21/3/2013: National Accounts 2012: Ireland - Part 1

This is the first post on the QNA data for National Accounts for 2012 released today.

In this post, let's take a look at the National Accounts in Constant Market Prices Terms for GDP disaggregation by Sector of Origin.

Top-line results:

• Agriculture, forestry and fishing sector (the 'Food Island' thingy) posted a big decline y/y in 2012 in overall activity, down from EUR3,049bn to EUR2,744bn between 2011 and 2012. The sector is now down 30.6% on peak (2005) activity and 20.4% below the 2003-2012 average level of annual activity. Sector activity is down 27.1% on 2003. In brief, this is the sector is in the fifth consecutive year of contractions. 
• Industry activity rose marginally in 2012 to EUR37.269bn from EUR 37.168bn in 2011 (up 0.27% y/y). The pace of annual increases slipped from 1.88% in 2010 to 1.76% in 2011 and to 0.27% in 2012. The sector activity is down 20.53% on peak (2004) and down 9.43% on 2003-2012 average, with sector activity now running at 17.03% below 2003 levels.
• As the sub sector of Industry, Building & Construction activity continued to decline in 2012, marking 8th consecutive year of decline since the peak in 2004. The sub-sector activity dropped to EUR1.857bn in 2012 down 7.38% on 2011 level with 2012 being the first year since 2008 when activity y/y declines were in single digits percentage terms. Needless to say, the sub-sector activity is now running 86.4% below peak levels, 72.3% below 2003-2012 average and 85.1% below 2003 levels.
• Distribution, Transport and Communications sector activity rose 3.09% y/y in 2012 to mark another year of record activity at EUR36.125bn. The rate of growth y/y was robust, but behind 3.88% recorded in 2011 and 4.7% in 2010. The sector activity is now running at 25.8% ahead of 2003-2012 average and 66.71% up on 2003 level. Good performance.
• Public Administration & Defence sector didn't do a hell of a lot over the year, posting EUR7.236bn contribution to GDP in 2012, down 4.17% y/y. This was a deeper contraction than 3.58% decline in 2011, but shallower than 5.6% drop in 2010 and 4.5% in 2009. The sector activity overall is now down 16.7% on peak (2008) and is 2.93% ahead of the 2003-2012 average, while overall activity level is up massive 34.4% on 2003 level. All in, the sector is the only other sector (in addition to Distribution, Transport & Communications) that sees its activity running ahead of 2003 levels.
• Other services (including rents) sector activity rose from EUR59.252bn in 2011 to EUR59.372bn in 2012 in constant prices terms, up 0.2%, marking the first year of growth since the peak in 2006. The sector overall performance is now 5.03% below 2003-2012 average and is 0.7% behind 2003 levels.

All in, as mentioned above, only two sectors of economy are currently (end of 2012) up on 2003 levels of activity once we control for inflation: Distribution, Transport & Communications and Public Administration & Defence.

Taxes net of Subsidies fell marginally from EUR15.769bn in 2011 to EUR15.456bn in 2012, down 1.98% y/y. The rate of decline has now accelerated once again from 1.13% in 2011, but is behind 2.65% drop in 2010. Compared to peak (2006), Taxes Net of Subsidies are down 32.9% and down 17.6% on 2003-2012 average. This category contribution to GDP is now down 15% on 2003 levels once we adjust for inflation.

Overall GDP at constant market prices rose to EUR160.214bn from EUR158.725bn in 2011 up 0.94% y/y, posting slower rate of growth than 1.43% in 2011. The GDP, adjusted for inflation now stands at 5.97% below the peak at 2007 and 1.11% below 2003-2012 average. Compared to 2003 GDP is up 4.74%.

Net Factor Income from the Rest of the World recorded another outflow from Ireland of EUR28.908bn in 2012, down on outflow of EUR31.742 bn in 2011, marking the second highest rate of annual outflows during 2003-2012 period.

Lower outflows and higher GDP helped push GNP up to EUR131.306bn in 2012 from EUR126.983bn in 2011, a rise of 3.4% y/y, reversing 2.47% decline in 2011 and up on 0.94% increase in 2010. Relative to peak (2007) GNP is now down 9.61% and GNP is down 3.41% on 2003-2012 average. Compared to 2003 the GNP stands at -0.45%.

So overall, 2012 did post growth of 0.94% on GDP side in real terms and a more robust gain of 3.4% on GNP side. However, both expanded on foot of external sectors and factors, namely marginal growth in Industry (+0.27% y/y marking big slowdown on 2011 growth), Distribution, Transport & Communications (+3.09% y/y in 2012 marking another slowdown on 2011 growth rates) and Other Services (+0.2% y/y - an improvement on contraction of -0.93% in 2011). GNP growth was also underpinned by reduced outflow of funds from multinationals abroad, which is a temporary factor, likely to be reversed once MNCs begin new investment outside Ireland.

In the next post I will cover sectoral weights and GDP/GNP gap.

13/3/2013: Irish-Russian Trade & Investment - The Moscow News

Report in Moscow News on Irish-Russian bilateral trade, investment links and current state of growth in economic links between Russia and Ireland:

themoscownews.com/business/20130311/191325204/Russia-and-Ireland-forge-trade-ties-in-busts-wake.html

11/2/2013: Irish Industrial Production & Turnover: December 2012

Still catching up with data updates following a busy week lecturing.

Last week CSO issued data for december 2012 on Industrial Production and Turnover. Here's the detailed breakdown.

