16/10/19: Ireland and the Global Trade Wars

My first column for The Currency covering "Ireland, global trade wars and economic growth: Why Ireland’s economic future needs to be re-imagined": https://www.thecurrency.news/articles/1151/ireland-global-trade-wars-and-economic-growth-why-irelands-economic-future-needs-to-be-re-imagined.

Synopsis: “Trade conflicts sweeping across the globe today are making these types of narrower bilateral agreements the new reality for our producers and policymakers.”

27/7/19: A Cautionary Tale of Irish-UK Trade Numbers

Per recent discussion on Twitter, I decided to post some summary stats on changes in Irish total trade with the UK in recent years.

Here is the summary of period-averages for 2003-2017 data (note: pre-2003 data does not provide the same quality of coverage for Services trade and is harder to compare to more modern data vintage).

So, overall, across three periods (pre-Great Recession, 2003-2008), during the Great Recession (2009-2013) and in the current recovery period (2014-2017, with a caveat that annual data is only available through 2017 for all series), we have:

• UK share of total exports and imports by Ireland in merchandise trade has fallen from an average annual share of 23.31 percent in pre-Great Recession period, to 18.06 percent in the post-crisis recovery period.
• However, this decline in merchandise trade importance of the UK has been less than matched by a shallower drop in Services trade: UK share of total services exports and imports by Ireland has fallen from 64.86 percent in pre-crisis period to 62.97 percent in the recovery period.
• Overall, taking in both exports and imports across both goods and services trade flows, UK share of Irish external trade has risen from 41.43 percent in the pre-crisis period to 45.4 percent in the current period.
• Statistically, neither period is distinct from the overall historical average (based on 95% confidence intervals around the historical mean), which really means that all trends (in decline in the UK share in Goods & Services and in increase across all trade) are not statistically different from being... err... flat. 
• Taken over shorter time periods, there has been a statistically significant decline in UK share of Merchandise trade in 2014-2017 relative to 2003-2005, but not in Services trade, and the increase in the UK share of Irish overall trade was also statistically significant over these period ranges. 
• Overall, therefore, Total trade and Services trade trends are relatively weak, subject to volatility, while Merchandise trend is somewhat (marginally) more pronounced.

Here are annual stats plotted:

Using (for accuracy and consistency) CSO data on Irish trade (Services and Merchandise) by the size of enterprise (available only for 2017), the UK share of Irish trade is disproportionately more significant for SMEs:

In 2017, SMEs (predominantly Irish indigenous exporters and importers who are the largest contributors to employment in Ireland, and thus supporters of the total tax take - inclusive of payroll taxes, income taxes, corporate taxes, business rates etc) exposure to trade with the UK was 51.2 percent of total Irish exports and imports. For large enterprises, the corresponding importance of the UK as Ireland's trading partner was 13.62 percent. 

In reality, of course, Irish trade flows with the UK are changing. They are changing in composition and volumes, and they are reflecting general trends in the Irish economy's evolution and the strengthening of Irish trade links to other countries. These changes are good, when not driven by politics, nationalism, Brexit or false sense of 'political security' in coy Dublin analysts' brigades. Alas, with more than half of our SMEs trade flows being still linked to the UK, it is simply implausible to argue that somehow Ireland has been insulated from the UK trade shocks that may arise from Brexit. Apple's IP, Facebook's ad revenues, and Google's clients lists royalties, alongside aircraft leasing revenues and assets might be insulated just fine. Real jobs and real incomes associated with the SMEs trading across the UK/NI-Ireland border are not.

Whilst a few billion of declines in the FDI activity won't change our employment rosters much, 1/10th of that drop in the SMEs' exports or imports will cost some serious jobs pains, unless substituted by other sources for trade. And anyone who has ever been involved in exporting and/or importing knows: substitution is a hard game in the world of non-commodities trade.

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.

