10/9/15: 2Q 2015 National Accounts: External Trade

In the first post of the series covering 2Q national Accounts data, I dealt with sectoral composition of growth, using GDP at Factor Cost figures.

The second post considered the headline GDP and GNP growth data.

The third post in the series looked at the Expenditure side of the National Accounts, and Domestic Demand that normally more closely reflects true underlying economic performance,

Now, consider extern trade.

• Exports of Goods and Services were up 13.56% y/y in 2Q 2015 previously having risen 14.17% y/y in 1Q 2015. Over the last 4 quarters, growth in exports of goods and services averaged 14.2% y/y.
• Most of growth in exports of Goods and Services is accounted for by growth in Goods exports alone. These rose 16.36% y/y in 2Q 2015 after rising 16.86% y/y in 1Q 2015. Average y/y growth rate in the last 4 quarters was 18.38%. In other words, apparently Irish exports of goods are doubling in size every 4 years. Which, of course, is simply unbelievable. Instead, what we have here is a combination of tax optimisation by the MNCs and effects of currency valuations on the same.
• Exports of Services also grew strongly in 2Q 2015, rising 10.34% y/y, having previously grown 10.94% in 1Q 2015 and averaging growth of 9.94% over the last 4 quarters. Again, these numbers are beyond any reasonable believable uptick in real activity and reflect MNCs activities and forex valuations.
• Imports of Goods and Services rose 16.9% y/y in 2Q 2015, an increase on already fast rate of growth of 15.46% in 1Q 2015. Unlike exports side, imports side of goods and services trade was primarily driven by imports of services which rose 21.8% y/y in 2Q 2015 (+20.7% y/y on average over the last 4 quarters) as compared to 9.0% growth y/y in imports of goods (+13.5% y/y on average over last 4 quarters).

As the result of the above changes,

• Trade Balance in Goods and Services fell in 2Q 2015 by 1.8% y/y, having previously recorded an increase of 7.4% y/y in 1Q 2015. Combined 1H 2015 trade balance is now up only EUR399 million on same period 2014 (+2.26%).
• Trade Balance in Goods registered 26.9% higher surplus in 2Q 2015, and was up EUR6.206 billion in 1H 2015 compared to 1H 2014 (+28.4%). Trade Balance in Services, however, posted worsening deficit of EUR5.584 billion in 2Q 2015 against a deficit of EUR2.174 billion back in 2Q 2014. Over the 1H 2015, trade deficit in services worsened by EUR5.806 billion compared to 1H 2014 (a deterioration of 136% y/y).

CONCLUSION:

1. Irish external trade continued to show strong influences from currency valuations and MNCs activities ramp up, making the overall external trade growth figures look pretty much meaningless. 
2. Overall Trade Balance, however, deteriorated in 2Q 2015, which means that external trade made a negate contribution to GDP growth. 
3. Over the course of 1H 2015, the increase in overall Irish trade balance was relatively modest at 2.26% with growth in goods exports net of goods imports largely offset by growth in services imports net of services exports.

Stay tuned for more analysis of the National Accounts.

16/6/15: Irish Exports & Trade Balance: April 2015

This year, we had some pretty darn bizarre stats coming out of the Irish data on exports of goods. April was no exception.

Take a look at the numbers:

• On a seasonally unadjusted basis, Irish imports of goods stood at EUR4,699.2 million in April 2015, up 9.35% y/y having previously posted a rise of 15.88% y/y in March. Over the last 3 months through April 2015, imports are up 12.57% y/y. Which sounds like a lot. But...
• Irish exports of goods have risen to EUR9,813 million in April 2015, up 30.08% y/y having previously posted an increase of 20.10% y/y in March. Over 3 months through April 2015, exports of goods were up cumulatively 22.4% y/y. April 2015 saw the highest monthly volume of exports of goods from Ireland on record.
• Irish trade surplus for goods trade only shot up 62.33% y/y in April to EUR4,484.1 million - the third highest monthly surplus on record. In March, trade surplus was up 27.60% y/y and over the 3mo through April 2015, trade surplus rose 38.2% y/y.

Charts to illustrate:

These numbers are simply not reflective of real economic activity in Ireland and are so heavily polluted by tax optimisation schemes and correlated exchange rates effects, there is little point of talking any more about our 'exporting' economy.

The CSO breaks down (or attempts to explain) some of the farce as follows: "The main driver behind the April 2015 increase was the increase in the exports of Medical and pharmaceutical products of €1,056 million (+63%) to €2,727 million. The exports of Organic chemicals also increased by €560 million (+40%) in April." On an unadjusted basis: "During April 2015 imports of Chemicals and related products increased by €234 million (+25%) to €1,179 million and imports of Miscellaneous manufactured articles increased by €137 million (+28%) to €628 million. Imports of Machinery specialised for particular industries also increased in April by 86% to €225 million." 

