is linked directly to investment activity, the above suggests continued deep-freeze in the economy through H1 2013. There seem to be no signs of revival so far, albeit caveats to this apply - this is just one indicator and it is an indicator that does not tell us much about new loans issuance as opposed to old loans expirations/maturing etc. Still, to get investment-driven growth, we need credit figures to rise. Not fall...

28/6/2013: Expenditure Components of GDP: Q1 2013

Having looked at the recession/expansion dynamics in Irish economy on foot of Q1 2013 figures (here),  the dynamics in GDP and GNP in Ireland at the aggregate levels (here), and the mythology of the 'exports-led recovery' (here), let's round up the Q1 2013 QNA cover with a look at the expenditure-lined components of the GNP and GDP.

Below we look at the Seasonally-adjusted Current Market Prices data.

Personal Expenditure on Consumption Goods and Services fell 2.21% in Q1 2013 q/q and was up 0.01% y/y. This compares against much more benign drop of -0.07% q/q in Q4 2012 and a 1.15% rise y/y. Since Q1 2011, when the Coalition came to power, Personal Expenditure is down 1.55%. In terms of q/q changes, Q1 2013 marked second consecutive quarter of declines.

Net Government Expenditure on Current Goods and Services declined 0.1% q/q in Q1 2013 and was down 2.56% y/y. This marks moderation in declines recorded in Q4 2012 when q/q decline stood at -1.90% and y/y decline was running at -2.88%. Net Government Expenditure decline was the shallowest contributor to voerall economic contraction recorded in Q1 2013. Compared to Q1 2011, Net Government Expenditure on Current Goods & Services was down 3.98% in Q1 2013. In terms of q/q changes, Q1 2013 marked second consecutive quarter of declines.

Gross Fixed Capital Formation - the most devastated expenditure component of GNP to-date has fallen massive 7.32% in Q1 2013 in q/q terms and was down whooping 18.74% in y/y terms. This shows dramatic acceleration in decline from -2.16% drop in q/q terms in Q4 2012 and the reversal of the y/y rise of +4.31% recorded in Q4 2012. Relative to Q1 2011, Gross Fixed Capital Formation was down 14.25% in Q1 2013. In q/q terms, Q1 2013 marked second consecutive quarter of declines.

Exports excluding factor income shrunk 0.79% in Q4 2012 on q/q basis and there was 4.93% growth in y/y terms. This was then. In Q1 2013 exports of goods and services fell 4.59% q/q and were down 3.13% y/y. Relative to Q1 2011 exports of goods and services net of factor income payments were up 2.22% in Q1 2013, but we also marked two consecutive quarters of contraction here.

Imports of goods and services, net of factor income payments were down 2.12% q/q in Q1 2013 and -3.13% y/y. This marks significant shift 'South' in the series compared to Q4 2012 when imports shrunk 1.05% q/q and were up 4.57% in y/y terms. Imports are running -0.05% down on Q1 2011 and Q1 2013 marks the second consecutive quarter of q/q declines.

GDP at curent prices, seasonally adjusted fell 0.6% q/q in Q4 2012 and there was annual growth of 0.38%. In Q1 2013, GDP fell 2.16% q/q and there was annual decline of 2.09%. This marks third consecutive quarter of decline in GDP and thus officially, return of the recession is dated to Q4 2012. The average rate of recessionary decline in GDP in the current episode is so far -1.06% per quarter. This is shallower than the previous recessionary episode (Q4 2008-Q4 2009) when GDP contractions averaged 2.76% per quarter. Compared to Q1 2011, Q1 2013 GDP at current market prices stood at -1.04%, or put differently, gross domestic product in Ireland in Q1 2013 stood below the levels attained in Q1 2011 when the current Government came to power.

Net factor income from the rest of the world declined in both Q4 and Q1, with decline accelerating in Q1 2013 to 19.21% q/q from 2.92% in Q4 2012. As the result of this, GNP moved up, in the opposite direction of the GDP.

GNP at current market prices grew 0.68% q/q in Q1 2013, down on 1.18% expansion recored in Q4 2012. On y/y basis, GNP grew 4.12% in Q4 2012 and by 4.26% in Q1 2013. Compared to Q1 2011, GNP is now up 2.46%.