On Production volumes side:

• Index of production in Manufacturing Sectors rose to 112.0 in December 2012 up 11% on 100.9 in November 2012. Year on year index is up 2.85% - anaemic, but at least positive. 
• However, compared to December 2007 the index is still down although insignificantly at -1.72%. The issue here is that de facto this means that Irish Manufacturing Sectors are static over the last 5 years. 
• 3mo average through December is down 3.77% on 3mo average through September 2012 and is 7.15% down on 3mo average through December 2011. Thus, longer term dynamics, smoothing out some of the m/m volatility are not encouraging. 
• On shorter end of dynamics, however, things are slightly better: December reading is 112 and it is well-ahead of 6mo MA of 106.75 and 12mo MA of 108.99.
• Index of production in All Industries also improved in December to 108.8 up 1.58% y/y and 8.47% m/m.
• Compared to December 2007 the index is down significantly at -4.26%, which again shows that Industrial activity in Ireland has fallen relative to 5 years ago or at the very least - has not risen.
• 3mo average through December 2012 is 3.83% behind 3mo average through September 2012 and 7.01% below 3mo average through December 2011.
• As with manufacturing, shorter end of dynamics is more positive with December 2012 reading at 108.8 ahead of 6mo MA of 105.12 and 12mo MA of 107.19. 
• Modern sectors activity rose strongly at 9.3% m/m to 120.6 in December 2012, although y/y rise was much weaker at 1.86%. 
• The index is ahead of December 2007 by a marginal 1.82%.
• 3mo average through December 2012 is 7.68% below 3mo average through September 2012 and 9.61% below 3mo average through December 2011.
• Shorter dynamics are not too positive: the current reading of 120.6 is only marginally ahead of 119.82 6mo MA and is below 12mo MA of 124.05. 
• All dynamics in the Modern Sectors show steep falloff in Pharma activity.
• Lastly, Traditional Sectors activity returned to contraction in December, falling to 86.9 (-1.3% y/y and -1.25% m/m). The index is now 15.35% below where it was in December 2007. 3mo average through December 2012 is 1.73% down on previous 3mo period and is 1.37% down on same 3mo average in 2011. Worse than that, after posting a surprise uplift in November, the index is now running only slightly ahead of 6mo MA of 85.5 and 12mo MA of 85.13.
• So on the net, good news is that outside Traditional Sectors time series in volume activity are trending up in last two-three months. Bad news is - we are still off the levels of activity consistent with 2011 and are way off from regaining any sensible growth on 2007.

Chart to illustrate:

On Turnover Indices side:

• Manufacturing Sectors turnover fell from 101.1 in November 2012 to 97.0 in December 2012, down 3.10% m/m and down 10.76% y/y, both steep declines. Compared to the same period of 2007 the index is now down 9.5%. 3mo average through December 2012 is down 4.35% on 3mo average through September 2012 and is down 6.36% y/y.
• This index is pretty volatile m/m but overall, 6mo MA is at 98.93 and 12mo MA at 98.33 - both ahead of December monthly reading.

New Orders sub-index for all sectors is trending flat over the recent months (as per chart above) reaching 96.9 in December 2012, down from 100.1 in November 2012, so the index is down 3.2% m/m and it is down even more significant 10.9% y/y. Compared to December 2007 the index is down 11.6%. On 3mo dynamics the index is down 5.04% period on period and 6.7% y/y.

I will blog separately on dynamics in the phrama sector next.

19/12/2012: Irish National Accounts Q3 2012 - part 2

As promised in my first post on Q3 2012 National Accounts, here are the details of the main components of Irish GDP and GNP with more short-term trends focus (first post focused on cumulated changes for the 9 months from January through September 2012).

Unfortunately, these short-term series are less impressive than cumulated series. Here's why.

First, consider GDP and GNP decomposition by sector of activity, expressed in constant market prices terms:

• Agriculture, Fishing & Forestry (AFF) subsector posted €564 million worth of activity in Q3 2012, down €477.o million (-45.8%) on Q2 2012 and down €123 million (-17.9%) y/y. This marks the second consecutive quarter of y/y declines, which technically means that the sector is in a recession. AFF sector overall share of GDP is now 1.41%, so it is a minute contributor to the GDP dynamics.
• Industry activity printed at €8,868 million in Q3 2012, down €1,659 million (-15.8%) q/q and down 4.0% y/y. Only about 1/4 of the overall decline in Industry activity came from Building & Construction sub-sector which posted another fall-off in Q3 compared to Q2 (down €17 million or -3.7% q/q and down 9.9% y/y). Overall Industry share of GDP is now at 22.15% so any movement in the sector activity is significant for headline GDP and GNP.
• Distribution, Transport and Communications (DTC) sector expanded to €8,940 million in Q3 2012 (up €1,071 million or +13.6% q/q and up 1.8% y/y). The sector now accounts for 22.33% of GDP.
• Public Administration and Defence (PAD) sector showed €37 million (+2.1%) q/q expansion in Q3 2012, printing at €1,823 million. Y/y the sector is down 4.1% (just €78 million in net reductions). The sector now accounts for 4.55% of our GDP.
• Other Services - a sector accounting for 37.4% of our GDP - increased activity by €239.0 mln (+1.6%) q/q and are up 0.3% or €47 million y/y. 
• Compared to Q3 2007: Agriculture, Forestry and Fishing sector activity is down 27.4% (-€213mln); Industry activity is down 12.8% (-€1,298mln), of which Building & Construction is down 63.1% (-€765mln); Distribution, Transport and Communications sector is up 25.8% (+€1,832mln); Public Administration and Defence is down 14.9% (-€318mln); Other Services are down €980mln or -6.1%.

The above chart shows GDP and GNP prints, which posted the following dynamics in Constant Prices terms:

• GDP at constant factor cost (ex net taxes) was down to €36,043 million in Q3 2012 (-€865mln and -2.3% q/q). Y/y GDP at constant factor cost is up €272 million (+0.8%)
• Taxes net of subsidies rose to €3,998 million (+€353mln and +9.7% q/q) and are up €48mln (+1.2%) y/y.
• Thus, GDP at constant market prices was down to €40,041 million in Q3 2012 (down €512mln or -1.3% q/q) and up €320mln (+0.8%) y/y. Compared to 2007 levels, GDP is down 3.3% (_€1,3540mln).
• Net factor income from abroad contracted by €154mln in Q3 2012 (-2.1% q/q) compared to Q2 2012 to -€7,069mln. Year on year outflows are down €859 million or -10.8%. However, net outflows abroad are still up 17.2% (€1,038mln) on 2007. Currently, net transfer from Ireland abroad amount to 17.65% of our GDP.
• With reduced outflows to the rest of the world (primarily driven by falling transfer pricing by multinationals), our GNP in constant market prices still contracted by €358 million (-1.1%) q/q. In Q2 2012 it grew by €2,075mln (+6.6%) q/q. The robust growth in Q2 was partially offset by the decline in Q3. Year-on-year our Q3 2012 GNP is still up +€1,178mln (+3.7%). However, compared to 2007, Q3 2012 GNP is down €2,237mln (-6.4%).