20/3/2014: Trade in Goods & Trade Balance Dynamics for Ireland: January 2014

As noted in the earlier post, CSO released new data on Irish merchandise trade, covering January 2014. I discussed the validity of the argument that improved competitiveness is a driver of Irish exports here: http://trueeconomics.blogspot.ie/2014/03/1932014-competitiveness-might-have.html and as promised, now will discuss top-level data on trade flows.

Starting from the top:

Based on unadjusted (seasonally) data:

• Total imports into Ireland (goods only) amounted to EUR4.528 billion in January 2014, which is up 1.93% y/y. This is shallower rate of increase in imports than the one recorded in December 2013 (+16.9% y/y).
• 3mo cumulated imports for the period November 2013-January 2014 were up 8.2% on the same period of 2012-2013.
• January 2014 marks the highest level of monthly imports since March 2012 and the busiest imports January since 2008.
• Total exports from Ireland (goods only) stood at EUR7.0306 billion in January 2014, up 4.48% y/y, which is a shallower increase than 13.41% rise recorded in 12 months through December 2013.
• 3mo cumulated exports for the period November 2013-January 2014 were up 2.05% on the same period of 2012-2013.
• January 2014 levels of exports are not remarkable by any means possible, representing only the second highest level of January exporting activity since January 2008.
• Trade balance in January 2014 stood at EUR2.5026 billion, up 9.42% y/y which is an improvement on December 2013 annual rise of 7.18%.
• 3mo cumulated trade balance for the period November 2013-January 2014 was down 6.64% on the same period of 2012-2013.

Three charts to illustrate:

In the chart above, notice disappointing performance in exports relative to trend (red line) and to 6mo MA (black line). Also note poor performance of trade balance relative to trend and the seeming breaking out of trade balance away from the trend line down.

The same is confirmed in the seasonally-adjusted series plotted below:

So exports have risen y/y, primarily due to a truly abysmal January 2012. But exports are still trending below an already virtually flat trend. You might think of this as being a story of some short term improvement, amidst ongoing long term weakness.

17/1/2014: Goods Exports: A Story of Irish Tax Arbitrage Mode of Growth?

I covered monthly and annual trends in Irish Trade in Goods statistics yesterday (http://trueeconomics.blogspot.ie/2014/01/1612014-trade-in-goods-november-2013.html), noting that

1. Irish exports of goods are continuing to shrink - not grow at a slower rate, but grow at a negative rate - over 2013
2. Irish trade surplus in goods is now in negative growth territory for the third year in a row.
3. Past resilience of Irish trade in goods statistics was predominantly down to the collapse in imports.

In the past, I have argued that we are likely to witness further deterioration in external balance for Ireland once the domestic economy moves back into growth cycle (imports of consumer goods and capital goods will all rise). Given the overall problematic situation with domestic disposable after-tax income, this implies that we can lose the only pillar supporting our debt sustainability (external balance) if capex ramps up, while employment creation and wages growth is lagging. In other words, a jobless recovery on foot of capex expansion can end up being a pyrrhic victory for Ireland.

To see this, consider imports/exports ratio in the economy (to remove monthly volatility, we use half-yearly aggregates):

Following a large jump in the ratio of exports to imports on foot a significant decline in imports, we are now running below the historical trend. This suggests that our exports of goods are becoming less, rather than more, tax-efficient (which, of course, is consistent with pharma sector decline in our exports of goods). Good news is that this means our exports are also potentially becoming better anchored to real value added carried out in this economy, and less tax arbitrage-driven. But the bad news is that at the same time, exports growth rates are collapsing:

And the decade-averages, shown in the chart above are telling this story.

This is worrying... doubly so because what is taking place of our good exports is the 'success' story of our ICT services sector, which is growing on foot of tax arbitrage. We are replaying the same 'advantage' as before - instead of developing successful, value-added based exporting model we are just switching from one tax arbitrage play to another. ICT manufacturing tax arbitrage of the 1990s gave way to Pharma tax arbitrage play of the 2000s, which is now giving way to ICT services tax arbitrage play of the 2010s... 

16/1/2014: Trade in Goods: November 2013

Ireland's seasonally adjusted trade surplus for trade in goods only (excluding services) was down 15% in November compared to October.