You have to laugh here: having created no new serious additional production capacity of any note over the last 12 months, we have rises in output to the tune of 25%-plus. If this wasn't a miracle economy of MNCs, we would be world-beating, record-holding economy for productivity growth, richer than Switzerland and Norway, combined. But do keep in mind, employment in pharma sector has been effectively stagnant for years, just as output of the sector is booming at exponential rates.

17/5/15: Irish Merchandise Trade: 1Q 2015

Irish trade in goods statistics - the ones responsible for the tax-induced economic dizziness in the National Accounts over 2014 - are back at posting more absurd numbers.

Take a look at data through March 2015:

• 1Q 2015 imports of goods stood at EUR14,819 million which represents an increase of 10.5% y/y and 18.6% cumulative rise over the last two years. Relative to 2000-2007 period average, Irish imports of goods are up 3.8%. These are pretty large numbers, even allowing for currency valuations. 
• 1Q 2015 exports of goods from Ireland stood at EUR24,957.6 million, which represents an increase of 17.4% y/y. Yep, apparently Irish exports outputs are growing at a rate that implies doubling of the entire export capacity every 4 years, plus a month or so. No, seriously, folks - at this rate of building manufacturing facilities and logistics parks to accommodate all this stupendous growth, there won't be any cranes and construction crews left in the entire UK and probably none in France either. All would have been busy adding new land to Ireland.
• Now, we can compute % change in exports per 1% change in imports as the latter are often inputs into production of the former. Even recognising that imports of goods are also growing on foot of improving domestic demand, current exports elasticity with respect to imports is the third largest - lagging behind only two out the last 25 years: 1992 and 2004. What happened back in 1992? Ah, yes, new FDI in ICT manufacturing sector pushed Irish exports by 16% y/y in one year off a low base. It took couple of years thereafter for imports to catch up with this tremendous 'value creation' by stuffing computers and software disks into boxes. And in 2004? Well, that arrived on foot of abysmal 2003, when exports sunk and trade surplus went into largest y/y decline on record. So here we have it: the miracle of Irish exports growth: more of 1992 (tax arbitrage) and less 2004 (post collapse bounce).

Now, take a look at some dizzying numbers for March:

As the above shows, March marked the third highest value of goods exports for any month on record. Year on year, imports of goods were up 14.21% in March after posting 12.08% growth in February. Meanwhile, exports of goods rose 20.85% y/y in March after posting 16.92% growth in February. Trade balance rose 32.61% y/y in March having grown 24.21% in February.

Put frankly, even Google's big data analysts would struggle connecting these numbers to any tangible reality.

Chart below shows shorter range for dynamics.

17/4/15: Pies in the skies & Irish exports: Jan-Feb 2015

Some interesting numbers on trade in goods for Ireland. As you know, I usually update these series on a quarterly basis - in part due to data volatility, in part due to lack of time. But there is something interesting afoot in the data, so here it is for the first two months of 2015 - subject to future verification of any trend.

Total imports of goods stood at EUR4.563 billion in February 2015, up 11.9% year-on-year, having risen 5.1% y/y in January. This means imports over the first two months of 2015 are up 8.3% y/y. February annual rate of growth in imports was the highest in 9 months.

Meanwhile, exports of goods and services shot to EUR7.937 billion in February, up 16.9% y/y, having posted an increase of 14.2% in January. Again, over the first two months of 2015, exports rose 15.5% y/y.

Trade balance at the end of February stood at EUR3.374 billion, up 24.3% y/y, after posting a 31.4% rise in January. Over January-February 2015, cumulated trade balance is up a whooping 27.7% y/y, and for the December-February 3 months period it is up 31.7% y/y.

These are bizarre and, frankly, unbelievable numbers. Last time we have seen this level of volatility in trade balance to the upside was in August 2012 (for one month only and then, nothing comparable to 41.1% y/y increase registered in December, 31.4% rise in January and 24.3% rise in February).

So something is brewing in the external trade stats. Last year, we had a runaway performance in the National Accounts-registered external trade numbers without having a corresponding rise in the customs reported figures, which was down to 'contract manufacturing' scheme (or whatever you want to call this accounting trick). This time around, either the said scheme is now also polluting our customs trade data or something new is afoot.

The 'new' bit appears to be the 'old' bit - look at the sources of growth in our trade:

and in our trade balance:

In simple terms, ex-Chemicals (pharma), our exports since the start of 2009. Pharma / Chemicals exports are up. Our trade balance in goods, ex-Chemicals is negative. That is right - negative (some 'exporting nation' we are) and pharma trade surplus is vast and on the rise again.

Let's take a slightly more detailed decomposition of movements in trade volumes, cumulated over the last 3 months (December 2014 - February 2015). What do we have?

