04.07/2011: Eurocoin for June 2011

In advance of ECB decision and with a week delay - here's the latest leading indicator for Euro area growth - eurocoin - as issued by CEPR (link to release here).
As shown above, eurocoin posted a small decline from 0.62 in May to 0.52 in June. This reading is below 3mo MA of 0.57 and behind 6mo MA of 0.56, but is 13% ahead of the June 2010 reading of 0.46. The series continue to signal expansion, albeit at a slower pace.

Mapping out eurocoin alongside quarterly growth rates suggests, should eurocoin lower trend be established in July-August - slower growth in Q2/Q3 2011:

Lastly, a chart mapping eurocoin against ECB decisions:
The above suggests that although eurocoin signals alleviation in the pressures on ECB to raise rates this month, there is, nonetheless continued disconnect between the historical rates and eurocoin readings. Historical relationship between level and changes in eurocoin and ECB repo rate implies repo rate around 2.0-2.5% or roughly double current rate.

03/07/2011: SMEs and Corporate Credit: April 2011 data

In the previous post I looked at the latest data on lending rates and volumes for Irish households, which, among other things, showed

• lack of any significant easing in rates themselves (except for consumer credit), and
• lack of any uptick in credit issuance (in fact, there has been contraction in lending volumes in 3 out of 4 categories examined)

Here, let's take a look at business lending. First, loans up to € 1 million in volume (primarily loans that are focused on SMEs). Keep in mind the objectives of:

• creating Nama
• pumping countless billions into IRL-6 zombies
• setting aside specially designated funds within AIB & BofI for small business lending, and
• increasing various seed programmes (EI) and targeted tax reliefs

were to increase supply of credit to Irish SMEs.

Top line numbers for loans under €1 million are:

• Average rates charged on loans under €1 million in volume with up to 1 year fixed duration (or floating) has risen from 4.27% t0 4.74% between March 2011 and April 2011. The rate now stands just-shy of 4.906% historical average and 4.801 average for crisis period of January-2008 through present. 12mo MA is now below April 2011 rate at 4.087%. Volatility of these rates has risen from 1.002 standard deviation for historical period to 1.302 standard deviation for the crisis period. In short, there are no signs of any improvement in the rates charged during the crisis.
• At the same time, volume of non-financial corporate loans under €1 million with floating or up to 1 year fixed rates has fallen from €404 million in March to €250 million in April 2011. Volumes of new loans written in this category now stand well below historical monthly average of €919 million, crisis period average of €832 million and 12mo MA of €448.4 million.
• Fixed-rate loans (with rate fixed for more than 1 year) also became more expensive in April (6.17%) than in March (5.86%). These are now well above the historical average rates of 5.234%, the crisis average of 5.329% and the 12mo MA of 5.008%. Volatility of these rates also rose during the crisis.
• Volumes of over 1 year fixed smaller loans has shrunk to €45 million in April, down from €64 million in March and down on historical average of €160 million, crisis period average of €110 million and 12mo MA of €70.25 million.
  

So to sum this up, small businesses are seeing higher charges and shrinking volumes of loans across both types of loans under €1 million in volume. Anyone wondering why the hell all the above measures are failing to deliver on the promise?

But wait, what about larger loans? Next, consider loans issued to non-financial corporations that are over €1 million in volume:

• Rates charged on loans of €1 million and more that are floating or under 1 year fixed have fallen from 3.51% in March to 3.22% in April and are now standing well below 4.407% historical average, 4.01% crisis period average, but above 12mo MA of 3.048%. Volatility of these loans rates have risen during the crisis from historical 1.159 standard deviation to a standard deviation of 1.518 during the crisis.
• So more of those loans should be pursued by businesses, you'd think? Not really. At least not when it comes to actual issuance of these loans. Volume of larger loans issued on floating or fixed up to 1 year rate basis has fallen in April to €626 million, down from €1,119 million in March. Both numbers pale in comparison with historical average of €3,948 million and crisis period average of €4,654 million and both are below 12mo MA of €1,784 million.
• Rates charged on loans of €1 million and more in volume with fixed interest rate over 1 year have also declined from 2.30% in March to 2.27% in April. The rates are now well below 4.054% average over historical period and 3.666% average over crisis period. 12mo MA is also higher than the current rates - at 2.772%. Lower rates here again come with higher volatility.
  
