4/10/2013: IMF 11th review of Ireland: Growth Warnings

So IMF released its 11th review of Irish economy under the Extended Arrangement for funding.

Key points:

"Real GDP declined in the first quarter, reflecting a fall in exports and weak domestic demand. Nonetheless, fiscal results remain on track and sovereign and bank bond yields have risen relatively modestly in response to declining global risk  appetite. A range of other economic indicators are more encouraging, suggesting lower but still positive growth in 2013, though uncertainty remains. Growth projections for 2014 are also lowered given weaker prospects for consumption recovery and for trading partner growth."

So weaker than forecast growth conditions… ok… How much weaker?

"Balancing the weak GDP results for the first quarter against a range of more positive indicators, the growth projection for 2013 has been pared back by a ½ percentage point to 0.6 percent y/y, but uncertainties remain." Boom! Ugly stuff, folks. And replace 'but' with 'and' and you will get a double Boom!


"Most importantly, export growth has been cut by 1½ percentage points as data indicate a larger impact from the patent cliff and tepid recoveries in important trading partners. Lower imports dampen the impact on growth." Wait, weren't we told that patent cliff doesn't matter much cause exports are offset by imports etc?

"Domestic demand is expected to be flat, with private consumption still contracting modestly owing to fiscal consolidation and household debt reduction, cushioned by employment growth and low inflation. Fixed investment is expected to expand by some 2 percent given improving business sentiment and the uptick in housing starts, but remains the most volatile GDP component. This projection will need to be further reviewed when Q2 national accounts data become available near end September." We have that Q2 data available now… see here: http://trueeconomics.blogspot.ie/2013/09/2092013-domestic-economy-continuing-its.html and it ain't pretty…

More details here: http://trueeconomics.blogspot.ie/2013/09/2092013-h1-2013-qna-domestic-economy-vs.html Net: Gross Fixed Capital Formation (basically investment in the economy) is down 9.40% in H1 2013 compared to H1 2012, down 14.09% compared to H1 2011 and down 67.73% compared to H1 2007. The reductions in capital investment jun H1 2013 compared to H1 2007 are ten-fold the size of reductions in current Government spending at EUR17,542 million. For another comparison, reductions in personal expenditure on goods and services by households over the same period is EUR4,757 million.

"Weaker consumption and export growth are expected to dampen the pace of recovery, with growth now penciled in at 1.8 percent in 2014. Export and consumption growth are expected to benefit from a projected rise in trading partner growth with employment growth contributing to incomes and confidence. Although consumption growth is still expected to become modestly positive in 2014, the pick up is weaker because a 1½ percentage point downward revision to household saving in 2012 suggests less room for lower savings given the priority households attach to debt reduction. Public consumption is also expected to be softer than previously anticipated as the full effects of the Haddington Road Agreement feed through in 2014. Export growth in 2014 is scaled back to reflect the possibility that recent weakness could persist."

Per IMF: "Growth firms to 2½ percent in 2015 as external growth rises further and fiscal consolidation eases, but durable recovery hinges on reversing the tide of NPLs." The miracle of 3%+ growth for ever, projected back in 2010-2011 to start in 2013-2014 is now replaced by the miracle of 2.5% growth projected to start in 2015… And the new projections out to 2018 no longer feature a single year of growth expected to rise above 2.5%… but all is still sustainable, just as it was in 2010 and 2011 and 2012 and… And the dream of 2.5% growth will, per IMF, be consistent with a positive output gap of ca 0.3%, which means that that is not the expected long-run real growth rate.

In effect, IMF admits now that Ireland cannot be expected to grow sustainably at the rates in excess of 3% per annum in real terms. Say goodbye to Ireland's 'growth miracle', say hello to Ireland's Belgium decades...


Another kicker: after 2015: "…the recovery continues to rely principally on net exports as domestic demand recovery is expected to be protracted as many households continue to deleverage in the medium term. Resolution of mortgages is not expected provide significant direct support to consumption recovery, as while some households may have a reduction in debt service due under a split mortgage restructuring, they may have previously been temporarily on interest-only terms, while other households may need to adjust consumption to serving their debt even if the debt service due is reduced. Rather it is expected that progress in reducing NPLs and enhancing bank profitability will gradually enhance the terms of banks’ access to market funding and their ability and willingness to lend to less indebted borrowers—which includes the younger cohort of households—unlocking housing market turnover and reducing household uncertainty."

