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%.