• Volumes of these loans, however, fell precipitously, reaching €45 million in April, down from €169 million in March. Historical monthly average of new loans of this type issued stands at €632.3 million, while crisis period average is €488.5 million and 12mo MA is €190 million.

Lastly, let's take a look at the spreads between the rates based on loan volume:

• Spreads on corporate loans under €1 million, flexible rate & under 1 year fixed over and above those for over €1 million, should - in theory - be negative, unless there is a selection bias of SMEs predominantly taking smaller loans. At any rate, we would expect the spread to be moving in the direction of lower spreads if Government 'get credit flowing to SMEs' policies were working. Alas, in April 2011, the spread stood at 1.52pp up from March 0.76 percentage points and well above the historical average of 0.499pp and crisis period average of 0.791pp. It was also above 12mo MA reading of 1.039pp. Spread volatility has declined marginally during the crisis. So no, Government policy does not help selecting in favor of smaller corporate borrowers and does not provide support for working capital lending.
  
• Spreads on corporate loans under €1 million with fixed rate (>1 year duration) over and above similar loans of volume in excess of €1 million stood at 3.9pp in April up from 3.56pp in March. The spread is now massively above historical average of 1.180pp and crisis period average of 1.663pp, as well as 12mo MA of 2.237pp. Spread volatility has risen during the crisis. Again, no evidence here that SMEs are getting any support from Government policy 'instruments' listed above when it comes to gaining smaller loans as opposed to larger corporates access to credit.

03/07/2011: Household Credit: latest data

Some more analysis of new lending - based on CBofI data through April 2011.

Household loans and consumer loans are covered in this post. So house purchase loans first:

• Rates for the loans for House Purchases floating and up to 1 year fixation have risen from 3.09% to 3.20% in April 2011, relative to March. Historical average rate is 3.743% and the average rate since the beginning of the crisis (January 2008) is 3.574%. Current rates are above their 12mo MA of 2.959%. It is interesting to note that this data clearly shows that there is no statistically significant easing of rates during the crisis as crisis period average rates are not statistically significantly different from those for the entire history of the data series. Another interesting point is that when house purchasers are concerned, volatility of retail rates has risen during the crisis: the historical standard deviation of the series is 0.827 while post-January 2008 standard deviation is 1.072.
• Volumes of loans in the above category has declined from €1.190 billion issued in March 2011 to €1.092 billion in April 2011. Again, current rates of issuance are signaling continued credit tightening: historical monthly average issuance stands at €2.577 billion, while issuance since January 2008 averages €2.0 billion.
  
• Rates for the loans for House Purchases, over 1 year fixation have also increased mom in April from 4.23% to 4.29%. The rates are now above their historical average of 4.213% but below their crisis period average of 4.34%. April rate is above 12mo MA of 4.115%. As in the case of floating rate loans, fixed rate loans rates also risen in volatility during the crisis with overall historical standard deviation for the rates at 0.641 and January 2008-present standard deviation of 0.723.
• However, good luck to anyone trying to get these loans. Fixed rate loans for House Purchases issuance fell from €568 million in March to €331 million in April. New issuance of these loans is now well below historical average monthly volumes of €705 million and below crisis-period average of €521 million. Although 12mo MA is above the crisis average at €526 million.

A chart:
But what about consumer loans not designated for house purchases?

• Cost of consumer credit for floating loans and loans up to 1 year fixation fell from 6.02% in March 2011 to 5.23% in April. Thus, April rates were below their historical monthly average of 5.584%, their crisis period average of 5.565% and their 12mo MA of 5.640%. Note that crisis period was associated with higher volatility of rates in this category as well, with standard deviation rising from historical 0.836 to crisis-period 1.099.
• In terms of volumes of loans issued in the above category, the volume increased from €134 million to €156 million between March 2011 and April. However, volume of new loans issuance remains well below its historical average of €393 million, crisis-period average of €378 million and 12mo MA of €193 million.
• Cost of consumer credit for fixed loans (over 1 year) has fallen from 10.09% in March to 9.90% in April 2011, with current rate still above historical average of 8.589% and crisis period average of 9.494%, but is now below 12mo MA of 10.217%. Interestingly, volatility of rates charged on these types of loans has fallen from historical standard deviation of 0.962 to crisis-period standard deviation of 0.695.
• Again, good luck securing such loans, though, as volumes issued declined from €60 million in March 2011 to €51 million in April. Historical average issuance stands at €169.5 million, while crisis period average is €96 million. Current issuance however remains above 12mo MA of €48.8 million.