Wow! So the IMF is warning us that things are going to remain tough even after the mortgages crisis 'resolutions'… Not like our Government is listening… And the IMF is telling us that the economy is going to get more polarised and paralysed... where did you hear that? Oh... http://trueeconomics.blogspot.ie/2013/08/782013-sunday-times-july-28-2013.html

Employment: long-term unemployment remains a problem (we know that)… and surprisingly: "Facilitating SME examinership could aid resolution of SMEs in arrears, supporting their potential to invest and create jobs." Now, here's the key point: in all this excitement about family homes and repossessions we forgot that roughly 50% of SMEs loans are in arrears… and of the remaining 50%, unknown quantum is at risk… Hm… I wonder how that 'facilitated examinership' going to work for the employment stats and for property markets and mortgages arrears, when examiners go into the SMEs books to uncover potential subsidies to proprietor's income or when examinerships lead to cuts in employment levels?..

So back in 2011, IMF predicted Irish economy to grow 2.4% (GDP) in 2013, 2.9% in 2014 and 3.3% in 2015. This time, IMF is projecting Irish economy to grow 0.6% in 2013, 1.8% in 2014 and 2.5% in 2015. Nominal GDP was supposed to reach EUR182.5 billion by end of 2015 back in 2011 projections and is now forecast to reach EUR178.4 billion… What's being down EUR4.1 billion (one year difference) between friends, or EUR6.5 billion over three years, eh? Especially when all of this is sustainable, right?..

Still, gives us some perspective as to the whole circus going on: we are sticking to EUR3.1 billion fiscal target for 'adjustment' and washing off EUR4.1 billion in growth expectations underpinning 'sustainability' analysis… You'd think this is monkeys with abacus, but no - these are highly paid 'analysts', 'economists' on Government side, state side, sell-side at stockbrokerages and banks, ECB side, EU side, IMF side… And they all sing in unison: all is sustainable, just as they revise continuously their forecasts down and down and down. Which begs a question: at what stage will the sustainability malarky be replaced by the admission of the crisis? Presumably when GDP growth is revised to nil into perpetuity?

I will be updating charts on Irish economy forecasts from the IMF over the next few days, so stay tuned. Before that, I will be blogging more on key topics covered by the IMF review later today, also stay tuned…

22/12/2011: Long term growth and the crisis

Let me highlight the following angle on considering latest Irish economic forecasts. The downgrade by IMF, OECD and EU Comm, plus ESRI to 2012 growth of 0.9-1.0% - as much as I personally think these forecasts to be optimistic as they are - cuts across the strikingly more optimistic Department of Finance forecasts for 1.3% growth (in the Budget) or 1.6% growth (in the documents released one day ahead of the Budget). This is pretty clear.

But the real issue here is that in the long term, IMF projects Irish growth of 2.3%, 2.7% and 3.0% in 2013-2015, with the output gap of 3.6%, 2.2% and 1.1%. The implied loss to the Irish economy due to the crisis, from 2010 through 2015 is a cumulative €37.5bn. In other words, our economy's long-term growth potential for growth, held back by the structural recession and debt overhang, plus fiscal mess, is - between 2010-2015 - €37 billion higher than the expected realized income. Or 20.9% of the expected 2015 GDP.

While differences year on year are significant in terms of fiscal targets, the fact that in 6 years between 2010 and 2015 Ireland's economy will be forced (by our inept Government policies on debt and banks, plus our inept EU 'partners' policies on 'bailout' and banks) to waste almost 21% of our expected annual income shows the following:

• Current policies are incapable to drive Ireland back to its potential long term growth rates, and
• Ireland is clearly distinct from other peripheral countries which, while having a similar crisis, do not have the same potential for future growth as Ireland.

02/03/2011: Live Register February 2011

Live register for February is out today and makes for some interesting reading.

Headline figures are mildly encouraging. In February 2011 there were 444,299 people on the Live Register an increase of 7,343 (+1.7%) yoy. This compares with an increase of 5,741 (+1.3%) in the year to January 2011 and an increase of 84,503 (+24.0%) in the year to February 2010.

On a seasonally adjusted basis there was a decrease of 1,700 on the Live Register in 2011. M decrease of 5,800 was recorded in January 2011.

Overall the Live Register has now fallen by 10,000 on a seasonally adjusted basis since its peak in August/September 2010.