• Imports of all goods ex-chemical sectors rose 6 percent year on year, or EUR561mln. Exports of same rose 8 percent or EUR683.6 million. So trade deficit here shrunk by EUR122 million y/y - a good result, but accounting for only 5 percent of the entire gain in trade surplus over the same period across the economy.
• Imports of chemicals and related products (pharma in broad sense) were up EUR423.4mln or 16% y/y, but exports of same rose EUR2.592 billion or 22% y/y. Trade balance here rose by EUR2.169 billion.
• So 95% of the trade balance gains in December- February 2015 was down to the category known as Chemicals and related products, n.e.s. (5) and only 5% of the gains were down to the rest of the entire goods-related economy.

And guess what: the 'old' news is truly 'old': the ratio of exports to imports in the economy excluding chemicals sector is falling - steadily, since at least 1995. Meanwhile, the ratio of exports to imports in the chemicals sector, having fallen on foot of patent cliff in 2009-2013 is now rising once again since Q1 2014. Purely as a coincidence, Q1 2014 is when the bogus exports from the 'contract manufacturing' schemes started showing up in the official national accounts data.

Incidentally, the above also explains the miracle of Irish productivity - the massive 'improvements' of which in recent years is nothing more than a pharma (and few other MNCs-dominated sectors, some not included in the goods data and polluting our services data instead) rebalancing into new tax optimisation schemes, post-patent ones.

Welcome to the land where sand castles are sold to visitors as 'de real ting' and pies in the skies are served for desert...

12/12/2014: QNA Q3 2014: Irish External Trade: Of Dodgy Numbers & Export-led Recovery

Here is the fifth post on QNA detailed analysis, covering sectoral distribution of activity in Q3 2014.

• My post on the top level results for Q3 2014 is here: http://trueeconomics.blogspot.ie/2014/12/11122014-q3-2014-irish-growth-broadly.html
• The second post covering sectoral performance by broader sectors of economy is here: http://trueeconomics.blogspot.ie/2014/12/11122014-qna-q3-2014-sectoral-activity.html
• The third post covered aggregate GDP and GNP growth figures for y/y and q/q comparatives: http://trueeconomics.blogspot.ie/2014/12/11122014-qna-q3-2014-real-gdp-gnp.html
• The fourth post covered Domestic Demand - the glories of Investment, Consumption & Government Expenditure:  http://trueeconomics.blogspot.ie/2014/12/11122014-qna-q3-2014-domestic-demand.html

Now, onto the analysis of external trade figures. Again, y/y comparatives based on non-seasonally adjusted data. All in constant euros.

Exports of Goods and Services rose EUR53.084 billion in Q3 2014 up massive 15.52% y/y, which marks an acceleration in growth compared to Q2 2014 when the same rose 13.05% y/y. Over the 6 months through September 2014, compared to the same period of 2013, exports of goods and services rose 14.27%. This is huge growth and it comes in the face of serious global trade flows slowdown and currency headwinds.

Which, of course, begs a question: what on earth is going on? Let's try an decipher.

Exports of goods posted a print of EUR27.797 billion in Q3 2014, up 18.40% y/y and an increase on already rapid rate of growth of 16.05% recorded in Q2 2014. Over the last 6 months, exports of goods rose 17.20% y/y. This growth contributed EUR3.885 in exports in Q2 2014 and further EUR4.320 billion in Q3 2014. In other words, exports of goods growth accounted for roughly EUR8.205 billion out of the EUR13.317 billion expansion in exports of goods and services.

The balance was delivered via expansion in exports of services. These grew to EUR25.287 billion in Q3 2014, up 12.51% y/y and an improvement on 9.92% growth recorded in Q2 2014.

So exports are booming. Remember, over Q2 2014 these rose by EUR6.185 billion (of which EUR3.885 billion came from goods side of trade) and in Q3 2014 these grew by EUR7.132 billion (of which EUR4.32 billion came from good side of trade).

Here's a problem folks. Based on External Trade statistics, the value of merchandise trade in Q2 2014 was EUR22.833 billion not EUR28.095 billion recorded in the National Accounts. And in Q3 2014 the value of goods exports recorded in the trade accounts was EUR22.123 billion, not EUR27.797 billion recorded in the National Accounts. And more crucially, in National Accounts goods exports expanded at a rate of 16.05% y/y in Q2 2014 and then by 18.4% in Q3 2014. Meanwhile, in exports statistics from trade accounts the same growth rates were 3.64% y/y in Q2 and 0.95% y/y in Q3.

Remember, in Q2-Q3 2014, National Accounts book increases in exports of goods to the tune of EUR8.205 billion. In Trade Accounts, the same figure is EUR1.01 billion.

Of course, the two numbers are not exactly comparable, and there is a normal (or more like average) difference between the two, which is around EUR1 billion per quarter. But here we have EUR7 billion difference over 2 quarters.

Now, we've heard about 'strange' practices of outsourcing production by the MNCs, the pharma companies beefing up cost base shifting and other polite society's ways to create activity where none exists. May be the discrepancy is down to that. Or may be not. May be someone forgot the abacus and decided to count things using Mayan 'alphabet'… I do not know. But EUR6 billion unexplained 'gaps' are a bit too much for confidence building when it comes to reading GDP figures.

