18/8/2012: What the IDA forecasts don't tell us?

I waited for several days before posting about the latest mystery of Irish statistics. 

This presentation from IDA contains the following chart:

Now, IDA is correct in highlighting the Current Account as a key to our recovery 'policies'. For a number of reasons:

1. In virtually all debt overhang recessions in the past, return to positive surpluses on current account were required as a necessary, albeit not always sufficient, condition to restore economy to a stable path
2. In Ireland, we have witnessed some significant improvements in the Current Account so far during the Great Recession

Alas, the above chart is a mystery to me. Let me explain.

Firstly, it cites CSO as the source of the chart. I have contacted CSO about their 'forecasts' for 2012-2017 period for the Current Account and their reply was: 

"Having consulted with my colleagues they assure me that they do not produce forecasts, let alone five year forecasts. Furthermore, my colleague suggested that the figures might be derived from a paper published by the Dept. of Finance (page 9): http://budget.gov.ie/budgets/2012/Documents/Economic%20and%20Fiscal%20Outlook.pdf It should be stressed, however, that these figures are the department's and not the CSO's."

Now, here are two forecasts for Ireland's Current Account known to me, sourced from the updated IMF database (July 2012 update to WEO database) and the above link from the Department of Finance:

Clearly, no source, bar IMF projects anything beyond 2015. Also, clearly, even the IMF projections appear (one can't really properly read IDA chart) to be as 'upbeat' as IDA's chart in 2013-2017 projections range. 

But wait, recall that IMF is providing a forecast, based on their central tendency scenario. They also provide useful assumptions and data that went into their scenarios assessments which allow us to compute historical confidence intervals for their own forecast. And, ahem, it turns out the IMF 'central' tendency forecast - illustrated above - firmly falls outside the reasonable 90% single tail confidence interval (adjusting for sample size, but caveating this). In other words, it is improbable, were historical Irish performance on current account balance to be out guide. The same applies to the stress-testing metric on current accounts used by the IMF - the primary current account balances (current account ex-interest payments).

So the IMF forecasts above assume massive change in Irish current account performance relative to history, the change that - may be IDA can expand on this - is supposed to come in the environment of adverse global trading conditions, pharma cliff hitting Irish exports, and re-orientation of trade flows worldwide away from North-South shipments of higher value added goods and services toward South-South flows.

But wait, things are actually worse than that. DofF forecasts deviate from the average for the above sources ex-DofF by a cumulative 1.7% of GDP and from those by the IMF by a cumulative of 2.5% of GDP for the period 2011-2015, which means that DofF forecasts are even less probabilistically likely to materialise than those for the IMF.

Even were the IMF to materialise, Ireland's current account surplus in 2012-2017 will be 2.78% of GDP on average - an impressive swing from a recent historical performance, yet contrasted by the economy with ca 120% debt/GDP metric on Government side alone! Anyone out there really thinking this is going to be a silver bullet for our economy?

So things are a bit less rosy than the IDA seems willing to admit to the prospective Foreign Direct Investors and the media. 

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...

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.

13/1/2012: EU27 External Trade - Greece falling out of trade picture

As German lawmakers are putting pressure on the parties in the PSI negotiations in Greece with calls for Greece to exit the Euro to devalue and regain competitiveness have some serious basis in real economic performance of the country.

Today's data on trade balance across EU27 clearly shows that Greece is unable to sustain serious debt repayments under the current arrangements. Here are the details:

The first estimate for November 2011 euro area (EA17) trade surplus came in at €6.9 bn surplus, against the deficit of -€2.3 bn in November 2010. October 2011 trade balance was +€1.0 bn, against a surplus of +€3.1 bn in October 2010.

In November 2011 compared with October 2011, seasonally adjusted exports rose by 3.9%, while imports remained unchanged.

The first estimate for the November 2011 extra-EU27 posted trade deficit of -€7.2 bn, compared with a deficit of -€16.8 bn in November 2010. In October 2011 the trade balance extra-EU27 was -€11.2 bn, compared with -€9.5 bn in October 2010.