Both Final Domestic Demand and Total Domestic Demand posted second consecutive quarter of q/q contraction in Q1 2013.

To summarise, not a single line of expenditure posted an increase in the Q1 2013 in terms of q/q changes once seasonal adjustments are taken into the account. In other words, the sole positive improvement in the numbers - relating to GNP - was driven exclusively by reduced outflow of funds from MNCs.

Worse, not a single line in the determination of the GDP in Ireland was up in q/q terms in any quarter since the end of Q3 2012. We had, put differently, 6 months of across the board contractions in the economy, when we consider expenditure-based definition of GDP.

28/6/2013: Exports-led recovery: Q1 2013

I covered the headline numbers and trends for the GDP and GNP in previous two posts: here and here. Now, onto some more detailed analysis.

Remember, from the very beginning of the crisis, Irish and Troika leaders have been incessantly talking about the 'exports-led recovery'. Position on this blog concerning this thesis consistently remained that:

1. Exports growth is great, but
2. Exports growth is unlikely to be sufficient to lift the entire economy, and
3. Exports growth projections were unrealistic, while
4. Exports re-orientation toward services, away from goods was less conducive to delivering real growth in the economy.

Q1 2013 data continues to confirm my analysis.

In Q1 2013, based on real valuations (expressed in constant market prices),

• Exports of Goods & Services shrunk 6.47% q/q and fell 4.09% y/y. This compares to +1.19% q/q growth in Q4 2012 and +1.28% expansion y/y. Compared to Q1 2011, when the current coalition took over the reigns in the Leinster House, total exports of goods and services are down 0.88% in real, inflation-adjusted terms. Troika sustainability projections envisioned growth of over 6% over the same period of time.
• Imports of Goods and Services showed pretty much the same dynamics as exports in both Q4 2012 and Q1 2013, but owing to sharper contractions in 2011-2012 these are now down 4.34% compared to Q1 2011.
• Exports of Goods fell in Q1 2013 by 3.83% q/q and 9.37% y/y, while there were declines of 2.68% q/q and 2.33% y/y in Q4 2012.
• Exports of Services were down 8.75% q/q but up 1.27% y/y in Q1 2013, and these were up 4.77% q/q and 4.63% y/y in Q4 2012.

• Trade Balance in Goods and Services fell 4.96% q/q and was down 3.63% y/y in Q1 2013, with Q4 2012 respective changes at -15.91% q/q and +0.98% y/y. Compared to Q1 2011, trade balance is up 15.91%
• Trade Balance in Goods was down 6.63% q/q in Q4 2012 and this deteriorated to -10.73% growth in Q1 2013. Y/y, trade balance in goods contracted 0.05% in Q4 2012 and shrunk 10.59% in Q1 2013. On Q1 2011, trade balance in goods is down 14.04%.
• Trade Balance in Services fell from EUR1,130mln in Q3 2012 to EUR132mln in Q4 2012 before improving to EUR601mln in Q1 2013. In Q1 2012 the balance stood at EUR28 million.

28/6/2013: Underlying dynamics in Irish GDP & GNP: Q1 2013

Q1 2013 National Accounts do not make for a pleasant reading. The implications from the business cycle perspective are pretty clear - we are in a continued (3rd quarter in a row) recession, which constitutes the fourth 'dip' since the onset of the Great Recession. The post summarising that evidence is linked here.

In this post, let's take a look at the GDP and GNP in constant prices.