As the result of the above, Irish GDP/GNP gap decreased slightly from 17.81% in Q2 2012 to 17.65% in Q3 2012.

Here are the components of the above expressed as indices, with Q1 2005 set at 100:

On seasonally-adjusted basis, expressed in Constant Market Prices terms:

• Personal Consumption of goods and services rose €160mln (+0.8%) q/q and is up €367mln (+1.8%) y/y. However, this is not the first time that personal consumption increased since the beginning of the crisis. For example, it rose €335mln in Q1 2010-Q3 2010 and by €420mln in Q3 2011-Q4 2011. 
• In real, seasonally-adjusted terms, our personal consumption of goods and services is now at the levels between Q4 2005 and Q1 2006. However, some of this 'support' for consumption is coming from significant price increases in state-controlled sectors, which are not linearly reflected in GDP deflators (price adjustments).
• Net expenditure by central and local government decline €4 million to €6,204 million in Q3 2012 compared to Q2 2012 (-0.1% q/q) and is now down €172 million y/y (-2.7% y/y).
• While Personal Consumption fell €3,013 million (-12.8%) in 2007-2012 Q3 on Q3, Government spending declined €1,132 million (15.4%) over the same period of time. At annualized rates, this means a decline of personal consumption contribution to GDP of some €12 billion per annum and a decline of Government spending contribution to GDP of some €4.5 billion per annum.
• Irish Government expenditure in real terms is running at the levels comparable with Q1-Q2 2006, or a quarter ahead of where personal consumption rests. However, any biases induced to personal consumption upside from state-controlled price increases also act to generate superficially lower government spending reported here (as this is Net expenditure by the government, excluding taxes and receipts). In other words, the true difference between Government and private spending is most likely much wider than one quarter.
• Gross domestic fixed capital formation improved in Q3 2012 compared to Q2 2012, rising to €3,962mln (+€315mln or €8.6% q/q), which resulted in an annual increase of €323mln (+8.9%) y/y. Still capital formation is down €7,432 million (-65.2%) on Q3 2007.
• Our fixed capital formation is now running at just 40% of Q1 2005 levels.
• Exports of goods and services rose 1.3% (+€567mln) in Q3 2012 compared to Q2 2012 (increase of €2,788mln or +6.7% y/y). Imports are up €1,005mln (+3.0%) q/q and are up €1,742 mln (+5.3%) y/y. Compared to Q3 2007, exports are now up 17.3% (+€6,598mln) and imports are down 1.2% (-€404mln).
• Irish exports now account for 108.01% of our GDP and our imports are at 83.38% of GDP.

In seasonally-adjusted terms:

• Irish GDP rose €310mln (+0.8%) q/q and €1,464mln (+3.7%) y/y, but GDP remains deeply below Q3 2007 levels (-€4,632mln or -10.1%).
• Irish GNP shrunk €245mln (-0.7%) q/q and is up €1,909mln (+6.0%) y/y. GNP remains deeply below Q3 2007 levels (-€6,357mln or -15.8%).

18/12/2012: QNA Q3 2012: Q1-Q3 cumulated results

Some positive news today on a major front with the release of Q3 2012 preliminary QNA estimates. Headlines are good, predominantly. Here is a post covering cumulated Q1-Q3 data for 2007-2012. More detailed analysis of dynamics in QNA components later tonight.

In Q1-Q3 (9 months) cumulated period:

• Irish GDP in Constant Market Prices rose from €119.261 billion in 2011 to €120.246 billion, implying y/y growth rate of 0.826%.
• Irish GNP also increased, from €94,721 million in 2011 to €97,557 million in 2012 yielding a y/y growth rate of 2.99%.
• In nominal terms (current market prices), Irish GDP was up from €119.123 billion to €123.299 billion (+3.506% y/y), while Irish GNP increased from €94.493 billion to €99.645 billion (+5.452% y/y).

Two charts to illustrate the above:

Here's for those who feel relaxing at today's reading:

• Compared to peak, Irish GDP in constant prices terms is still 5.37% below the level attained for Q1-Q3 2007, while in current terms it is 12.15% down on the peak.
• Compared to peak, Irish GNP in constant prices terms is down 7.96% and in current market prices terms it is down a massive 17.04%.

Domestic demand has continued deterioration over the first 9 months of 2012, so domestic economy is still contracting overall:

• Final Domestic Demand in constant prices terms fell in the nine months from January 2012 from €90.515 billion in 2011 to €88.987 billion (-1.69% y/y).
• Final Domestic Demand in current prices terms also fell in the nine months from January 2012 from €91.188 billion in 2011 to €90.991 billion (-0.21% y/y).
• Final Domestic Demand in constant terms is currently down 22.02% on 2007 (Q1-Q3) cumulative levels and is down 27.83% in current prices terms.

More on sub-series dynamics later tonight.

7/11/2012: A patent cliff or a temporary slide?

In the previous post, looking at the top-line figures for Industrial Production for Ireland, I have promised to look more closely at the dynamics underlying the largest singular exports (goods) driver - the Pharma sector - Basic Pharmaceutical Products and Preparations (BPP&P) sector. Here are some numbers and trends.

An excellent analysis of this is also available from Chris Van Egeraat of NUI Maynooth (link here).

Let's start from the top. Throughout, I use the current figures for September that are subject to potential future revisions.

Production volumes:

• Index of production volume in Basic Pharmaceutical Products and Preparations sub-sector fell from 165 in August to 107 in September - a decline of 35.15% m/m and down 31.76% y/y.
• Compared to 2010, the index is now down 29.47%, compared to the peak value for January 2010-present period the index is down 42.41%.
• Back in September 2011, the index rose 3.36% y/y, so the swing in growth rates is extremely sizable.
• The declines are much shallower if we look at 3mo MA readings which a more likely to be reflective of the longer trends: for the latest 3 months through September 2012, the index average is down 9.27% compared to the 3 months period through June 2012. The index is also down7.02% compared to 3 months period through September 2011 and 5.93% down on its reading for the period through September 2010. Back in 2011, 3 months average through September rose 0.57% y/y. 