A chart to illustrate:

02/07/2011: SMEs and smaller corproate loans rates

An interesting chart of rates charged on new business loans across SMEs and households - my calculations based on Table B.2.1 from the Central Bank database:
In April 2011, the spread between Non-Financial Corporate Loans volume under €1 mln over those for house purchases were:

• Floating rate and up to 1 year fixation corporate loans v similar house purchase loans: 1.54 percentage points, up from 1.18 in March and well above the historical average spread of 1.16 percentage points. Historical average spread for the period January 2008-present is 1.23 percentage points. April 2011 new business rate spread is the highest since January 2009.
• Over 1 year fixation rates spread stood at 1.88 percentage points in April, up on 1.63 percentage points in March 2011. Historical average is 1.02 percentage points and average spread for the period since January 2008 is 0.99 percentage points.

Hence, overall, setting aside the pesky issue that very little new credit is issued by the banks, current credit conditions are clearly pricing historical highs in terms of risk premium for smaller corporate loans. For businesses operating in Ireland, the credit crunch is only getting crunchier, it seems.

02/07/2011: Was banks Guarantee 2008 a subsidy to foreign lenders?

Please note: the figures below are estimates, based on Table A.4.2 data from the Central Bank of Ireland for 6 covered banking institutions liabilities as of September 2008. These charts illustrate the comment I provided to the Quarterly Journal of Central Banking - forthcoming issue for Q3 2011.
First, straight forward composition of liabilities as shown in the chart above.

Next, the same expressed as percentages of total liabilities:
Finally, assumptions and calculations of total implicit subsidy from the Irish taxpayers/Exchequer to foreign liabilities holders:
Click on the chart to enlarge and see assumptions and calculations. Euro area residents accounted for €39.572 billion of our banks' liabilities or 6.42%, while non-Euro area residents accounted for €218.836 billion or 35.5% of total Ireland-6 liabilities at the time the Guarantee was issued. Thus, Euro area residents received an implicit subsidy from the Irish taxpayers to the tune of €5.5-6.7 billion over the time of the Guarantee - well in excess of the life-time cost of 1% reduction in the interest rate on our EU loans.

Of course, this is a crude estimate based on official provided and expected default rates on assets held by the Irish banks - excluding Anglo and INBS. Which means it is likely to be an under-estimate. Expected losses at INBS and Anglo are multiples of those assumed for the Ireland-4 covered in the main PCARs. With Anglo & INBS thrown into the mix, subsidy to Euro area residents rises to ca €8 billion.

Another issue here is that I am using estimates through 2013 only. This means that, like the CBofI I am assuming (ad hoc) that post-2013 IRL-6 will be able to cover their own losses without resorting to taxpayers capital injections. This assumption, in my view, is absolutely unrealistic.

Finally, no allowance is made here for the Irish Government underwriting of the funding debts incurred by the banks vis-a-vis ECB and CBofI - the debts which, at least in the case of Anglo & INBS, should be treated as largely reckless lending to insolvent institutions and which should not be a liability of the taxpayers.

In the end, in my opinion, Irish Government had no business underwriting a Guarantee for any of the liabilities in excess of €130.2 billion of domestic deposits and €2.813 billion of its own deposits with the IRL-6.

Note - another issue not addressed in these estimates, but also likely to increase the implicit subsidy extended to Euro area residents is that Monetary & Financial Institutions deposits figures cover IRL-20 banks regulated here, which include a large number of deposits from Euro area banks that are within IRL-20.

02/07/2011: Irish Manufacturing PMI

Last month I was expressing some concerns about the direction of the PMIs, as well as questioning the argument that confidence of its own, is causally capable of driving fundamentals, rather than reflect them. The latest data for PMIs in Manufacturing from NCB Stockbrokers released today (covering June 2011) confirms the validity of my concerns. Here are the headlines:

• Manufacturing PMI for June fell to 49.8 - below the critical 50 mark, implying contraction in the overall manufacturing activity. The PMIs are down from 51.8 in May 2011. This is the first time since September 2010 that PMIs are below 50. While in order to establish a trend the PMIs should drop below ca 48, the swing from 51.8 to 49.8 is statistically consistent with at least 70% chance of this drop being a sign of real deterioration.
• The 12mo MA now stands at 52.6, with 3mo average at 52.5 down from 56.1 in 3 months for January-March 2011. Same period 3mo average for 2010 was 53.1 and for 2009 it was 39.3.
• Output overall also moved into contraction territory with June reading of 49.3 down from May reading of 52.6. Again, the magnitude of the swing is statistically significant. 12 mo MA now stands at 54.0 while 3mo average at 53.5 down from the previous 3mo average of 59.2.
• Output has not been below 50 since February 2010.
  