On seasonally-adjusted basis (removing seasonal volatility),

• GDP at constant factor cost (national output ex-taxes and subsidies) fell 0.65% q/q in Q1 2013, having contracted 0.12% q/q in previous quarter. On an annual basis, the GDP at factor cost declined 1.32% in Q1 2013, accelerating annual rate of decline relative to Q4 2012 when it fell 1.04%.
• Compared to Q1 2011, when the current Government came to power, GDP at factor cost was 0.72% higher in Q1 2013.
• Taxes rose 1.04% q/q in Q1 2013, after having posted a decline of 0.64% in Q4 2012. On an annual basis, taxes were down 0.79% in Q4 2012, but they rose 2.32% in Q1 2013.
• Compared to Q1 2011, taxes were up 1.16% in Q1 2013.
• To summarise the above, austerity is clearly biting. Taxes are rising at a 60% faster rate than economic activity.
• Subsidies remained relatively constant in Q1 2013 on an annual basis, implying that net taxes rose strongly.
• GDP at constant prices (accounting for taxes net of subsidies - the headline metric usually referenced as GDP) fell 0.58% q/q in Q1 2013, which follows a shallower contraction of 0.18% recorded in Q4 2012. On an annual basis, GDP contracted by 1.03% in Q1 2013, following a 1.02% contraction in Q4 2012.
• Net factor income for the Rest of World (outflows to the rest of the world from factor payments, net of inflows of Irish incomes earned abroad) fell dramatically in Q1 2013, down 16.96% q/q, following a 3.22% decline q/q in Q4 2012. In year-on-year terms, net outflows fell 16.55% in Q4 2012 and by 27.58% in Q1 2013. 
• It is impossible to tell from QNA the core drivers of the net outflows, however, from the balance of payments data we have reinvested earnings in Q1 2013 by the foreign companies in Ireland at EUR4,753 million, up on EUR4,010 million in Q4 2012 and down on EUR6,768 million in Q1 2012. The gap of Repatriations of earnings from Ireland are not provided for Q1 2013.
• On foot of significantly reduced outflow of funds abroad, GNP at constant market prices rose in Q1 2013 rose 2.85% q/q and 5.46% y/y, beating growth of 0.51% q/q and 3.01% y/y recorded in Q4 2012. 
• However, as analysis in the subsequent posts will show, this growth is entirely dependent on reduced outflows of funds abroad. Q/q, net expatriation of funds slowed down by EUR1,204 million, while earnings outflows abroad shrunk by EUR2,015 million.
• Taking the average net factor payments abroad for Q1 2010-2012 in place of Q1 2013 figure, GNP growth controlling for net factor payments changes would have been around -0.01% y/y and -2.48% q/q.

Charts below summarise seasonally unadjusted series:

The chart below clearly shows that even in y/y terms, we are now in a solid, three-quarters long (so far_ recession.

The GDP/GNP gap has, predictably - given the shrinking of net factor payments abroad - declined from 25-26 percent (seasonally-adjusted and unadjusted) in Q1 2012 to 17.3-17.5 percent in Q1 2013:

It is worth noting in the chart above a significant increase in volatility in the gap, which is reflective of the greater volatility in Ireland's GDP and GNP series as well as destabilisation in growth correlation between GDP and GNP. This new pattern is most pronounced starting with Q1 2008 and is associated with both - the crisis and the underlying re-distribution of growth drivers away from the domestic economy to services exports, especially during the 2010-2011 'recovery'.

27/6/2013: Quadru-Sextu-ple-dip Recession in Ireland: Q1 2013

All you need to know about today's QNA data release (though it won't deter me from more detailed analysis later) is:

• Ireland is in a quadruple-dip recession (chart below)
• You and I are in a sextuple-dip recession (second chart below)

Incidentally, just in case you felt like previous 'expansion' (officially from Q1 2010 through Q2 2012) was not much of an expansion at all, then you live in the world we inhabit, closely related to the Gross Domestic Demand. If you felt things were just fine then, you might live in Australia, or read too much of the Department of Finance presentations on their web site, or... I have no idea...

As I commented on earlier post by Brian Lucey: That light at the end of the tunnel did turn out to be an incoming train...

Update: Meanwhile, Minister Noonan thinks that the above (3 consecutive quarters of contraction in the economy, official fourth dip in the Great Recession and 6th dip in Total Domestic Demand) is "certainly disappointing but it's one set of statistics" (link). How long till Enda pops up to greet us with Dude's famous return: http://www.youtube.com/watch?v=QsogswrH6ck

24/3/2013: Irish GDP & GNP Growth 2007-2012

Five charts summarising Irish GDP and GNP dynamics in 2007-2012 period. The first set is of 4 charts plotting various measures of GDP and GNP in constant and current prices in terms of year-on-year changes:

In all of the above, I show two 'trend' figures: the 2% annual real growth trend as a long-term sustainability level of growth and the within-crisis (period of contracting GDP or GNP) and out-of-crisis (period of sustained positive growth) averages. These two sets of lines provide a marker for assessing as to whether or not the economy is currently running at the growth rates above or below trend.