Turnover:

• Turnover index fell from 136.4 in August to 105 in September 2012 a decline of 23.02% m/m and 27.44% drop y/y.
• Compared to September 2010, the index is now down 29.72% and compared to the all-time peak activity for January 2010-present period, the index is down 40.10%.
• Back in September 2011 the index posted a decline of 3.15% y/y.
• Again, looking at 3mo averages through September 2012 there was a rise in the index of 2.0% compared to 3mo average through June 2012, but a decline of 8.82% on 3mo average through September 2011. Compared to 3mo average through September 2010, current index reading 3mo average is down 11.85%. This contrasts with index 3 mo average through September 2011 declining just 0.9% y/y.

Chart:

There is clearly a steep drop off in both series. And this falloff has a significant impact on our exports and overall industrial sectors activity. 

However, the series are volatile. For example, for January 2010-present, standard deviation in the turnover index for BPP&P sector is 11.82, against standard deviation for manufacturing sector at 3.41. In terms of volume of activity, index standard deviations are 12.61 and 4.42 for BPP&P sector and manufacturing, respectively.

Nonetheless, the drops in September amounted to 4.6 STDEV in Volume and 2.66 STDEV in Value - both are sizable.

A comparable drop in Volume in November 2011 came in at:

1. Shallower m/m change of 25%;
2. Was on foot of historical high (August 2012 was the third highest reading in Volume terms) and
3. Coincided with a monthly rise, not fall, in the Turnover index activity.

Thus, one has to be cautious when attributing the index moves in September 2012 to either volatility or the specific long-term trend change, such as a patent cliff (again, the note linked above from Chris Van Egeraat is spot on in this point).

However, one must be cognizant of the signifiant positive links between activity in the BPP&P sector and overall Manufacturing activity. Chart below illustrates the strength of that relationship:

One has to be also significantly concerned with the fact that we have coincident drops in Turnover and Volume, so the price effects seem to be going the same direction as the volume of activity. In general, there is virtually no meaningful relationship between sector volume and turnover. Strengthening of the link between turnover and volume can be reflective of a structural slide in the overall activity.

As usual, caution is warranted in interpreting the immediate and provisional figures. However, 'slips' like this do matter - both in terms of their immediate impact on GDP and (less so) GNP, and in the light of what we do anticipate - the reduction in overall sector activity in the near future due to patent cliff.

6/11/2012: Irish Industrial Production & Turnover: September 2012

There has been a massive, extremely disturbing, albeit alltogether not un-predictable fall off in manufacturing activity in Ireland over September 2012. Here's the CSO statement:

"Production for Manufacturing Industries for September 2012 was 13.9% lower than in August 2012. On an annual basis production for September 2012 decreased by 13.7% when compared with September 2011.

The seasonally adjusted volume of industrial production for Manufacturing Industries for the quarter period July 2012 to September 2012 was 4.5% lower than in the preceding quarter.

The “Modern” Sector, comprising a number of high-technology and chemical sectors, showed a monthly decrease in production for September 2012 of 22.4%. The most significant change was in Basic pharmaceutical products and preparations with a decrease of 35.2%.

There was a decrease of 1.3% in the “Traditional” Sector.

The seasonally adjusted industrial turnover index for Manufacturing Industries decreased by 5.7% in September 2012 when compared with August 2012. On an annual basis turnover decreased by 4.5% when compared with September 2011."

More on underlying dynamics:

• Volume of Manufacturing output shrunk 13.73% y/y and 13.88% m/m. Compared to September 2007, index reading is down 13.89%. Q3 2012 reading is down 4.8% q/q and down 2.82% y/y.
• Manufacturing activity (in volume terms) now stands at the levels last seen back in December 2009 and is down 2.6% in 2005 levels.
• 6mo MA through September 2012 is at 110.78, virtually indistinguishable from 12mo MA of 110.98.
• Volume index for All Industries is now at 96.8 - the level last seen between November and December 2009. The index is down 12.71% y/y and 12.64% m/m. Q3 2012 reading is down 4.52% q/q and down 3.10% y/y.
• 6mo MA is now slightly below 12mo MA (108.75 v 109.10).
• The index is at 3.2% below 2005 levels of activity.

• Modern Sectors volume of activity index has fallen to 105.0 in September, down 18.03% y/y and 22.45% m/m. Activity has fallen to the lowest level since November-December 2009 and compared to September 2007 the index reading is down 8.96%. 
• Q3 2012 index is down 5.96% q/q and down 1.60% y/y.
• 6mo MA (127.07) is identical to 12mo MA.
• Traditional sectors fall-off was less steep, but the index of volume of production here suffered second consecutive monthly decline. The index is down 5.01% y/y and down 1.30% m/m to reach 83.5 reading, lowest since January 2012. 
• Traditional sectors volume of production is down 22.53% on September 2007 and down 16.5% on 2005 levels of activity.
• Q3 2012 reading is 1.33% below Q2 reading and down 6.15% y/y.
• 6mo MA (84.93) is below 12mo MA (85.4).

As the result of the above changes, the gap between Modern sectors activity (volume) and Traditional sectors activity has narrowed dramatically to 21.5 ppt in September against 50.8 ppt in August.

Turnover data signaled narrower reductions in activity, suggesting that some MNCs have accelerated transfer pricing in light of higher producer price inflation (as signaled by recent PMIs):

• Manufacturing turnover activity fell to 97 in September, down 4.53% y/y and down 5.73% m/m. 
• Compared to the same period of 2007, turnover is now down 10.08%.
• Q3 2012 reading is up 3.70% q/q and up 0.36% y/y - once again due to improved price inflation.

New orders index reading slipped to 97 in September, down 3.96% y/y and down 6.55% m/m. Compared to same period 2007, the new orders activity is down 11.31%. Q3 2012 new orders average activity was up 3.59% q/q and up 1.44% y/y. 6mo MA, nonetheless is almost flat at 99.35 compared to 100.00 for 12mo MA.