Let's update some charts:
To put the LR changes into perspective, consider weekly average changes:
and monthly averages:
Live Register-implied unemployment rate (pretty good measure of unemployment) is now at 13.5% - same as in January:
Now to some numbers in more detail:

• Year on year January 2011 saw increase in LR of 19,300. This has fallen back to 17,800 in February;
• In percentage terms, yoy change in LR in January was +4.522%, which eased to +4.150% in February
• For 25+ year olds, January LR increased by 10,000 year on year (+2.879%), while February increase was 11,300 (+3.272%) - so things are getting better here, but by only 600 mom
  
• For <25 year olds, January 2011 saw a decrease in numbers of 3,400 (-3.908%) yoy, but February decrease was 2,600 yoy (or -3.055%) - an improvement mom of 1,100
  
• Casual and part-time employment increased 5,770 in February (yoy) or +7.277% against an increase of 6,369 in January (+8.286%) - or mom increase of 1,827 (more people taking part time and casual work than the seasonally adjusted drop in overall LR)
• Non-nationals accounted for 79,162 of the total LR count against nationals with 365,137. So non-nationals count increased 635 month on month in February, while nationals saw an increase of 987.
• Non-nationals LR signees numbers fell 2,868 yoy in January (-3.524%) and by 2,104 (-2.589%) in February
• Nationals signees numbers increased 8,609 yoy in in January and 9,447 in February
• The above points on nationals v non-nationals signees imply rather rampant emigration or outflow from the labour force of non-nationals.

All of the decrease in the seasonally adjusted series over the last six months has been recorded for males.

One core problem has been the increasing duration on LR. Month on month, February saw an increase of 2,413 males and 858 females (total of 3,271) of signees on the LR for a year or longer. This contrasts with decreases of 2,610 males and and increase of 961 females with duration under 1 year. This suggests that the unemployment is, predictably, sticky for earlier LR signees.

Finally, separate figures released today by the Dept of Enterprise, Trade & Innovation show that notified redundancies were down 44% year on year in February. In addition, as reported earlier, PMIs for Manufacturing have signaled for the third month running that employers are starting to add jobs in the sector. These two developments suggest that barring some significant shocks, LR is now stabilizing and possibly reverting to a shallow downward trend. This trend, however, still appears to be driven by exits and emigration, rather than jobs creation.

Economics 18/03/2010: A new warning to Ireland

Ireland was put on notice in the EU Commission assessment of fiscal positions going forward. per FT report today: European Commission warned eight countries, including Germany, France, Italy and Spain, Austria, Belgium, Ireland and the Netherlands that their forecasts for fiscal deficits reduction and growth for the next 4 years are basically failing to meet reasonable tests of robustness and that they need to identify exact measures they will take to meet their medium-term deficit reduction targets of 3 per cent or less of gross domestic product.

This is a second round of warnings covering Ireland's budgetary plans after earlier this month the ECB has qualified its assessment of Euro area fiscal consolidation measures with a statement, in the case of Ireland, referring to the lack of clear evidence on the ways in which the target will be achieved (see ECB Monthly Bulletin, 03/2010 page 85).

The warnings - usually a saber-rattler, and nothing more - but this time around it is a serious note. The reason is simple. It now appears that Germany is set against a direct bailout for Greece, pushing instead for joint IMF/Euro area action backed primarily by IMF. Here is the background on this:

Bloomberg reports (here) that Michael Meister, the CDU’s finance spokesman, said: “We have to think about who has the instruments to push for Greece to restore its capital-markets access... Nobody apart from the IMF has these instruments,” and that attempting a Greek rescue without the IMF “would be a very daring experiment.”

Angela Merkel told the German parliament yesterday: “The problem has to be solved from the Greek side and everything that is being considered has to be oriented in that direction.”

This clearly implies that fiscal deficits corrections will have to be pursued by countries in the environment where the markets cannot price in collective risk averaging within the Euro area, which in effect means that spreads between German and PIIGS bonds yields will have to rise and stay elevated through 2014. And this, in turn, means Ireland is now exposed to a potential sever credit crunch on the Government side.

And there is an even greater threat for Ireland, as Irish Exchequer is much more dependent on the good will of German banks than any other Exchequer in the PIIGS club (see chart below, courtesy of http://spaineconomy.blogspot.com/):
Frightening, especially since the chart is expressed in Euros, which of course puts us well ahead in proportional terms of Spain, not to mention Portugal and Greece, for all countries, except Switzerland.