And to summarise the state of play today:

Thus, after almost two years of 'turned corners' and 'recoveries'

• Ireland's GDP and GNP are still massively below the pre-crisis levels of 2007. 
• Ireland's GDP growth in constant and current prices is running below trend levels in Q3 and Q4 2012
• Ireland's GDP growth shorter-term trend (post-crisis) is below the long-term trend levels, which is simply not consistent with normal U-shaped recovery
• Ireland's GNP growth is running at above trend levels for 3 quarters now in constant prices terms, and close to the trend levels for current prices terms
• By all measures (across current and constant prices) both GDP and GNP are posting markedly slower rates of growth in Q4 2012 compared to previous quarters.

22/3/2013: National Accounts 2012: Ireland - Part 4

The first post of the series covering 2012 National Accounts looked at the headline numbers for real GDP growth. The second post covered sectoral weights in GNP and our GDP/GNP gap. In the third post I explored the opportunity cost of the crisis and the effect the realignment of economic activities in Ireland is having on fiscal position.

Now, let's focus on the quarterly series. 

The headline for quarterly national accounts should be reading: Ireland is back in a recession for the fourth dip…

• Q/Q Irish GDP fell, in real terms, 1.5% in Q4 2012, which followed a 1.9% q/q contraction in Q3 2012, marking two consecutive q/q contractions. 
• Y/Y Irish GDP was flat - exactly flat - on Q4 2011 but in Q3 2012 it was up 0.9%.

Meanwhile, 

• GNP was up 0.67% q/q in Q4 2012 after posting a contraction of 1.75% in Q3 2012 in q/q terms.
• Y/Y GNP was up 3.04% in Q4 2012 after posting a y/y gain of 3.9% in Q3 2012
• In H2 2012, GDP rose 0.4 y/y and shrunk 1.4% on H1 2012, while GNP rose 3.5% y/y and was up 1.89% on H1 2012.

Volatility is the name of the game for our national accounts, folks.

You can see components of GDP dynamics here.

Quarterly GDP/GNP gap posted second consecutive easing, moving away from mean reversion, suggesting the MNCs are building up capex reserves - once these are to be deployed, prepare for the gap to shift down to 20-22% territory and GNP shrinking by up to EUR2.6bn in any given quarter of reversion relative to Q4 2012. Were mean reversion to bite in Q4 2012, we would have had GNP down y/y and q/q and ditto for H2 down y/y.

22/3/2013: National Accounts 2012: Ireland - Part 3

The first post of the series covering 2012 National Accounts looked at the headline numbers for real GDP growth. 

The second post covered sectoral weights in GNP and our GDP/GNP gap.

Overall, there are two main themes in rebalancing of the economy that showed up in data so far: 

1) Increasing share of MNCs activity in GDP (and temporarily GNP), which means that the official figures for the National Accounts now even more overestimate the real economic activity in the country; and

2) Long-term falling out of Agriculture, Forestry & Fishing and Construction sectors from the economy, with Public Administration & Defence clearly showing signs of contraction, albeit at the rate that is, so far, trailing contraction in overall economy over the period 2003-2012.

In this post, let's take a look at the opportunity cost of the crisis.

Recall that relative to peak, Irish GDP is down 5.97% as of the end of 2012 and GNP is down 8.08% despite 'two years of consecutive growth' the Government is so keen on emphasising. 

Also recall that 1980-2011 average growth rates in constant prices terms were 3.58% per annum, whilst IMF forecasts consistent structural or potential growth rate is currently around 2%. Using 2% figure we can, therefore, estimate the opportunity cost of the current crisis as losses to GDP and GNP arising from the growth foregone during the crisis. Chart below illustrates:

The grand total in opportunity cost due to the crisis (note, this is not an exercise in 'blaming the Government' or providing any estimate of real or actual losses, but rather an estimate of the opportunity cost of the crisis) is:

-- EUR104.5bn of cumulated foregone GDP for 2008-2012 or per-capita EUR22,823;

-- EUR58.8bn of cumulated foregone GNP for 2008-2012 or EUR12,828 per capita

With taxes net of subsidies at 9.647% of the GDP in 2012, the above implies roughly EUR10.1bn in foregone net tax receipts or ca EUR2bn in annual receipts. Using 2008-2012 average weight of net taxes in GDP implies EUR2.4bn in foregone annual net tax receipts.