Per CSO, there was "a decrease in seasonally adjusted exports of €327 million (-5%) to €7,009 million" in November 2013 compared to October. Seasonally
adjusted imports rose by €132 million (+3%) to €4,472 million. Thus, seasonally adjusted trade surplus fell to €2,538 million - "the lowest seasonally adjusted trade surplus since August 2008."

Year on year, "the value of exports decreased by €607 million (-7%) to €7,710 million. The main drivers were decreases of €572 million (-25%) in the exports of Medical and pharmaceutical products and €158 million (-8%) in the exports of Organic chemicals. … Comparing November 2013 with November 2012, the value of imports rose by €335 million (+8%) to €4,377 million. Imports of Machinery specialised for particular industries increased by €121 million (+175%)."

With 11 months of data in, we can provide a reasonable approximation for H2 2013 data and full year outlook. Caveat - these are simple extrapolations from 11 months data.

The first chart shows annual data for exports. Based on January-November data:

- Annual imports are set to rise by ca 0.4% y/y, after having posted a 1.76% rise in 2012 and 5.55% rise in 2011. On a cumulative basis, imports rose by EUR3.582bn over 2011-2013 period.
- Annual exports of goods are set to post a contraction of approximately 4.3% y/y against 2012 annual growth of 0.5% and 2011 annual expansion of 1.70%. Cumulatively from January 2011 through the end of 2013, exports of goods are set to shrink by EUR1.975bn.
- Note that in all three years: 2011, 2012 and 2013 exports growth under performed imports growth and this is before any significant uptick in domestic consumption demand for imports or domestic capes demand for imported capital goods.
- Trade surplus for 2013 is expected to decline by around 9.8% on 2012 levels, after having posted a decline o 0.9% in 2012 and a decline of 2.3% in 2011. Cumulatively over the last 3 years, the decline in trade surplus amounted to EUR5.557bn.

The next chart plots annual rates of growth and 10-year growth rates averages. This shows that the current decade is the worst in the history of the state with exception of the 1930s, with the decade of 2000-2009 being the third worst.

This puts into perspective the problem with the assumed debt sustainability framework based on growth in exports. The chart above shows exports of goods only, omitting exports of services. Two points, however:
1) In the 1990s, recovery was led by exports which were predominantly on the goods side, so the average rates in the chart for the decade of the 1990s are closely correlated with total exports growth rates. Today, growth in services exports outpacing growth in goods services has much lower impact on the economy overall, since exports of services are less anchored to the domestic economy and are more reflective of the aggressive tax optimisation strategies of the MNCs operating in the ICT and IFS services areas.
2)Services exports growth is slowing so far as well. This was covered here: http://trueeconomics.blogspot.ie/2013/12/20122013-how-real-is-that-gdp-and-gnp.html

Finally, the last chart plots exports of goods adjusted for prices changes and exchange rates using Trade Price Index for Exports, expressed in 2006 euros.

The upward correction in 2009 and 2010 period now is almost fully erased by declines since 2010. And the decline seems to be accelerating.

Most of the above declines in exports in the last two-three years has been driven by the pharmaceuticals sector. I will be covering this topic when dealing with more detailed composition of exports once we have data for December 2013. In the mean time, you can see CSO data for January-November 2013 y/y comparatives in Table 3 here: http://www.cso.ie/en/media/csoie/releasespublications/documents/externaltrade/2013/gei_nov2013.pdf

16/8/2013: H1 2013 Trade in Goods & Balance Dynamics for Ireland

On foot of my post detailing Irish cumulated figures for trade in goods for H1 2013, some asked me to post on the relationship between exports and trade balance. Here are few charts, taking snapshot from H12000 through H1 2013:

First, two charts showing levels of exports and trade balance for trade in goods:

Note that in the first chart, there is barely any difference between the 2000-2013 average level of exports (at EUR44.145bn) and 2009-2013 period average (at EUR45.077bn). The gap is only 2.1% of EUR932mln. At the same time, the second chart shows that there is a massive gap between the average trade balance over the period of 2000-2013 (EUR17.184bn) and for the period of 2009-2013 (EUR20.728bn) -  a gap of 20.6% or EUR3,544 mln. The core reason for this is that much of the 2009-2013 'stellar' performance in our trade surplus was driven by collapse in imports, rather than a rise in exports. 