Employment indices have slipped across a broad range of sectors in Q1 2012 - the latest for which data is reported. Modern sector employment fell to 63,500 in Q1 2012 against 67,100 in Q4 2011. Chemicals and pharma sector employment actually rose to 43,800 in Q1 2012 against 43,300 in Q4 2011, while Computers, electronic and optical products and equipment employment fell from 23,800 in Q4 2011 to 19,700 in Q1 2012. Overall industrial employment in Ireland fell from 201,200 in Q4 2011 to 192,700 in Q1 2012.

Volumes of industrial production in Basic pharmaceutical products and preparations fell 31.8% in September 2012 y/y and were down 35.2% m/m. In turnover terms, activity was down 23.1% m/m and down 27.5% y/y.

I will blog on this in more detail later tonight, so stay tuned.

6/10/2012: Irish Industrial Production - August 2012

Per CSO:

• Production for Manufacturing Industries for August 2012 was 0.7% lower than in July 2012. On an annual basis production for August 2012 increased by 0.2% when compared with August 2011.
• The seasonally adjusted volume of industrial production for Manufacturing Industries for the three month period June 2012 to August 2012 was 1.8% higher than in the preceding three month period.
• The “Modern” Sector, comprising a number of high-technology and chemical sectors, showed a monthly increase in production for August 2012 of 5.1% and there was a decrease of 0.9% in the “Traditional” Sector.
• The seasonally adjusted industrial turnover index for Manufacturing Industries decreased by 0.1% in August 2012 when compared with July 2012. On an annual basis turnover increased by 0.2% when compared with August 2011.

Here are some more detailed stats and dynamics:

• Volume of total Manufacturing output was down 3.43% in August compared to same month in 2007 (pre-crisis). 3mo average through August 2012 was up 1.78% on 3mo average through May 2012 and 3.75% ahead of the 3mo average through August 2011.
• August reading for Manufacturing marks the first m/m decline since February 2012.
• Volume of production in All Industries in August 2012 was down 4.68% on same period in 2007. 3mo average through August is 1.75% ahead of 3mo average through May and is 2.72% ahead of 3mo average through August 2011.
• Both Manufacturing and All Industries indicate improved 3mo averages as consistent with modest improvement in output dynamics.
• Volume of activity in Modern Sectors posted the highest reading since October 2011 and the second highest reading since the beginning of comparable series (January 2006). 3mo average through August 2012 is now 1.26% ahead of the 3mo average reading through May 2012 and is 6.59% ahead of the 3mo average through August 2011. Very strong performance in the sector.
• In Traditional Sectors, however, volume of activity fell 14.17% y/y and is now down 20.05% on August 2007 level of activity. 3mo average through August 2012 is down 1.78% on 3mo average through May and is down 4.34% on 3mo average through August 2011.

Chart to illustrate:

• As the result of the above trends, the gap between indices measuring the Volume of production in Modern and Traditional sectors has now widened to 51.5 - the highest reading since the all time record of 56.6 in October 2011.

It is worth noting that Traditional manufacturing sectors are usually associated with higher labour intensity than Modern sectors, implying the disconnection between improvements in overall Manufacturing index (volume) activity and the likelihood of jobs creation acceleration.

Turnover indices:

• Manufacturing sector turnover dipped marginally in August (-0.1% m/m) but is ahead, also marginally, on the annual basis (+0.19%). The index is down 6.9% on August 2007. 3mo average through August 2012 is 5.28% ahead of the 3mo average through May 2012 and is 3.29% ahead of the 3mo average through August 2011.

Lastly, New Orders index:

• New Orders index hit the highest reading in 2012 in August, up 3.4% y/y and 1.16% m/m, although the activity is still down 6.8% on August 2007. 3mo average through August 2012 is 5.5% ahead of 3mo average through May 2012 and 3.9% ahead of the 3mo average through August 2011.

The overall activity in the industrial production is clearly stabilizing at the recovery levels, but as noted above this is solely driven by the activity in Modern sectors.

20/9/2012: 'Flat growth' and the shrinking Irish economy

Ok, folks... the latest batch of news from CSO and the official 'Green Jerseys' reaction to same would have made a fine candiate for a Nobel literature prize, were they published in a single tome with a heading Literature of Absurd on it...

We have our routine 'Housing market has bottomed out' shrills from the property pushers in the media - despite the fact that property prices continue to fall. We also have the metronome-like 'Unemployment has stabilized' tale, a chapter of gargantuan efforts to avoid mentioning the fact that fewer and fewer people actually work in Ireland, earning living and paying taxes.

Today we have a new pearl: 'Irish economy is growing once again, albeit slowly'.

Complete porkies, if you ask me. Here's the plain and simple reality of what's going on:

In constant market prices terms, Irish GDP based on constant factor cost (in other words, the real activity in the economy carried out by MNCs and domestic enterprises, net of taxes, gross of subsidies) grew 2.3% (+€819 mln) q/q in Q2 2012. Alas, as usual, q/q growth is... err... mostly meaningless. Instead, y/y comparative shows this metric shrinking €300mln (-0.8%).

What's the dynamic here? Oh, not good, either. In Q2 2011, y/y real GDP (constant factor basis) grew 3.21% y/y. In this quarter it shrunk 0.8% y/y... a negative growth swing of 4 percentage points!

Now, adding taxes (net of subsidies) to the above figure produces official real GDP (GDP expressed in constant prices terms). This stood at €40.327 billion in Q2 2012 up €744 mln on Q1 2012 (+1.9% q/q) but down 1.1% (-€442mln) y/y. Now, wait, folks... so official GDP is down y/y. Not up.

What's the dynamics of this change? Oh, well, in Q2 2011 official real GDP was up 2.86% on same period in 2010, so Irish economic growth has overall deteriorated in Q2 2012 compared to same period a year ago by a whooping 3.9 percentage points.

Next step is for us to subtract from our real GDP outflows of payments abroad (net of inflows of income from abroad) - the so-called Net Factor Income From the Rest of the World adjustment. Bear with me here. It is important.