What does this mean? Aside from the massive opportunity cost of the crisis, we have a rather revealing figure on foregone tax receipts. The figure clearly suggests that even were economic activity running at the 2% growth rate since 2007 without the crisis, re-alignment of economic activity away from domestic sectors toward MNCs-dominated activities and toward MNCs-dominated services activities in particular would still result in unsustainable deficits and would still required some sort of a fiscal adjustment, thanks to our taxation system that is extremely unbalanced when it comes to supporting MNCs-focused activities.

22/3/2013: National Accounts 2012: Ireland - Part 2

The first post of the series covering 2012 National Accounts looked at the headline numbers for real GDP growth (link here).

This post covers sectoral weights in GNP and our GDP/GNP gap.

In terms of the latter, GDP/GNP gap in 2012 stood at 22.02% in favour of GDP, down from the record 25.0% in 2011, but still the third highest in 2003-2012 period. The trend remains up and latest decline in the gap clearly appears to be mean-reverting adjustment similar to the pattern established since 2005-2006.

The above suggests that over time we can expect upward movement in the gap, leading to the contraction in GNP (either in growth terms or even in levels). For example, adjusting 2012 GNP for 3-year average gap implies lower GNP by some 0.3% or EUR378mln, adjusting the same for 3-year average annual growth rates in the gap implies GNP lower by EUR3.0bn or 2%.

While the above exercises are highly stylised and should not be taken as rigorous assessments, they show clearly that volatility in our GNP induced by the MNCs transfers of profits abroad is significant and renders some of the y/y comparatives highly suspect.

Now on to sectoral contributions to the economy:

• Agriculture, Forestry & Fishing share of GNP declined from 2.4% in 2011 to 2.1% in 2012, thus falling back to where it was at the peak of the property and construction boom in 2006. This is the joint-lowest sector weight in GNP in 2003-2012 series with 2006 being another year of lowest contribution. Put simply, we have a Department out there in the Civil Service that is overseeing something that amounts to only 2.1% of the economy and not once in 2003-2012 period amounted anything more than 2.9%. In fact, 2003-2012 average contribution for the sector is just 2.53% with subsidies from EU accounting for much of that. You don't have to be a genius to see that the 'Food Island' ideal is just a pipe dream when it comes to our own production levels. We might have a larger food sector, but it is not dependent critically on our agricultural sector.
• Industry accounted for 28.4% of GNP, down from 29.3% in 2011. 2003-2012 average contribution is 30.24% which shows overall the secular decline in the sector importance. Most of this decline was driven by the collapse of Building & Construction sector which went from 9.9% share in 2004 to 1.4% share in 2012 - massive 8 years of consecutive declines. Ex-Construction, Irish industry (well, mostly MNCs) have grown in their share of GNP contribution from 24.6% in 2003 to 27% in 2012.
• Distribution, Transport & Comms sector share remained relatively static at 27.5% of GDP in 2012 compared to 27.6% in 2011 when it heir the record levels for 2003-2012 period.
• In line with the declines in overall activity, Public Administration and Defence sector posted a decrease in its share of GNP from 5.9% in 2011 to 5.5% in 2012. Still: back in 2003-2006 the sector was running at 3.9% to 4.1% and 2003-2012 average is still 5.2% - below the current running levels. 
• Other Services sector importance in GNP contribution fell back from 46.7% in 2011 to 45.2% in 2012 and the sector is now slightly behind the 46% average for 2003-2012.
• Taxes Net of Subsidies slipped further from 12.4% in 2011 to 11.8% in 2012. The 2003-2012 peak was in 2007 at 16.1%.

Thus, overall, there are two main themes in rebalancing of the economy: 

1. Increasing share of MNCs activity in GDP (and temporarily GNP), which means that the official figures for the National Accounts now even more overestimate the real economic activity in the country; and
2. Long-term falling out of Agriculture, Forestry & Fishing and Construction sectors from the economy, with Public Administration & Defence clearly showing signs of contraction, albeit at the rate that is, so far, trailing contraction in overall economy over the period 2003-2012.