To see this, let us plot exports against trade balance:

The last chart clearly shows that in 2009-2013, on average, exports were tracking changes in trade balance, but they were not doing so 1:1.

More interestingly, the chart shows that trade in goods in Ireland is in trouble. In 2009-2013 period, Irish Government policy has been to rely solely on exports (of goods and services) in driving the economy toward recovery and debt sustainability. This hope rests on growth in exports and simultaneously positive trade balance and growing trade balance as the key parameters for consideration when it comes to both economic growth and debt sustainability.

Alas, in years 2010, 2012 and 2013 (in other words in 3 out of 5 years), measured by H1 figures alone, Irish goods traded operated in the 'pain spot' region - the region of shrinking exports and shrinking trade surpluses.

In other words, in terms of levels our merchandise trade is performing well. But in terms of growth it is performing poorly. And this is despite a huge drop-off in imports, something that is not likely to last when the economy goes back to capital investment (imports of capital goods will rise) and/or consumption recovery (imports of consumption goods will rise).

15/8/2013: H1 2013 Trade in Goods data for Ireland

Latest data for Merchandise trade for June 2013 allows us to make some comparatives for the first half of the year. Here are some stats, all covering only merchandise trade:

• Total Imports rose in H1 2013 by 3.12% on H2 2012 and were down 2.39% on H1 2012. Imports were up 3.11% in H1 2013 compared to the 6 months cumulative averages over the three years from H1 2010 through H2 2012. H1 2013 levels of imports were 23.2 below their peak for any 6 months period since H1 2000.
• Total Exports fell in H1 2013 by 4.35% on H2 2012 and were down 6.55% on H1 2012. Exports declined, in absolute terms by EUR3.045 billion year-on-year. This marked the largest 6-mo cumulative drop in exports since H1 2003, marking the H1 2013 the worst year-on-year 6 months period since then.
• Exports were down 4.48% in H1 2013 compared to the 6 months cumulative averages over the three years from H1 2010 through H2 2012. H1 2013 levels of exports were 12.43% below their peak for any 6 months period since H1 2000.
• Trade Surplus fell 12.62% on H2 2012 and was down 11.47% in H1 2013 compared to H1 2012. In level terms, trade surplus was down EUR2.442 billion in H1 2013 compared to H1 2012, marking the worst 6 months period since H1 2005.

Charts below illustrate the trends:

Good news, per chart above, Trade Surplus is still running above 2000-present average, although Exports are now running below their 2000-present average. Bad news, the above chart does not adjust for inflation.

Not-too-good news is, exports are now in the negative territory in terms of y/y changes. Remember, we need positive growth in total (merchandise and services) exports of ca 5% per annum to maintain any semblance of sustainability. Here's the tricky bit:

As chart above shows, we really need rapid, very rapid growth in services exports to return our total exports and trade balance to where we need them to be to maintain economic activity at the levels that will be consistent with long-term gradual reduction of public debt.  Over the last 5 years, merchandise exports in Ireland grew on average at 0.59% y/y and over the last 10 years this growth was 0.94%. Owing to the recent collapse in our imports, our trade balance grew on average at 11.73% in the last 5 years. However, over the last 10 years the growth in our trade balance was much less dramatic 3.18%.

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.

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.

10/8/2012: What's driving trade surpluses in Ireland?

Here's a question I asked myself recently: Given Irish exports are so heavily dominated by the MNCs, and given that the MNCs operating from Ireland are primarily concerned with transfer pricing and tax optimization (entering as negative factor to our overall trade), does our exports growth (positive contribution to our trade balance) really determine change in our trade balance?