Still, let us soldier on.

As you would have noticed from the previous post, our 'recovery' ain't doing too well when it comes to people actually having much cash to spend. But we do have, at least officially, a recovery in exports. Let's chart the two:

And plotting exports and imports:

Chart above shows a curious situation: There has been a massive jump in exports in Q2-Q3 2014, but there has been no corresponding growth in imports. Now, keep in mind - imports include inputs into production of exports. And, oh silly us, they also include consumption goods. So how can there be such a dynamic trailing of exports relative to imports? Answers that are possible:

1. Imports are not growing or may be even shrinking on the consumer demand side (plausible, given lack of real growth in private consumption); and/or
2. Exports are growing per-unit of imports - which can only be down to the miraculous productivity growth or in plain terms - tax optimisation.

So, down to trade balance:

Overall trade balance for Ireland posted EUR11.714 billion print in Q3 2014 - up EUR1.536 billion in Q3 2013 (+15.09%) after having posted a rise of EUR1.774 billion (+17.28%) y/y in Q2 2014. Over 6 months through September 2014, Trade Surplus increased by 16.2% y/y (+3.26 billion). Which is mighty impressive.

All of this surplus was down to our huge surplus on the side of trade in goods. Trade in goods surplus rose by EUR2.694 billion in Q2 2014 (+26.4% y/y) and it was up again by EUR2.975 billion in Q3 2014 (up 30.70% y/y). Over the period of six months through September 2014, trade surplus in goods added EUR5.669 billion (+28.5% y/y) to our GDP figures.

Which is huge.

Meanwhile, trade deficit on Services side has expanded in Q3 2014 to EUR950 million from a surplus of EUR489 million in Q3 2013 - a swing of EUR1.439 billion in deficit. In Q2 2014, trade deficit on services side stood at EUR1.193 billion compared to EUR223 million deficit in Q2 2013. This meant that over the period of 6 months through September 2014, cumulated deterioration in trade balance in services in Ireland amounted to EUR2.409 billion.

All in, we have, as the first chart above shows, a robust 'exports-led' recovery. But, per discussion earlier, this recovery is suspect as it cannot be confirmed even remotely by the official trade statistics coming out of trade accounts. As Bill Gross says: "Something's fishy."

19/3/2014: Competitiveness might have improved... but It has little to do with trade...

In light of today's data on trade in goods (January - see next post for details on this), there has been a lot of claims flying around, including one Ministerial press release extolling the virtues of our 'improved competitiveness' as the driver of growth in exports.

So that improved competitiveness, then... Here are the charts showing Irish Harmonised Competitiveness Indicator based on unit labour costs which are designed to capture relative competitiveness in the euro area economies.

Lower values imply higher competitiveness.

Chart above shows two things:

1. Our competitiveness did improve since the peak in HCI at Q2 2008, but it has deteriorated again in 2013 as the HCI rose from the crisis period low in Q4 2012.
2. Our competitiveness is still lagging that of the Euro area average (black line). We would have to decrease HCI by some 10% more to hit Euro area average, which is about 3 years worth of further wages and costs austerity, if we are to get there.

But forget the average and look at all euro area countries:

As chart above shows, we are smack in the middle of the euro area distribution. In fact in 2012-2013 we consistently ranked 10th from the top in terms of competitiveness, which is an improvement on 13-134h from the top in 2010-2011, 16th in 2007-2009 etc, etc... Still, we are 10th... which is not exactly a dreamy place to be in, right?..

Here's our distance to the best performer index reading (again, higher values = worse performance in competitiveness terms):

So two things worth noting:

1. As I noted earlier, things improved, but the improvement is not that spectacular and we seemed to have lost the momentum there.
2. More importantly, there seems to be only weak correlation between the overall competitiveness changes and exports performance...

To see the above point (2), here is a chart:

As above shows, there is statistically no correlation between improving competitiveness (negative values on horizontal axis) and growth in exports of services. There is some statistical link between improved competitiveness and growth in exports of goods (as blue line indicates). But that link is not particularly strong. And this effect is driven by a handful of 'extreme' events such as dot.com bubble of 1999-2000 and the bursting of the property bubble in 2008. Absent these, the explanatory power of HCI changes drops from 26.7% to 14% and the slope of the relationship becomes as flat as that for the services exports.

In other words, sorry Minister, competitiveness gains might be all good and positive (I think they are), but these hardly explain much in terms of our exports performance.

21/4/2014: Exports-led recovery? Not that promising so far...

Regular readers of this blog know that since the beginning of the crisis, I have been sceptical about the Government-pushed proposition that exports led recovery can be sufficient to lift Ireland out of the current crises-induced stagnation.