In November 2011 compared with October 2011, extra-EU27 seasonally adjusted exports rose by 2.8%, while imports fell by 0.6%.

EU27 detailed results for January to October 2011:

• The EU27 deficit for energy increased significantly (-€317.5 bn in January-October 2011 compared with -€246.4 bn in January-October 2010)
• Trade surplus for manufactured goods rose to +€198.9 bn compared with +€136.4 bn in the same period of 2010. 
• The highest increases were recorded for EU27 exports to Russia (+28%), Turkey (+23%), China (+21%) and India (+20%), and for imports from Russia (+26%), Norway (+21%), Brazil and India (both +20%). 
• The EU27 trade surplus increased slightly with the USA (+€60.8 bn in January-October 2011 compared with +€60.1 bn in January-October 2010) and more significantly with Switzerland (+€24.1 bn compared with +€16.6 bn) and Turkey (+€21.3 bn compared with +€14.7 bn). 
• The EU27 trade deficit fell with China (-€132.2 bn compared with -€139.8 bn), Japan (-€16.1 bn compared with -€18.3 bn) and South Korea (-€3.9 bn compared with -€9.6 bn), but increased with Russia (-€76.0 bn compared with -€61.1 bn) and Norway (-€38.7 bn compared with -€29.8 bn). 
• Concerning the total trade of Member States, the largest surplus was observed in Germany (+€129.2 bn in January-October 2011), followed by Ireland and the Netherlands (both +€35.9 bn) and Belgium (+€10.1 bn). The United Kingdom (-€98.2 bn) registered the largest deficit, followed by France (-€72.5 bn), Spain (-€40.1 bn), Italy (-€24.2 bn), Greece (-€16.9 bn), Portugal (-€13.3 bn) and Poland (-€12.0 bn).

Some charts:

The charts above clearly show that:

• Of all PIIGS, Ireland is the only country showing capacity to generate significant trade surpluses, with Irish merchandise trade surplus of €2.5bn in November being the second highest in EU 27 in absolute terms and the highest in terms relative to GDP. Exactly the same is true for Irish trade surplus recorded in October. Irish trade surplus in November was almost as large as the combined surpluses of all other countries with positive trade balance, ex-Germany (€2.9bn).
• In November 2011 Ireland posted the third fastest rate of mom growth in exports in EU27 (+8.3%), the effect compounded by the 9.4% drop (4th deepest in EU27) in imports.
• In contrast, Greece posted a 14.4% contraction in its exports in November 2011 compared to October 2011 - the largest drop of all countries in EU27. Greek trade balance in October stood at a deficit €0.1 billion and in November 2011 this widened to €0.2 billion.

So in terms of trade, Ireland is not Greece, and Greece is not showing any signs of ability to sustain internal debt adjustment within the euro structure.

16/12/2011: QNA for Q3 2011: 'exports-led recovery' myth

In the first post on Q3 Quarterly National Accounts, we looked at the data on real rates of growth in the Irish economy based on sectoral decomposition (linked here). Now, let's take a look at the expenditure-based data. Please keep in mind - Q3 2011 was the record-busting quarter in terms of exports growth for Ireland, with the latest data pointing to falling growth rates in Irish external trade for Q4 2011 (see here). In addition, keep in mind that unlike the DofF that projects Irish GDP growth to be 1.3-1.6% in 2012, most of the euro zone is factoring in contractions for H1 2012 (see details here).

So down to data now.

In nominal terms,

• Personal consumption continued its precipitous fall in Q3 2011, declining €291mln (-1.4%) qoq and €283mln (-1.4%) yoy. Relative to Q3 2007, personal consumption is now down €3,085mln or 13.3%.
• Net expenditure by central and local government, is down €61mln (-1.0%) qoq and €110mln (-1.7%) yoy. Compared to Q3 2007, net government spending is down 12.1% or €869mln.
• Exports of goods and services are up €373mln (+0.9%) qoq and €1,025mln (+2.5%) yoy. Exports are also up on Q3 2007 by some €3,849mln (+10.2%)
• Imports of goods and services are down €192mln (-0.6%) qoq but up €1,033mln (+3.3%) yoy.