In Q2 2012 we, as economy, have managed to send out €7.219 billion in factor payments abroad, net of what we received from abroad. Sounds a lot? Not really - this is down on €8.397bn in Q1 2012 (which added €1,178mln to our GNP) and it is down €1,385 mln on Q2 2011 (which adds same amount to our GNP compared to Q2 2011 levels).

What the above means? Here's the punchline to reality: as the result of €744mln increase in our GDP and a €1,178mln decrease in our payments abroad, our GNP officially expanded by €1.922bn in Q2 2012 q/q. Meanwhile, due to a contraction in real GDP of €442mln offset by reduction in outflows of income abroad of €1,385mln, our GNP rose €943mln (+2.9%) y/y in Q2 2012.

Thus, real economic activity in Ireland fell, y/y in Q2 2012, but because the MNCs have decided to expatriate less income out of Ireland in Q2 2012, our GNP actually rose.

Why would MNCs decide not to expatriate much of profits? For a number of reasons:

1. Lack of capital investment around the world means corporates have no incentive to move profits out of Ireland outside the immediate objective of boosting reported profits at home;
2. Booming equity markets in the US mean that there is no immediate pressure for US MNCs operating here to ship retained profits out of Ireland's tax heaven;
3. Fall-off in pharma exports from Ireland also took a bite out of the retained profits here.

Any of these have any tangible effect on our real economy? Not really. Actually - none whatsoever. 

In real economic terms, Irish economy shrunk in Q2 2012 by 1.1% (real GDP terms) y/y and that is it, folks. 

One more note. In seasonally adjusted, constant prices terms:

• Personal Consumption of Goods & Services has hit absolute record low in Q2 2012 of €19,598mln for any quarter since Q1 2007.
• Net Expenditure by Central and Local Government on Current Goods and Services has hit an absolute low of €5,934mln in Q2 2012 for the entire period since Q1 2007.
• Gross Domestic Fixed Capital Formation has hit a record low of €3,427mln
• Exports of Goods and Services have posted a contraction on Q1 2012 but are up €1 billion on Q2 2011
• Imports of Goods and Services have posted a q/q contraction of €1.7bn and are now at a historical low for any Q2 period of 2007-present period
• Total domestic demand is now at the absolute lowest point for any quarter since Q1 2007 and is down €1.6bn on Q1 2012 and €1.9 billion on Q2 2011.

This is not flat growth, folks. This is shrinking real economy.

Note: I will post updated charts later tonight. Stay tuned.

27/8/2012: Second worst in GDP growth in Q1 2012?

When on July 12 the CSO published the latest Quarterly National Accounts, the Irish media and the Government were quick to focus on the positive side of the reported data - the revised figures for Q4 2011 that Irish GDP rose 1.4% in constant prices terms y/y in 2011 compared to 2010. Fr less attention was paid to a massive 2.5% y/y fall off in GNP and even less attention still was given to Q1 2012 preliminary estimates that showed q/q contractions in GDP of 1.1% and in GNP of 1.3%. All in, the headline figure referenced was almost always the up-beat "Irish economy grew at a euro area average rate in 2011".

Now, there are many caveats that should accompany q/q figures, including:

• Q/q changes can be volatile;
• Preliminary figures can be subject to significant revisions in the future; etc

Keeping all of this in mind, today's data release from the OECD is discomforting. Here's the chart:

As the chart above clearly shows, excluding Greece (missing data), we are the second worst performer (after Luxembourg) in terms of GDP growth in Q1 2012 in the entire OECD.

Let's hope those future revisions come in to the significant upside.

2/8/2012: One hell of a chart!

One hell of an awesome chart, folks:

Clearly shows the strong, sustained break-out in Irish manufacturing PMI which started around April 2012, ending the period of sub-50 average readings between June 2011 and March 2012. And this amidst a massive slowdown in global trade and euro area economies.

28/6/2012: Retail Sales for May 2012

The retail sales figures for May are out and are, as expected, not pretty.

The volume of retail sales (i.e. ex-price effects) decreased by 0.1% in May 2012 m/m and there was an annual decrease of 2.1%. The value of retail sales decreased by 0.4% in May 2012 when compared with April 2012 and there was an annual change of –1.5%. 

Relative to annual peak, sales are now down to 72.9% in value terms and 77.9% in volume terms. Relative to monthly peak, they are down 25.6% in value and 19.8% in volume.

We have now gone two consecutive months of m/m declines in value and volume and five consecutive months of y/y declines. Both 3mo and 6mo MA for value and volume indices are ahead of May reading. For value index, 2012 average to-date is 87.28, which is below 2010 average of 88.83 and 2011 average of 88.15. For volume, current 2012 average to-date is 91.02, which is worse than 2011 average of 92.69 and 2010 average of 93.51.

Quarterly movements are shown below:

On core retail sales side (ex-motors), the volume of retail sales increased by 0.8% in May 2012 when compared with April 2012, while there was also an annual increase of 0.8%. There was a monthly increase of 0.7% in the value of retail sales and an annual increase of 1.5%. Value increase is less significant than volume increase, so we are still witnessing margins pressures. Survival of the fittest in the sector is not yet completed.

May marked the first month of core retail sales increase in annual terms since December 2011 in value and volume. Currently, value index is running at 81.11% of the annual peak and volume index is at 84.79% of the series annual peak. However, in value terms the 2012 average to-date (95.7) is slightly ahead of 2011 average of 95.6 and is below 2010 average of 97.6. In volume terms, 2012 average to-date is 98.8, which is lower than 2011 average of 99.8 and 2010 average of 102.7.

Per CSO: The sectors with the largest month on month volume decreases are Bars (-4.2%), Books, Newspapers and Stationery (-2.8%), Electrical Goods (-2.5%) and Motor Trade (-1.9%). A monthly increase was seen in Food, Beverages & Tobacco (6.5%), Hardware, Paints & Glass (6.3%) and Pharmaceuticals Medical & Cosmetic Articles (3.8%). Pills, booze, smokes... hopefully not paint for inhalation purposes.