Over the recent years I have put forward a number of arguments as to why this proposition is faulty, including:

1. A weakening link between our GDP, GNP and national income,
2. A worrisome demographic trend that is structurally leading to lower labour markets participation, alongside the renewed emigration,
3. Structural weaknesses in the economy left ravaged by some 15 years if not more of bubbles-driven growth,
4. Taxation and state policy structures that favor old modes of economic development and which are incompatible with high value-added entrepreneurship, employment creation and growth, 
5. Substitution away from more real economy-linked goods exports in favor of the superficially inflated exports of services in the ICT and international financial services sectors, etc

But the dynamics of our exports are also not encouraging. 

Here's a summary of some trends in Irish exports since 1930s, all expressed in relation to nominal value of merchandise trade (omitting effects of inflation). Based on 5-year cumulative trade volumes (summing up annual trade volumes over 5 year periods):

• Irish exports grew 147.8% in 1980-1984 and 86.7% in 1985-1989 - during the 1980s recession. This did not lift Irish economy out of the crisis, then.
• Irish exports grew 56.3% in 1990-1994 period and 56.4% in 1995-1999 period. Thus, slower  rate of growth in exports during the 1990s than in the 1980s accompanied growth in the 1990s. This hardly presents a strong case for an 'exports-led recovery'.
• Irish exports expanded cumulatively 148.0% in 2000-2004, before shrinking by 0.4% in 2005-2009 period and is expected to grow at 4.6% cumulatively in 2010-2014 (using 2010-2012 data available to project trend to 2014). 

The last point above presents a problem for the Government thesis on exports-led recovery: the rates of growth in merchandise exports currently expected to prevail over 2010-2014 period are nowhere near either the 1980s crisis-period rates of growth or 1990s Celtic Tiger period rates of growth.

Ok, but what about trade surplus? Recall, trade surplus feeds directly into current account which, some believe almost religious, is the only thing that matters in determining the economy's ability to recover from debt-linked crises. Again, here are the facts:

• During the 1980-1984 Ireland run trade deficit that on a cumulative basis amounted to EUR5,969mln. This gave way to a cumulated surplus of EUR8,938mln in 1985-1989 period. So attaining a relatively strong trade surplus did not lift Irish economy from the crisis of the 1980s.
• In Celtic Tiger era, during 1990-1994 period, cumulated surpluses rose at a robust rate of 155.7% on previous 5 year period, and this increase was followed by a further improvement of 113.9% in 1995-1999 period. 
• During Celtic Garfield stage, in 2000-2004 period Irish trade surplus increased by a cumulative 245.4%. However, in 2005-2009 period trade surplus shrunk 10.9% cumulatively on previous 5 years. Based on data through 2012, projected cumulated growth in trade surplus (recall, this is merchandise trade only) grew by 43.6%.

Again, trade surplus growth is strong, currently, but it is nowhere near being as strong as in the 1990s. Worse, current rate of growth in trade surplus is well below the rate of growth attained in the 1980s.

Charts to illustrate:

Oh, and do note in the above chart the inverse relationship between the ratio of merchandise exports to imports (that kept rising during the Celtic Tiger and Garfield periods as per trend) and the downward trend in exports growth. 

14/12/2012: Irish external trade in goods: October 2012

Irish trade in goods stats are out for October 2012 and here are the core highlights (aal seasonally adjusted):

• Imports of goods in value have fallen from €4.482bn in September to €4.188 billion in October, a m/m decline of €294mln (-6.56%) and y/y increase of €327mln (+8.47%). Compared to October 2010, imports are up 16.43%
• Imports were running close to historical average of €4.404bn in October, but below pre-crisis average of €4.673bn and ahead of crisis-period average of €4.126bn. Year-to-date average through October was €4.109, so October imports were relatively average.
• Exports increased from €7.349bn in September to €7.468bn in October (up €119mln or +1.62%). Year on year, however, exports are up only €7 million or +0.09% and compared to October 2010 Irish exports of goods are down 1.48%.
• Year-to-date average exports are at monthly €7.687bn which means October exports were below this, although October exports were very close to the crisis period average of €7.433bn.

• Overall, the rise of €423mln in trade surplus can be attributed as follows: 71.2% of trade surplus increase came from shrinking imports, while 28.8% came from rising exports. Not exactly robust performance, especially given exports are up only 0.09% y/y.
• Trade surplus expanded by 14.4% m/m after a rather significant drop off in September. However, october trade surplus at €3.28bn was still the second lowest reading in 7 months.
• Year on year, trade surplus in October actually fell €321 million or -8.91% and compared to October 2010 trade suplus is down 17.65%. These are massive declines and worrying.
• Trade surplus in October 2012 stood ahead of the historical average of €2.903bn and ahead of pre-crisis average of €2.513bn - both heavily influenced by much more robust domestic consumption in years before the crisis. Crisis period average of €3.307 is slightly ahead of October 2012 reading. However, average monthly trade surplus for 12 months through October was more robust (€3.578bn) than that for October 2012.