Thus, GDP at current market prices is now down €703mln qoq in Q3 2011 (-1.8%) and down €1,011mln (-2.5%) yoy. Compared to Q3 2007, GDP is down €7,030mln (-15.4%) in current market prices.

In current market prices, value of profits expatriated abroad net of profits inflowing from abroad has risen €189mln (+2.4%) qoq and is up €1,076mln (+15.5%) yoy.

As the result, GNP is now down €612mln (-1.9%) qoq and down €2,063mln (-6.3%) yoy. GNP in current market prices is down €9,092mln or 22.8% on Q3 2007.

Personal consumption in nominal terms now stands close to the level of Q3-Q4 2005. Fixed capital formation is at the level roughly 1/3 of the Q1 2005.

Things are pretty dire in constant market prices terms as well:

• Personal consumption fell €182mln (-0.9%) qoq and €822mln (-3.9%) yoy. Relative to Q3 2007, personal consumption is now down €2,744mln or 12.1%.
• Net expenditure by central and local government, is down €88mln (-1.4%) qoq and €259mln (-3.9%) yoy. Compared to Q3 2007, net government spending is down 13.9% or €1,035mln.
• Gross domestic capital formation also continued falling in Q3 2011, with qoq decline of €1,234mln (-27.1%) and yoy fall of €955mln (-22.2%). Relative to pre-crisis level in Q3 2007, Q3 2011 investment in this economy came in at €5,754mln less (a decline of 63.2%).
• Value of stocks of goods and services has contracted €173mln in Q3 2011 qoq (-26.7%). 
• Exports of goods and services are up €786mln (-1.9%) qoq and €947mln (+2.4%) yoy. Exports are also up on Q3 2007 by some €2,650mln (+7.0%)
• Imports of goods and services are down €1,865mln (+5.9%) qoq but up €997mln (+3.3%) yoy.

GDP at constant market prices is now down €836mln qoq in Q3 2011 (-2.0%) and down €57mln (-0.1%) yoy. Compared to Q3 2007, GDP is down €3,318mln (-7.6%) in constant market prices.

Value of profits expatriated abroad net of profits inflowing from abroad has fallen €262mln (-3.1%) qoq but is up €1,347mln (+19.8%) yoy.

As the result, real GNP is now down €574mln (-1.8%) qoq and down €1,404mln (-4.2%) yoy. GNP in current market prices is down €5,398mln or 14.4% on Q3 2007.

So once again, that 'exports-led recovery' is, predictably not enough to keep economy above the waterline. And this is the case for Q3 2011, when "net exports (exports minus imports) grew by

21.8% at constant 2009 prices compared with the same quarter of last year." Record growth in exports before the slowdown hit in Q4 2011, and still recession in the overall economy.

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.

23/10/2011: Ireland's External Trade data: August 2011

Catching up on some data releases missed last week (lecturing marathon of MSc in TCD, plus UCD MiM - great students, great honor to mentor). First up - trade data.

Seasonally adjusted exports rose 10.24% mom to €7,767mln in August. Annual increase in exports was 2.25% yoy on seasonally adjusted basis. Relative to August 2009, this year exports rose 15.76%. Overall, additional exports yoy were €170.8mln compared to August 2010 and 1,057.5mln on August 2009.

Seasonally adjusted imports were up 6.23% mom to €4,068mln, annual imports rate of growth in August 2011 was 5.71% and relative to August 2009 imports are up 13.45%. Year on year imports are up €219.6mln, which implies that trade surplus is down €48.8mln on 2010.

Trade surplus rose 14.71% mom to €3,698.5mln on seasonally adjusted basis. Trade surplus in August was 1.3% below (-€48.8 mln) August 2010 level and €575.2mln (+18.4%) above August 2009 level.

On an unadjusted basis, trade surplus of €3,251mln in August 2011 was virtually unchanged from the 2010 figure of €3,221mln.

Volume indices of trade - reported with 1 month lag - showed that in July 2011 exporting activity fell to 466.3 against 532.2 in June 2011, and July 2011 reading was below comparable reading for 2010 (494.3) and July 2009 (469.5).