International comparatives through April are shown above. Not a pretty sights across the board.

7/6/2012: Sunday Times June 3, 2012

This is an unedited version of my Sunday Times article from June 3, 2012.

In early 2008, Brian Cowen described Ireland’s predicament with a catchy phrase ‘We are where we are’. Ever since this became synonymous with gross incompetence, epic failure and outright venality of our elites.

Fast forward to May 2012. In the heat of the EU Referendum campaigns, both Government parties have paraded their up-beat assessments of the economy, their own stewardship and achievements. The factual record of the current Government on economic policies is only slightly ahead of that attained by their predecessors.

Don’t’ take my words for this. Look at just where exactly ‘we’ – Ireland – ‘are’ in the crisis after a year of stewardship by the Coalition.

We are officially in a recession. Both GDP and GNP have shrunk in the last half of 2011 and all indications are, growth is unlikely to have returned in Q1 2012 either. Should Ireland post another quarter of negative growth, we will join the club of Italy, Cyprus, the Netherlands and Portugal. This select group of the euro area countries have managed to record GDP declines in three consecutive quarters since the end of June 2011. For Ireland, this abysmal economic performance comes on foot of the overall 17.6% decline in GDP and 24.2% drop in GNP since 2007 peak through the end of 2011. This didn’t stop this Government from declaring, as its predecessors did, various ‘turnarounds’ and ‘improvements’ in the economy, as a part of their credit, even though so far, the actual record of this Government on growth is negative. Since the Coalition came into power, GDP grew just 0.7% and GNP shrunk 4.1%, investment is down 12.8%, personal consumption fell 1.6%, while expatriation of profits by the MNCs operating here rose 24.6%.

Despite accelerating emigration and ever-rising numbers of unemployed being reclassified as engaged in state-sponsored training programmes, the latest unemployment remains stuck at 14.3% exactly identical to that recorded a year ago. In May 2011, there were 444,400 people on the Live Register and 71,231 in various state training schemes, this month these numbers were 436,700 and 82,331, respectively. Year on year, numbers at risk of underemployment rose 3,131. The Government has claimed that it has helped creating some tens of thousands new jobs, ranging from MNCs-supported ‘smart economy’ workers to hospitality sector. In reality, once training programmes are added, the numbers of those drawing unemployment supports rose 3,400 over the tenure of this Coalition.

Not surprisingly, consumer demand – accounting for 52% of our overall economic activity (in comparison, net external trade in goods and services accounts for less than one half of that figure) – is shrinking. Hammered by the push toward debts deleveraging, higher taxes, losses of income due to shrinking earnings and strong inflation in state-controlled sectors, Irish consumers are running away from the shops. Retail sales, ex-motors, have fallen 2.3% year on year in April 2012 in value terms and 3.8% in volume. This marks the fourth consecutive month of dual declines in volumes and value and the steepest rates of declines since October 2011 for value series and since May 2011 for volume. Things used to be getting worse at a slower rate in retail services sector. Now they are getting worse at a faster rate.

Banks reforms are truly not paying off for the Government. The latest banks lending survey for April 2012 shows that Irish banks have uniformly tightened, not relaxed, lending to enterprises in Q1 2012, compared to no change in lending standards recorded in Q4 2011. Things have not improved in consumer lending either, with mortgages lending running at just 5% of the levels seen during the peak. Meanwhile, costs remained the same in Q1 2012 as in Q4 2011 across all sources of funding. Following the estimates of foreign analysts, mirroring this column’s earlier prediction, the Central Bank now quietly admits that more funds will be required to offset rising mortgages arrears. More capital will be called on to bring Irish banks balancesheets to Basel III standards in years to come.

We are nowhere near the end of the crisis relating to housing markets. In Q1 2012 the overall level of mortgages at risk of default or already in default has reached 15.3% of the overall outstanding mortgages, 19.3% of all mortgages balances. This compares to 11.1% for levels and 13.6% for balances a year ago.

The game of extend-and-pretend drags on, as the Government publicly makes bombastic pronouncements about ‘stabilization’ and ‘reforms’ achieved in the sector, while reluctantly admitting that mortgages books are in a mess. The strategic response to this is the Government’s hope that the EU will be forced to mutualize banks debts, shifting them off the books of the state.

Housing markets continue to contract and commercial real estate values are still declining. The latest Residential Property Price Index for April shows that overall national property prices are already 50% down on the peak. Two consecutive monthly rises in Apartments and Dublin sub-markets can be interpreted as either a nascent stabilization, or one of the already numerous ‘false starts’ soon to be followed by renewed prices contractions. Take your pick, but either way we are way off any real recovery here.

Since about mid-2011, the Government has been committing a twin fallacy of referencing our bond yields moderation as a sign of ‘improved confidence’ in its policies. In reality, after massive LTROs that saw billions of euros pumped by the Irish banks into Government bonds, Irish yields are now back at the levels seen in January 2012. Over the last 18 months, the Troika programme has seen billions of Irish bonds taken off the market. This, alongside with the lack of new issuance, has meant that our bonds yields no longer provide a signal as to the expected cost of Irish Government borrowing. Since April 2011, the volumes of Irish Government bonds held by foreign investors have fallen by some 20% - the third steepest rate of decline in Europe after Greece and Portugal. The rate of foreign investors’ exiting Irish Government bond holdings has accelerated once again in the last 2 months. Year on year, Irish Credit Default Swaps spread over Germany is up almost 8% and this week our CDS reached 720bps.

The fact is, even by the above metrics, the current relative stability of our fiscal, financial and economic conditions is being supported by exceedingly optimistic assessments of our future growth and fiscal potential. Currently, Ireland runs the highest level of Government deficits in the euro area. Even if we stick to the EU-IMF adjustment programme, based on Department of Finance projections, in 2015 Ireland’s structural deficit will be the second highest amongst the old euro area member states. And to get to this unenviable position, we will need to carry out some €8.6 billion worth of new cuts between Budget 2013 and Budget 2015, taking more than €9,500 in additional funds out of working families’ budgets.