Here are some charts on the relationship between exports, imports and trade balance:

Accordingly with the above, imports intensity of exports rose slightly in October on foot of a steep fall-off in imports, rising 8.75% m/m. However, the metric of 'productivity' of irish exporting sectors is now down 7.72% y/y and down 15.38% on October 2010. During crisis period, Exports/Imports ratio averages 182.4%, while YTD the ratio averages 188.0%. In October 2012 it stood at 178.3% well behind both longer term trend metrics.

Lastly, the above relatively poor performance of exporting sector came amidst two forces, both representing adverse headwinds for Irish exporters:

1. Global trade slowdown
2. Term of trade deterioration.

October 2012 on October 2011, saw decreases in the value of exports of Chemicals and related
products - down -€253 million (or -6%), and a decrease of €513 million in Organic chemicals, "partially offset by an increase of €208 million in Medical and pharmaceutical products" per CSO. Further per CSO: "The value of exports increased for Miscellaneous manufactured articles (up €91 million), Mineral fuels (up €54 million), Machinery and transport equipment (up €47 million) and Food and live animals (up €39 million)... The larger increases were for imports of Food and live
animals (up €116 million), Mineral fuels (up €96 million) and Machinery and transport equipment (up €92 million)."

So to summarize: headline rise in tarde surplus is driven more than 3/4 by drop off in imports, with exports performing poorly on y/y basis and m/m basis. However, we have to be cognizant of the adverse headwinds experienced by irish exporters in global markets and by the continued effect of pharma patent cliff.

20/9/2012: Is 'Johnny the Foreigner' at fault? Q2 Irish trade results

In the real world, confronted with the unpleasant truth, we usually react with a denial of the facts and a desperate search for someone else, other than ourselves, to blame for the misfortune. Today's QNA data release triggered exactly this basic psychological reaction. With no reason for it, other than 'let's get Johnny the Foreigner out to blame', some of the favorite economists of our Minister for Finance decided that 'Irish economic growth is suffering from the slowdown impacting our main trading partners'.

Right... and Lehmans caused Irish banks collapse and bungalows prices deflation... that sort of malarky.

Now, that is either an uninformed error of judgement, or an outright lie, folks. In reality, exactly the opposite is happening - our external trade is still booming, while our internal, home-made depression is still raging.

I wrote about the domestic activity collapse already earlier (here's the link). Now, let's take a look at the activity arising from the allegedly falling demand from our trade partners.

First in current prices terms:

• Exports of goods & services from Ireland to the rest of the world hit €45.01 bn in Q2 2012, up 6.21% y/y. This marks a slowdown in growth from 7.4% y/y growth in Q1 2012, but nonetheless, in Q1 2012, Irish exports of goods and services hit an absolute record since Q1 2006. I wouldn't be going around saying that a historic record is... err... a drag on our growth.
• Exports of goods alone rose 1.26% y/y in Q2 2012, down on the 4.02% rate of annual growth in Q1 2012, but still posting an absolute record for any quarter since Q1 2006.
• Exports of services rose 11.46% y/y in Q2 2012, faster than already blistering growth of 11.11% y/y in Q1 2012. Again, volume of exports of services hit an absolute record level for any quarter since Q1 2006.

But maybe the 'Johnny the Foreigner' baddy is pushing down Ireland's growth in real terms? Ok, in constant terms:

• Exports of goods & services from ireland rose 2.06% y/y in Q2 2012, posting, yep, you know this much already, an absolute record in level terms for any quarter since Q1 2006.
• Exports of goods did fall off y/y - declining 4.42%. Which amounts to a drop of €973 million which is less than €3bn plus lost to patent cliff. So, err... the demand from US, UK and EA has nothing to do with this, but rather patents expiration in pharma sector drives the decline.
• Meanwhile exports of services grew, in constant prices terms, by a massive 9.05% in Q2 2012 compared to the same period of 2011.

As the result of these gains and also as a function of our own (not US, UK, EA, etc) demand collapse (marked by the decline in imports), our trade balance (the net positive contributor to our GDP and GNP) has actually expanded. 

Irish trade surplus has grown by a massive 18.98% in Q2 2012 in current prices terms and by impressive 14.47% in constant prices terms. Things are actually so good when it comes to 'Johnny the Foreigner Demanding Irish Exports' that our services sector posted an absolute historical record surplus in Q2 2012 of €1,387mln - for only the third time in the series history since Q1 2006. Our total trade balance surplus reached €11.391bn in Q2 2012 - by far the largest surplus reading in any quarter since Q1 2006. This is 14.1% higher than the previous quarterly record attained in Q3 2011.

Here are two charts to summarize trade balance changes:

The problem, of course, that our Green Jersey folks are not too keen on acknowledging is that overall, Johnny The Foreigner thirst for Irish goods and services has preciously little connection to our GDP activity. But that, illustrated below, is a different story.

4/9/2012: H1 2012 Trade in Goods & busted expectations

At first I resisted (rather successfully) for a number of days from blogging about the trade in goods stats for June released on August 16th. Aside from the already rather apparent pharma patent cliff and resulting collapse of exports to the US, there is little to be blogged about here. Well, may be on some BRICs data, but that will come later, when I am to update bilateral trade with Russia stats.