Imports intensity of Irish exports rose to 190.91 in August - up 3.8% on July 2011 and down 3.3% on August 2010. The intensity is up 2.0% on August 2009 and remains well above historical average of 155.3 reflecting the overall increasing share of MNCs in our exports.

Terms of trade have improved in July (also reported with 1 month lag) from 78.2 in June to 76.9 in July 2011. This compares to 86.2 in July 2010 and 86.6 in July 2009, showing overall easing in exchange rates pressures over 2011 compared to 2009 and 2010.

Per CSO, based on final data for seven months through July 2011, Irish exports rose 4% to €54,258mln compared to 2010, driven by:

• Medical and pharmaceutical products +11% or €1,599mln 
• Organic chemicals +8% or €925mln
• Exports of Computer equipment declined by 10% or €261mln and 
• Telecommunications and sound equipment fell by 25% or €124mln

Based on data through August, my forecast for 2011 external trade is:

• Imports up to €49,068mln in 2011 from €45,772mln in 2010
• Exports up to €92,356mln in 2011 from €89,260mln in 2010
• Trade surplus down to €43,271 in 2011 from €43,488mln in 2010.

21/09/2011: Ireland's External Trade for July 2011

Trade stats for Ireland for July are out today and as predicted, trade balance has shrunk somewhat off its historic high attained in June. Here are the details:

• Seasonally adjusted exports fell 11.74% to €7,027.2mln in July down from €7,961.9mln in June. Year on year exports are down €763.4mln or 9.80%. Relative to July 2009 levels, exports are down €32.3mln or 0.46%.
• To remind you, H1 2011 exports stood at robust €46,450.4mln well ahead (+6%) on €43,821.9mln in H1 2010 - a difference of €2,628.5mln.
  
• Imports, seasonally-adjusted, increased in July to €3,876.6mln - a rise of 2.57% mom and 2.40% yoy. Compared to same month in 2009, imports are up 4.14%.
• H1 2011 imports stood at €24,929.2mln up 8.44% on same period of 2010.

As the result, trade balance fell 24.67% mom to €3,150.5mln, with annual rate of decline standing at 21.34% and relative to same period in 2009, trade balance is down 5.59%. Much of this seems to be accounted for by a combination of an increase in imports from the Chemicals & Related Products and decreases in the same sector exports, although current release does not provide sectoral data breakdown for July (data is supplied with 1 month lag).
Terms of trade remained subdued at the lower end of export prices
Terms of trade in June were up to 78.2 (higher ratio of export prices to import prices) from 76.9 in May 2011, but year on year terms of trade are still down by 11.5% and relative to June 2009 terms of trade are now also lower by some 10.73%. as highlighted below:
Imports intensity of exports also fell - perhaps in part due to rebuilding of supply stocks (higher imports) in core exporting sectors, such as Chemicals:
Imports intensity of Irish exports (ratio of exports value to imports) now stands at 181.3% in July 2011, down from a record-breaking 210.7%. This reflects a normal pattern of supplies inventories exhaustion followed by subsequent rebuilding. Two interesting trend, however emerge from the above chart:

• Overall imports intensity of Irish exports rose during the period of the current crisis due to two factors - the catastrophic collapse of consumer good imports and increased incentive to engage in transfer pricing for the MNCs
• Imports intensity of our exports also became much more volatile in the current crisis, again due to removal of the stabilizing factor of domestic consumption imports and due to possible reduction in the willingness of the MNCs to hold longer stocks of inputs (possibly reflecting generally elevated uncertainty of global demand).
  