It's a cheeky question. You see - Government policy in effect says "To hell with domestic enterprises, let's put all our bet for a recovery on exports". And furthermore, the policy also says that "Ireland will remain solvent as long as we can generate growth in our external surpluses". Of course both of these strategic choices imply state reliance on MNCs to increase our external balances surpluses, i.e. trade surplus.

So here are two charts (caveat to first chart - obviously estimated relationships are just illustrative, rather than conclusive, since we have few observations to consider as consistent data from CSO covers only 1997-2011 annually, but strangely enough the quarterly data - not suffering from same limitations - confirms annual data results):

The conclusions are rather interesting and worth much deeper exploration:

• Imports growth explains more of the variation in trade surplus growth than exports expansion
• Exports growth explains negligible amount of variation in trade surplus growth
• Growth in profits repatriation by MNCs out of Ireland relates stronger (almost 27 times more) to  trade surplus growth than either imports or exports.

So more questions should be raised than answers given in the end...

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.

3/3/2012: Irish Merchandise Trade 2011 (preliminary estimates)

With some delay, updating Ireland's external trade figures for merchandise trade for December 2011 data. Instead of doing a monthly update, let's take a look at the annual figures. Please keep in mind that December numbers incorporated here are preliminary estimates by the CSO. And do also remember that this is trade in goods / merchandise trade ONLY - the CSO doesn't wish to distinguish it as such in its releases, but this data does not include trade in invisibles / services.

Chart below shows exports, imports and trade balance in goods trade:

•  Imports value posted significant increase in 2011 of 5.65% yoy after a shallow rise of 0.62% in 2010. 3 year average rate of change in imports remains deeply negative, however at -5.13%, a year ago it was -9.85%.
• Exports rose 3.88% yoy, reaching the level of €92.71bn, the second highest level in history after €93.68bn in 2002. Last year, exports rose 5.26% yoy. 3 years average rise now stand at 2.31% against previous year 3 year average increase of 0.05%.
• Trade surplus rose to another historic high of €44.32bn - up 2.0% yoy - a significant accomplishment, but a slowdown in the rate of growth of 10.64% achieved in the 2010. In 2010, 3 year average rate of increases in trade surplus was 19.62% and in 2011 it was 16.64%.
• Record trade surpluses have now been recorded in 2009, 2010 and 2011, implying that the 'exports-led recovery' is now full 3-years strong without a corresponding translation into full economic recovery.

Chart below shows imports intensity of our exports - the ratio of exports to imports expressed in percentage terms.

Per chart above, our exports remain largely divorced from imports, which strongly suggests that the last 3 years (during which imports intensity was well above the historic average of 150%) the core driver for exports and trade balance performance was transfer pricing, not the real economic activity. Chart below illustrates the differential between volume of trade consistent with 9-year MA intensity and the actual volume of trade, with the MA-consistent trend stripping out some recent transfer pricing activity out of the exports figures (note, this, of course, is a highly imperfect measure, so treat the chart as being simply illustrative).

19/01/2012: Quarterly data on complete trade balance: Q3 2011

While we are on trade data (see previous post on November 2011 merchandise trade stats here), let's also update full trade stats for QNA results for Q3 2011. This covers all trade - merchandise and services, so it paints a full picture of our trade balance.

Chart below shows quarterly trade stats for Ireland. Per latest QNA:

• Exports of goods and services fell from €41.945bn in Q2 2011 to €41.186bn in Q3 2011, a decline of 1.81%. This comes after a qoq rise of 4.34% in Q1-Q2 2011 period. Year on year, Q2 2011 saw exports rise 3.78% and Q3 saw an increase of 1.91%.
• Despite the slowdown, Q3 results was still the second best quarterly exports performance on record.
• Imports of goods and services shrunk in Q3 2011 to €31.6bn, down 5.45% qoq, which comes on foot of a 3.06% rise qoq in Q2 2011. Year on year, imports were up 3.3% in Q2 2011 and are down just 0.29% in Q3 2011.
• This means the trade balance has reached another historical high at €9.586bn in Q3 2011. The trade surplus was up 9.66% in qoq terms and 5.69% in yoy terms in Q2 2011 and it rose 12.49% qoq and 9.89% yoy in Q3 2011.

The core driver for the dramatic gains in trade balance for goods and services was a substantial decline in trade deficit on services side. This can be best seen from annualized figures, shown below:

Based on Q3 data, we can expect:

• Total annual exports to rise to €164.75bn in 2011, up 4.48% on €157.67bn in 2010
• Total annual imports to increase 3.95% yoy to €132.953bn, and
• Total trade surplus to rise 6.55% yoy to €31.72bn
• Of the above €1.95bn improvement in the annual expected trade surplus is likely to come from a €1.66bn improvement (reduction) in the annual trade deficit in services which is expected tos shrink to €11.99bn in 2011.

19/1/2012: Irish External Trade data - November 2011

Latest trade stats for Ireland are out - covering preliminary figures for November - and... it's another record trade surplus. I recently wrote about this issue for PressEurop (link here) and for Globe & Mail (link here).

But the latest data from Ireland's external trade side is truly impressive. Until that is, you dig slightly below the surface... where some strange things are starting to pop up.

Let's take it from the top.

On seasonally adjusted basis,

• Irish merchandise imports in November stood at €3,706mln, a decline of 5.97% mom that comes on foot of a previous monthly rise of 2.68%. Imports are up 4.91% year on year and relative to 2009 they are up 0.21%. In the 11 months from January 2011, imports are up 6.46% on same period in 2010.
• Imports increases are, of course, closely linked to increases in exports - as MNCs import much of their inputs into production from abroad. I shall cover this in a second, so keep this in mind.
• Irish merchandise exports rose in November to €8,016mln - an uplift of 4.58% mom on the foot of the previous month decline of 4.32%. Year on year exports are up 8.83% and relative to November 2009 they are up 23.22%. In the 11 months through November, cumulative exports rose 4.09% relative to the same period 2010.

• As the result, trade balance (again, referencing just merchandise trade) rose 15.74% mom (after contracting 10.75% in October, mom) to an all-time record of €4,310mln. The trade surplus is now 12.44 ahead of November 2010 and 53.5% ahead of same period 2009. In the first 11 months of 2011 trade balance rose 1.61% on the same period of 2010.
• The last observation in the previous bullet point is not a strong reason to cheer. Remember, comparable rise in 2009-2010 period was 8.77% or some 5.5 times faster than in 2011.

• Updating annualized trade stats based on 11 months performance, we can expect imports to come at ca €48.46bn - up 5.82% yoy reversing average annual rate of decline of 9.85% achieved in 2007-2010 period. Exports are likely to post another record year, consistent with my predictions before, at €92.25bn - up 3.36% yoy and well behind the Government-projected rate of over 5%. Trade surplus (for merchandise trade) is likely to reach a record €43.78bn some 0.75% ahead of 2010 result - an increase that would pale in comparison with 10.6% rise in annual surplus in 2010 yoy and well below the average 19.62% increase achieved over 2007-2010 period.

So what is going on, folks? Why are we seeing record surpluses, against fairly impressive exports and growing imports? The answer can be found in two stats. The first one, relates to terms of trade, and the second one relates to transfer pricing. let's take a look, shall, we?

CSO reports terms of trade data with 1 month lag, so we do not have November results yet, but we do have october figures.

As you can see from the above chart, terms of trade improved (downward movement in series) in october for Irish exporters. And this improvement is rather dramatic both in the short-term and in the long-run. However, as the chart below shows, the improvement in terms of trade in October 2011 relative to October 2010 was not fully utilized by the exporters (we are below the long term relationship, implying that for current levels of terms of trade, our exports should be higher than they are).

What did, however, take place is a massive jump - to a record high - in overall ratio of exports to imports in merchandise trade (chart below). In more layman's terms, all of a sudden, in November, Irish exporters needed less imported materials to supply more of exports. Hmmm... Has the chemicals component of Viagra pill change? Not really. Has the value of this component become cheaper for Irish operations of the respective MNC? No. In fact it became more expensive as the euro weakened against other currencies and terms of trade improved. So what did happen?

Take another look:

 What the above suggests is that Ireland-based MNCs are:

1. Drawing down inventories to boost exports - something they would do were they planning for a slowdown in December and onward;
2. Pushing up the component of exports value that is transfer pricing, thus boosting their profit side - something that will eventually show up in wider GDP/GNP gap;
3. Both of the above.

This is not exactly the stuff the dreams of 'exports-led recovery' should be made of, but for now, let us rejoice that at least in one area we have really strong performance in this economy. Afterall, better that than nothing.

15/12/2011: External Trade for October 2011

Data for external trade for Ireland for October 2011 is out (preliminary estimates) and the picture of the general slowdown in the economy in Q4 is now being confirmed in the exports sector.

Overall,

1. Seasonally adjusted exports fell by 4% to €7,652m in October, while imports increased by 3% to €3,937m, resulting in an 11% decrease in the trade surplus to €3,715m.
2. Overall exports fell €358.4mln mom (-4.47%). Year on year exports in october were up €299.1mln (+4.04%) and relative to October 2009 exports are up €1,306.9mln or +20.60%. It is worth noting that average exports volumes for January-October 2011 stand at €7.692bn - ahead of the October monthly reading by €40mln - a small difference, but this is the first month since July that we are seeing exports below average.
3. Imports rose €98.4mln (+2.56%) mom and €339.3mln (+9.43%) yoy. Relative to October 2009, imports are up €526mln or +15.42%.
4. Trade balance fell €456.8mln mom in October (=10.95%) and €42.1mln (-1.12%) yoy. Relative to October 2009, trade balance is still up hefty €780.9mln (+26.6%).

Charts below illustrate:

Note that the trade balance remains on the upward sloping trend and the sub-trend is both steeper and above the historical trendline, which is, obviously a very strong development. Imports continue to underperform below the trendline, something that we can expect to be corrected once capes returns to exporting sector and also as the euro depreciates (margins on transfer pricing shrinking).

Terms of trade improvements are now virtually exhausted (although the data here is through September, not reflective of the gains in terms of trade that are materializing out of the latest weakening on the euro).

 Mom terms of trade deteriorated by 0.7 index points of 0.92%, however, year on year Irish exporters are enjoying strong gains of 7.88% and relative to September 2009, terms of trade have improved 10.54%. (Note: in the chart above, improvement in terms of trade is reflected in the lower value of the index).

It's worth noting (chart above) that exports are responding to terms of trade improvements well ahead of trend for the third year in a row, consistent with increasing transfer pricing component in our trade. This picture is further confirmed by the increasing sectoral concentration of our exports in pharmaceutical and medical devices sectors.

Overall imports-intensity of exports - the ratio of exports value to imports value has risen in October, as index moved from 208.7% in September to 194.4% in October (-6.86%) and year on year there has been relatively similar deterioration of 4.9%. This compares against the historical average ratio of 156.0%, implying that currently transfer pricing is running at a higher rate than average.

As noted earlier, imports are now rising faster than exports, reflective of cyclical stocks of inputs exhaustion and this can be a net negative going forward if the MNCs begin to see slowdown in new orders. In other words, as imports of inputs begin to outpace exports of outputs, stocks of finished goods will rise, implying that in the future, stocks of finished goods contribution to GDP will shrink, unless new orders take these stock out.

Despite good performance, seasonally adjusted trade flows are suggesting some troubles ahead for the trade balance. Annualized data based on previous years monthly series generates the forecast for Irish imports of €48.53bn in 2011 (+5.98%yoy against average annual contraction in 2008-2010 of -9.85%) and exports at €91.41bn (+2.42% yoy - well behind the target of 4.3% and well behind 2010 annual gain of 5.26%). This implies the forecast trade surplus of €42.89bn or some 1.35% less than in 2010. The crucial point for the GDP is how much stock build up activity we are going to see in November-December. And for GNP, the added critical issue is whether the MNCs will accelerate their profits expatriation or not.

Overall, there are signs (albeit still relatively weak) of the slowdown momentum building up in exports.