Then, playing with the numbers I ended up with the following two charts showing trade stats for H1 2012:

As dynamics show in the chart above, Ireland's goods exports are... err... static in H1 2012 compared to H1 2011 - down 1.69% y/y compared to H1 2011 and this comes against a rise in exports of 5.91% y/y in H1 2011 (compared to H1 2010). The exports-led recovery has meant that in H1 2008 exports are up just 3.62% on H1 2008 and are down 0.58% on H1 2007. Recovery? What recovery?

Of course, over the same period of time, imports fell 3.14% on H1 2011 (after rising 9.25% y/y in H1 2011 compared to H1 2010), and in H1 2012 imports stood at 20.09% below their H1 2008 and down 23.20% on their H1 2007 levels.

Which means that our exports-led recovery is currently running as follows: imports are down substantially more than exports (which is accounted for primarily by the collapse in domestic demand and investment activities), while exports are running only slightly behind their pre-crisis levels.

Thus, trade balance was up 0.05% y/y in H1 2012, while it is up 58.49% on H1 2008 and 51.48% on H1 2007. The body that is the Irish economy is producing  pint of surplus blood by draining 5 pints and re-injecting 4 pints back. Hardly a prescription for curing the sick according to modern medicine approach.

But that alone is not what keeping me focused on the numbers. Instead, it is the hilarity of our captains' expectations when it comes to the proposition that 'exports will rescue us'. Many years ago, in the days when the crisis was just only starting to roar its head, I said clearly and loudly: exports are hugely important, but they alone will not be sufficient to lift us out of this mess. Back then, I had Brugel Institute folks arguing with me that current account surpluses will ensure that ireland's debt levels are sustainable. Not sure if they changed their tune, but here's what the Government analysis was based on, put against the reality.

In the chart below, I took 3 sets of Government own forecasts for growth in exports for 2009-2012, extracted from Budget 2010, 2011 and 2012. I then combined these assumptions into 3 scenarios: Max refers to maximum forecast for specific year projected by the Department of Finance, Min references the lowest forecast number, and the Average references the unweighted average of all forecasts available for each specific year. I applied these to exports statistics as reported for 2009 and plotteed alongside actual outrun:

Current H1 2012 outrun for exports is €449 million lower than the worst case scenarios built into the Budgets 2010-2012 by the Governments. It is also €4,399 million behind the highest forecasts.

Put differently, the outcome for H1 2012 is worse than the darkest prediction delivered by the Department for Finance.

Of course, the exercise only refers to goods exports and must be caveated by the fact that our services exports might take up the slack. So no panic, yet. And a further caveat should be added to reflect the fact that the above is not our exporters fault, as we are clearly suffering from the tightness in global trade. On the minus side, there's a caveat that the pharma patent cliff has been visible for years and that the Government has claimed that they are capable of addressing this.

Sleepless nights should not be caused by the latest stats, yet. But if things remain of this path, they will come.

29/8/2012: H1 figures for trade show effect of the patent cliff

A very good analysis of Irish external trade figures for trade in goods and the effect of the patent cliff on trade balance from Dr. Chris van Egeraat, Department of Geography and NIRSA, NUI Maynooth in FinFacts today: link here. 

Readers of this blog and my (now sadly defunct) Sunday Times column would have spotted my interest in the subject. Dr Van Egeraat presents H1 figures for 2012 - first available this month - to show the effect.

25/6/2012: Q1 2012 Exports to Russia by Category

Per your requests, here is the breakdown of our exports to Russia by category - these are expressed as percentages of total exports to Russia. Data covers Q1 2012 - the latest we have available.

Update: per further requests: here is comparative table for our bilateral trade with Russia (exports of goods) in terms of each category of goods weight in total exports to Russia, compared against each category of same goods share of our total exports. Cells in bold mark goods which are more significant in our exports to Russia compared to our overall exports.

22/6/2012: Bilateral Trade with Russia - January-April 2012

After a couple of months, it is time to update the stats for Ireland's bilateral trade with Russia, especially since this week we saw the release of January-April Trade in Goods data.

Exports to Russia (goods only) rose to €189mln in 4 months from January-April 2012, up on €170mln for the same period of 2011. The y/y increase therefore is running at 11.2% for trade with Russia, against -0.62% contraction recorded for our total goods exports. Among 21 geographies other than EU27, bilateral exports to Russia posted 7th highest rate of growth in first four months this year compared to same period 2011.

Meanwhile, Imports from Russia fell from €54mln to €40mln y/y over the first four months of 2012.

As the result, our trade surplus vis a vis Russia rose from €116mln in January-April 2011 to €149mln for the same period of 2012 - a rise of 28.5% y/y (third largest increase among non-EU27 countries).