Again, as a reminder of previous robust performance, and to correct for embedded monthly volatility in the trade data, the figures for H1 2011 compared with H1 2010 show that:

• Exports increased by 7% to €47,114mln
• Exports of Medical and pharmaceutical products increased by 14% or €1,754mln
  
• Exports of Organic chemicals rose by 13% or €1,194mln
• Exports of Computer equipment fell by 7% or €142mln
  
• Exports of Telecommunications and sound equipment decreased by 25% or €107mln
• Exports to the USA increased by 14% or €1,337m while exports to Spain fell by 16% or €276mln
• In the H1 2011, 23% of Ireland’s exports went to the USA, with Belgium (16% - as an enter-port) and Great Britain (13%) being the other dominant markets
• Imports increased by 9% to €24,992mln
• Imports of Petroleum increased by 24% or €496mln
• Imports of Medical and pharmaceutical products rose 24% or €419mln
  
• Exports of Organic chemicals increased by 26% or €279mln
  
• Imports from Great Britain rose by 19% or €1,191mln and from Germany by 16% or €256mln
• Over half (53%) of Ireland’s imports came from Great Britain, the USA and Germany in the first half of 2011

On the net, July figures can prove to be a temporary correction and should be taken less as a signal of real weakness, and more as a temporary downshift along the continuously rising trend line.

However, so far, January-July 2011 data suggests the annual rate of growth in imports of just under 8%, in exports of just over 3.6% and the trade surplus decline of just under 1%. P{ut differently, January-July cumulated imports now stand at €28.8bn against €26.77bn in the same period of 2010. Meanwhile, exports are at €53.48bn against €51.61bn. This means January-July 2011 trade surplus is running at a cumulative €24.67bn against same period 2010 trade surplus of €24.84bn. Sorry to say it, I am not seeing 6-8% trade expansion here, at least not for the first seven months of the year.

25/08/2011: Irish Exports - long term composition

In light of the recent stellar performance of our exports (see my note on the latest figures here), it's worth taking a look at the overall exports and trade balance composition by broadly-defined sectors. Here are some historical facts.

First for some interesting long-term trends:

• Back in 1973, 5 broad sectors: Total food and live animals (0), Beverages and tobacco (1), Crude materials, inedible, except fuels (2), Mineral fuels, lubricants and related materials (3) and Animal and vegetable oils, fats and waxes (4) accounted for 26.8% of our exports by value. By 2002 that number shrunk to 8.6%. The overall importance of these sectors rose to a local peak in 2007 at 12.75% and in 2010 the sectors contributed 12.1% of our exports. Using the data for the first 5 months of 2011, the current running contribution of these sectors to our overall exports stands at 11.2%, despite continued CAP supports and strong agri-food prices.
• Annual contribution of the two sub-sectors related to ICT manufacturing: Office machines and automatic data processing equipment (75) and Electrical machinery, appliances etc., n.e.s. (77) to our exports stood at 13.05%. This share rose to an absolute peak of 34.03% in 2001 and had since fallen to 8.6% in 2010. Based on 5 months data for 2011, current contribution of the two sub-sectors to exports is running at 7.15%.
• Annual contribution of the two sub-sectors related to pharma and medical products and preparation industry: Organic chemicals (51) and Medicinal and pharmaceutical products (54) started with a barely noticeable 4.35% back in 1973, rising to just 7.8% in 1987 before taking off to reach 48.9% in 2010. The two sub-sectors contributed 51.5% of our total value of exports in the first 5 months of 2011.
  

Other sectors evolution is plotted below:
However, it is worth remembering that various exporting sectors are also importers - both of inputs into exports production and goods for consumption and capital investment. So consider the composition of our trade balance by each broad sector contribution:
The chart above hardly needs much commenting. Ireland's trade balance is pretty much now made up of pharmaceuticals and medical products. back in the 1970s, on average, we were net importers of Organic chemicals (51) & Medicinal & pharma products (54) with the two sub-sectors contributing 3.74% deficit to our trade balance. By 2010, the two sub-sectors own trade surplus stood at 86.1% of Ireland's overall trade surplus and in the first 5 months of 2011 the same proportion stood at 97.3%. Let's, say, our potency is Viagra, folks.

Which, of course, brings us to the point of recalling that scary moment which awaits us in 2012, when Viagra starts going off patent... and the overall patent cliff that the industry is facing globally.

In the mean time, our flagship domestic exporting sectors: Total food and live animals (0), Beverages and tobacco (1), Crude materials, inedible, except fuels (2), Mineral fuels, lubricants and related materials (3) and Animal and vegetable oils, fats and waxes (4) continue to contribute negatively to our overall trade balance. These sectors yielded 2.62% negative contribution to trade surplus in 2010 and in the first 5 months of this year they own trade deficits are running at 4.85% of our total trade surplus. By the way, if you think this is a new development, the same was true in the 2000-2009 (-0.23%).

2011 so far is also the first year when we are registering negative contribution to the trade balance from Office machines and automatic data processing equipment (75) and Electrical machinery, appliances etc., n.e.s. (77). Back in the 1970s these flagships of manufacturing were contributing 25.86% of our overall trade balance. In the 1980s 26.5%, in the 1990s 35.6% and in the 2000s +20.5%. In 2010 they accounted for 6.28% of the trade balance, but in the first 5 months of 2011 their contribution turned to negative 2.1%.

Some interesting stats to keep in mind when we talk about successes of our exporting sectors.

23/08/2011: Trade Figures for June - an awesome performance by the sector

Latest trade stats are out for June 2011 for Ireland and the results are, overall, excellent:

• The seasonally adjusted trade surplus increased by 7.54% mom (a whooping 22.45% yoy) to €4,079m. This is the highest monthly surplus ever recorded in nominal seasonally-adjusted terms.
• Compared to June 2009, trade surplus increased 7.48% (+€283.8 million) and compared to June 2010 trade surplus is up 22.45% (+€747.9 million).
• The non-seasonally adjusted trade surplus in June 2011 was €4,473m comprising exports of €8,343m and imports of €3,870m. Per CSO: "This is the highest trade surplus since June 2001.
• Imports came in at a weak €3,821 million in seasonally-adjusted terms in June 2011, down 7.48% on June 2010 and up 2.83% on June 2009.
  
• Exports posted the best seasonally-adjusted performance since February 2011, reaching €7,900 million in June 2011, up 5% (+374.6 million) mom. Exports rose 5.89% yoy (+€439.1 million) and 5.18% (+€388.90 million) on June 2009.

As chart above shows, trade surplus has broken through short-term flat trend that run from roughly speaking January 2009. Which, of course is the good news. Build-up of inputs imports in April 2011 is now exhausted, as indicated by the fact that we have moved to a much more intensive position in exports as determined by imports volumes (chart below). This suggests that trade surplus can shrink in months to come as rebuilding of inputs inventories set in. Regardless, however, June figures are truly spectacular.
For H1 2011:

• Imports stood at €24,934.4 million, up 8.47% (+€1,946.4 million) year on year
  
• Exports were at €46,244.9 million, up 5.43% (+€2,423 million) yoy and
• Trade surplus stood at €21,310.3 million, up 2.29% (+€476.4 million)

The above, of course, provides a backdrop for the claims that our exports-led recovery (which is roaring ahead) is going to underwrite overall economic recovery (which is not happening). Just think, the entire trade surplus increase for 6 months this year would be barely enough to cover 2.6% of our fiscal deficit through June 2011.

Per CSO (using final figures through May) for the first five months of 2011 compared with those for 2010:

• Exports increased by 6% to €38,565m:
• Exports of Medical and pharmaceutical products increased by 14% or €1,362m,
  
• Exports of Organic chemicals rose by 7% or €582m and
  
• Exports of Dairy products increased by 47% or €217m.
• Imports increased by 12% to €21,123m
• Imports of Other transport equipment (including aircraft) increased by 34% or €497m
  
• Medical and pharmaceutical products by 22% or €318m and
  
• Imports of Petroleum rose by 17% or €305m.
  

These figures were achieved against improving terms of trade (lower TT readings) through May (the TT data is lagged 1 month behind the Trade data), as shown in the chart below:
As the result of this, long-term relationship between terms of trade and exports implies that June performance was actually below exports levels consistent with current reading of terms of trade. This suggests that in July and August there is some room for exports increases despite the slight deterioration in the terms of trade month-on-month in June.
On the net, therefore, very positive set of figures on trade from Irish exporters! something truly worth cheering.