We are where we are – in a worse place than we were a year ago. Given the rates of economic destruction experienced since the onset of the crisis in 2008, this is doubly damaging to the claimed Government credit of reforms. Economics of the crises tell us that, on average, the harder the fall, the faster is the rise in the recovery. Ireland seems to be bucking this historical trend with our L-shaped recession to-date.

CHARTS:

26/3/2012: QNA Q4 2011 - Part 4

In the first post on QNA results for 2011 I covered data for annual GDP and GNP in constant prices terms. The second post focused on GDP/GNP gap and the cost of the ongoing Great Recession on the potential GDP and GNP. The third post focused on quarterly sectoral decomposition of GDP and GNP in constant prices terms. And a short digression from QNA results here showed how difficult it is, really, to reach any consensus on some of Ireland's economic performance parameters.

In this post, let's consider the decomposition of the GDP and GNP on the basis of expenditure lines, as measured in current market prices.

Headline numbers:

• In Q4 2011 personal consumption of goods and services rose 0.9% qoq to €20,319mln, but declined 0.8% yoy. Compared with the same period of 2007 personal consumption is now dow 15.3%. YOY -0.8% contraction in Q4 2011 followed on 2.96% contraction in Q3 2011. In Q4 2011 personal consumption accounted for 52.45% of quarterly GDP, this is actually higher than the share of GDPit took in Q4 2007 (49.89%) - so much for 'unsustainable consumption binge' back at the peak of the Celtic Tiger period.
• Q4 2011 net expenditure by central and local government stood at €5,991mln which was 5.1% down qoq and down 8.1% yoy. This follows on 2.32% contraction in yoy terms in Q3 2011. Relative to Q4 2007 net expenditure by central and local government now stands at -17.1%. However, the share of net government expenditure in overall GDP rose from 15.04% in Q4 2007 to 15.46% in Q4 2011.
• Gross domestic capital formation at Q4 2011 stood at €3,923mln which was up 12.7% qoq, but down 1.9% yoy and the annual decline in Q4 2011 came in after an 18.3% contraction in Q3 2011. Fixed capital formation was down 66.8% in Q4 2011 compared to Q4 2007. In Q4 2007 gross fixed capital formation accounted for 24.56% of GDP, while inQ4 2011 this share fell to 10.13%.

Chart below illustrates the above changes

• Exports of goods and services hit another historic record at €41,766mln in Q4 2011 - a rise of 0.4% qoq and 6.2% yoy. In Q3 2011 exports rose 1.7% yoy. Q4 2011 exports were 8.3% ahead of Q4 2007 and if in 2007 exports accounted for 80.24% of our GDP, in Q4 2011 this share was 107.8% of quarterly GDP. This is a remarkable performance.
• Imports rose 0.4% in qoq terms to €332,904mln in Q4 2011. Q4 2011 imports are up also 0.4% yoy and this follows on a 0.35% contraction in Q3 2011. Relative to Q4 2007 imports are down 5.2%. Back in Q4 2007 imports stood at the level of 72.23% of quarterly GDP. In Q4 2011 this share was 84.93%.
• Net trade surplus hit a record of €8,862mln - third consecutive quarterly record and third consecutive quarter with trade surpluses in excess of €8 billion. Trade surplus was up 0.3% qoq and 34.8% up yoy inQ4 2011, which comes on foot of a 10.60% yoy increase inQ3 2011. Stellar performance. In Q4 2011 trade surplus was 22.88% of GDP and this is up from 8.01% of Q4 2007 GDP. Compared to Q4 2007 trade surplus in Q4 2011 rose massive 130.2%.
• Once again, trade figures confirm the simple reality that exports-led growth is not capable of sustaining economic recovery. Average quarterly trade surplus in 2007 stood at €4,295mln and 2005-2007 average quarterly trade surplus was €4,467mln. In 2009 average quarterly trade surplus rose to €6,234mln, followed by €7,467mln in 2010 and €8,408mln in 2011. In other words, Ireland experienced a massive exports boom for the last 3 years in a row, and yet we are continuing to remain in a recession.

• GDP at current market prices stood at €38,743 in Q4 2011 which is 0.9 below Q3 2011, marking the second consecutive qoq decline, which is consistent with Ireland officially entering a new recession. 
• GDP actually rose in yoy terms by 3.4% inQ4 2011 which comes on foot of a 0.79% contraction in Q3 2011. relative to Q4 2007, GDP in current market prices is now down 19.4%.
• Net factor income from the rest of the world rose 10.8% qoq to -€9,017mln, which marks the first quarter since Q1 2010 when outflows of payments abroad exceeded trade surplus. This attests to the extreme levels of transfer pricing deployed by the MNCs in the Irish economy. Net factor income losses in Irish economy in Q4 2011 were up65.3% year on year, following a 19.5% rise in yoy terms in Q3 2011. Transfer payments abroad rose 28.3 on Q4 2007. Overall, an equivalent of some 23.27% of Irish GDP was paid out in factor payments to foreigners in Q4 2011 which is up from 14.62% in Q4 2007.
• As the result, GNP fell to €30,051mln in Q4 2011 down 2.8% qoq marking the fifth consecutive quarter of qoq declines. Yoy, GNP in current market prices was down a massive 5.4% in Q4 2011 which comes on foot of an equally large 5.16% contraction in Q3 2011. These figures reflect deep recession continuing to ravage the Irish economy. It is incorrect to attribute the entire GNP to solely domestic activity as it includes net exports (trade balance) activity that is not expatriated abroad.
• Overall, Irish GNP in current market price in Q4 2011 stood at 26.5% below the levels attained in Q4 2007. This means that more than 1/4 of the overall domestic and non-transfer pricing MNCs' activity has been wiped off the Irish national accounts during the current crisis.

The chart below highlights the evolution of transfers abroad relative to GDP, GNP and to trade balance. Transfers of income to the rest of the world from ireland has hit 101.75% of the trade surplus in Q4 2011 - rising above 100% for the first times since Q1 2010 when it stood at 101.80%. We are still well behind the levels of 2005-2009 when it averaged 138.74%. Which, given the negative sign with which transfers of income abroad enter the national accounts means that we have loads of room more for reductions in GNP on the back of 'exports recovery'.