When compared to the rest of BRICs, Russia is not the only country that is generating trade surpluses for Ireland's exporters. India accounted for just €81mln in exports from Ireland in the first 4 months of 2012, up on €64mln a year ago, but it generated a trade deficit for us of €74mln in 2012 so far, against a deficit of €73mln in the same period of 2011. Brazil imports from Ireland fell from €94mln in January-April 2011 to €91mln in January-April 2012. As the result of this and due to much higher imports from Brazil, Brazil-Irish trade posted a deficit against Ireland of €100mln in January-April 2012 against a surplus of €31mln a year ago. China accounts for a much larger share of our exports, with exports of €757mln in January-April 2012, down on €759mln in the same period of 2011. However, we imported €859mln worth of goods from China in the first four months of 2012 (up on €855mln in 2011), resulting in a trade deficit against Ireland in our bilateral trade with China.

Crucially, Irish trade balance in goods with Russia is much more value-additive than our trade with any other non-EU27 country, save Australia and Switzerland. In the first four months of 2012, our ratio of exports to imports vis-a-vis Russia rose from 3.15:1 a year ago to 4.73:1. Meanwhile, our overall trade in goods imports intensity rose from 1.76:1 in 2011 to 1.81:1 in 2012.

Forecasts for 2012 bilateral trade with Russia based on historical trend and latest changes in volumes is provided below:

18/6/2012: Irish Trade in Goods: April 2012

In the previous post (here) I highlighted some concerns emerging from April 2012 data on trade in goods. Now, let's take a look at actual data. All data is seasonally adjusted.

April imports volume came in at €3,561 million, down 22.5% or €1,034 million on March 2012 and down 27.61% or €1,358 million on April 2011. Historical average for monthly imports is €4,417 million, while crisis period average is €4,121 million. 12mo MA is €3,945 million. All of this means that current April imports are seriously under-trend and we can expect either an uptick going forward or continued weakness. The former would imply recovery in exports, the latter would imply continued slowdown in exports.

Compared to same period 2010, Imports are now running down -15.64%.

April volume of exports was €6,993 million down €713 million or -9.25% m/m and down €584 million or -7.71% y/y. Exports in April were down 3.08% on April 2010. Current level of imports is significantly below historical average of €7,289 million and crisis period average of €7,407. 12mo MA is €7,647.

Trade surplus has risen on foot of rapid fall off of imports despite a rather pronounced drop in exports. Trade surplus stood at €3,432 million, up €320 million (+10.28%) m/m and up €774 million (+29.12%) y/y. Compared to April 2010, April 2012 trade surplus for goods trade is up 14.63%.

Average monthly surplus is €2,872 million and crisis period average is €3,286 million. 12mo MA is ahead of both at €3,702 million.

January-April 2012 imports are down 7.2%, exports are down 0.9% and trade surplus is up 7.6% year on year.

Imports intensity of exports (or ratio of exports €€s per € of imports) is now at 196.4 - up on March level of 167.7 and up on 154.0 in April 2011. Historical average ratio is 168% and crisis period average is 182%. 12mo MA ratio is 195 and January-April 2012 average ratio is up 6.6% y/y.

The CSO has not reported any terms of trade indices since December 2011.

18/6/2012: Irish Trade: April 2012 disappoints

Irish trade stats for trade in goods are out for April. The numbers are, frankly put, alarming.

Remember, we are supposed to generate robust exports growth in order to even sustain the misery of the ongoing austerity. April 2011 SPU envisioned exports growth of 6.8% in 2011 and 5.7% in 2012. Budget 2012 envisioned 2011 exports expansion of 4.6% and 2012 exports growth of 3.6%. April 2012 SPU set 2011 achieved exports growth of 4.1% - down massive 2.7 percentage points on year-ahead forecast of April 2011 and down 0.5 percentage points on Budget 2012 assumption. But more significantly, April 2012 SPU revised 2012 projected exports growth to 3.3%. So within a year, exports forecast for 2012 has dropped from 5.7% to 3.3%.

Even more realistic IMF is projecting exports growth of 3.0% this year (see the first table here).

And the latest data is not encouraging. For tarde in goods only, January 2012-April 2012 period total volume of imports is down 7.17% y/y, while total volume of exports is down 0.87%. Not up 3.3%, but down almost 1%. Trade surplus is up 7.7%, but that is due to fall-off in imports that can mean only two things: either imports accelerate much faster than exports in months ahead as MNCs rebuild their diminishing stocks of inputs, or imports do not accelerate as MNCs cut back exports output. Not a good thing.

And worse. In January 2012, seasonally adjusted exports grew robust 14.1% y/y, but in February they shrunk 9.8%. This was followed by 1.5% growth again in March and now it is followed up by a massive 7.7% contraction in April. Thus average rate of growth in exports in the first four months of 2012 is -0.59%. Things are volatile in goods exports, but that is an alarming trend.

I will deal with detailed exports and trade stats for goods for April in the second post - stay tuned.

30/3/2012: Irish bilateral trade with Russia - 2011 results

The latest data on Irish-Russian bilateral trade: