22/10/2012: Is Ireland a 'Special Case' in the Euro area periphery?

Since the disastrously vacuous summit last Thursday and Friday, there has been a barrage of 'Ireland is special' statements from Merkel and other political leaders. The alleged 'special' nature of Ireland compared to Greece, Portugal and Spain is, supposedly, reflected in Irish banks being successfully repaired and Irish fiscal crisis corrected to a stronger health position than that of the other peripheral countries.

I am not going to make a comment on the banking system's functionality in Ireland compared to other states. But on the fiscal front, let's take a look. Per IMF:

• In 2012 we expect to post a Government deficit of 8.30% of GDP against Greece's deficit of 7.52%, Portugal's 4.99% and Spain's 6.99%. We are 'special' in so far as we will have the highest deficit of all peripheral countries.
• In 2013, Ireland is forecast to post a Government deficit of 7.52% of GDP against Greece's 4.67%, Portugal's 4.48% and Spain's 5.67%. Once again, 'special' allegedly means the 'worst performing'.
• In 2012, Ireland's structural deficit would have fallen from 9.31% of potential GDP in 2010 to 6.15% - a decline of 3.16 ppt. For Greece, the same numbers are 12.12% to 4.53% - a decline of 7.59 ppt or more than double the rate of austerity than in Ireland. For Portugal, these numbers are  8.96% to 4.09% - a decline of 4.87 ppt of more than 50% deeper reduction than in Ireland. For Spain: 7.32% to 5.39% - a drop of 1.93 ppt or shallower than that for Ireland.
• In 2013 in terms of structural deficit, Ireland (5.38% of potential GDP deficit) will be worse off than Greece (-1.06% of potential GDP), Portugal (2.28%) and Spain (3.52%)

Now, run by me what is so 'special' about Ireland's fiscal adjustment case?

Can it be that we are 'lighter' than other peripherals on debt?

• 2010 Government debt in Ireland stood at 92.175% of GDP and this year it will be around 117.743% - up 25.255% of GDP. For Greece this was respectively 144.55% of GDP in 2010 and 170.731% in 2012 - a rise of 26.181%, marginally faster than that for Ireland. For Portugal, gross Government debt was 93.32% of GDP in 2010 and that rose to 119.066% in 2012, an increase of 25.746%. Again, not far from Ireland's. And for Spain, these numbers were 61.316% to 90.693% - a rise of 29.377%. So while Spain is clearly the worst performer in the class, Ireland, Greece and Portugal are not that far off from each other.

Wait, what about economic reforms and internal devaluations? Surely here Ireland, with its exports-focused economy is a 'special' case?

• In 2012, Ireland is expected to post a current account surplus of 1.813% of GDP, against deficits of between 0.148% and 2.909% for the other three peripheral countries. This, of course, is not the legacy of Irish reforms, but of the MNCs operating from here.
• However, in terms of current account dynamics, Ireland is not that special. Between 2010 and 2012, Greece will reduce its current account deficit by 4.294 ppt, Ireland will improve its external balance by 0.674 ppt, Portugal by 7.105 ppt and Spain by 2.278 ppt. So Ireland is the worst performing country of four in terms of current account dynamics, while the best performing in terms of current account balance.

Now, do run by me what can it possibly mean for Ireland to be a 'special' case compared to Greece, Portugal and Spain?

25/3/2012: Irish GDP and Structural Deficits - forecasting unpredictable?

The pitfalls of forecasting Irish GDP and structural deficit in handy charts...

First - the range of forecasts and outruns for annual GDP growth in constant prices:

Not only the range of forecasts is wide (exclude the 2008-2009 period for obvious reasons), but what is worse is that there is virtually no agreement within the WEO database on past rates of growth. For example, take year 2000:

• WEO September 2011 claims 2000 saw growth of 9.298%
• WEO April 2011 and September 2010 state it was 9.665%
• WEO April 2010 and October 2009 claimed it was 9.447%
• WEO April 2009 and October 2008 set it at 9.237%
• WEO April 2008 at 9.15%
• WEOOctober 2007 at 9.1%
• WEOApril 2007 reported it to be 9.4%
• WEOOctober 2006 and April 2006 showed 9.2%

So which is the real growth rate, then? And how long do we need to wait to confirm it? Of course, much of the above is due to referencing to different prices bases - in other words, inflation 'target' changes' but you do get the point - even past rates are changing over time, implying the difficulty of actually comparing past performance.

Meanwhile, the range of forecasts is outright massively all over the place. Take this year forecasts (and we exclude the fact that between WEO database releases twice a year, we have intermediate updated forecasts published in separate documents without actually updating the database. So back in 2009 the IMF predicted 2012 rate of growth to be 2.325% to 2.337% (April-October versions). By April 2010 it was 2.306% and by October 2010 it was 2.446%. InApril 2011 the forecast for 2012 was revised to 1.908% and in September 2011 it was revised to 1.484%. So much for planning: the range over just 1.5 years is 2.446% to 1.484%.

Structural deficits - the reverse is true. Forecasts are tighter (as potential GDP assumes away cyclical effects) and outrun estimates are all over the place instead:

There is also a strangely strong correlation between conservative estimates of the structural deficits and the average estimates of the structural deficit and the IMF reported and forecast GDP growth rates. In other words, the models used by the IMF appear to produce more consistent lower end deficit estimates.

Which, of course, begs a question. You see, per IMF, Ireland's structural deficits were on average and at the minimum levels strongly outside the fiscal sustainability in 2000-2006 and well outside the Fiscal Compact bound of -0.5%. Over the same period of time, EUCommission reported structural deficits were actually within the parameter bounds for Fiscal Compact. Given that the IMF min and average estimates closely reflect the growth estimates and reported outruns, it appears that the IMF metric is probably a more reasonable reflection of the fiscal realities than that of the EUCommission.

Which is not exactly the great news for the Fiscal Compact as far as the treaty expected ability to achieve any real impact on fiscal discipline goes.