• New orders are down to 48.7 in June from 52.9 in May - a very strong decline and are now below 50 for the first time since September 2010. In Q2 2011 the average new orders reading was 53.0 against 58.6 for Q1 2011. 12mo MA is 53.3 in June 2011 well ahead of the current monthly reading.
• New export orders are the only component of PMIs that still signals expansion, albeit at 51.5 in June this expansion is much slower than 58.7 recorded in May 2011. New exports orders 12mo MA in June was 56.0. Q2 2011 reading of 56.4 is significantly below Q1 2011 reading of 60.4. same period average for 2010 was 57.4.
• Backlogs and inventories are also signaling troubles ahead. Per NCB analysis: "As has been the case in each month since March, backlogs of work at Irish manufacturers decreased in June. Moreover, the rate of depletion accelerated sharply to the strongest since October 2009. According to respondents, reduced demand was a key factor behind the fall in outstanding business. More than 31% of panellists reported a drop in backlogs over the month, compared with just 9% that posted a rise." While inventories are still being depleted, the rate of depletion has slowed down to lowest since May 2008.
• Suppliers delivery time extended to 19 months with the survey respondents highlighting "both shortages of raw materials and capacity pressures at suppliers as reasons for the latest deterioration."
• Lastly, for the second consecutive month Irish producers cut back on their purchases of inputs into production in line with falling orders.
  

• On prices front, "June data pointed to a further considerable increase in input prices at Irish manufacturing firms. Input costs have now risen throughout the past year-and-a-half. However, the rate of inflation eased for the third month running to the weakest since September 2010. Respondents noted that oil-related costs had been a key factor behind higher input prices." Input price index stood at 63.5 in June - down from 68.9 in May and down on 3mo and 12mo averages. At the same time, output prices index fell from 54.3 in May to 53.2 in June. "The rate of inflation [in terms of output prices] moderated for the third consecutive month to the slowest in the current period of increased charges. Panellists reported that the passing on of higher raw material costs to clients was the principal cause of the latest rise in output prices." So output prices are not catching up with input prices, implying margins are not being rebuilt.
  

• In terms of employment, "staffing levels at Irish manufacturing firms decreased for the second consecutive month in June, with respondents largely attributing this to falling workloads. The rate of job cuts accelerated to the steepest since September 2010. All three monitored market groups posted a decline in employment." Employment index in manufacturing fell to 48.3 in June from 49.9 in May. The index now stands below 12mo average of 50.2, Q1 2011 reading of 53.2 and Q2 2011 average of 50.7. Q2 2010 reading was 49.0 - ahead of June 2011 reading.

All of this means that I was correct in pointing to the weaknesses in PMIs in May 2011 and, unfortunately, it means that per PMIs our Manufacturing has now re-entered a recessionary territory:

01/07/2011: Retail Sales for May 2011

With a delay due to technical issues with the blog - here are the updated figures for retail sales for May:

• The volume of retail sales declined 2.1% in May 2011 when compared with May 2010 but rose 1.3%. mom. Current reading for the index is now 92.7, up from 91.5 in April but still below 2010 annual average of 93.3. The index is now above its 3mo average of 92.17. The index is now down 17.96% on its peak.
• Value fo retail sales is up 1.1% mom and down 1.5% year on year. The index reading in May 2011 was 88.4 against April reading of 87.4. May reading is still below 88.85 2010 average, but above 3-mo average of 88. Relative to the peak, value of sales is now down 24.44%.
  

• Ex-Motor Trades, the volume of retail sales decreased by 5.1% in May 2011 against May 2010 and declined 0.6% mom. The index now stands at 98.2 against 98.9 in April, and 99.1 3mo average. The index is also lower than 6mo average of 99.38. The latest yoy drop comes after 5.2% decrease in April 2011 and marks the second largest decline since December 2009 when index contracted 6.3% yoy
  
• Ex-Motors value index fell 1.2% mom and 3.5% yoy and now reads 95.2 against 96.3 in April. This was the largest annualized drop since September 2010 when yoy decline was 3.8%
  

Per CSO: "Motor Trades (+13.0%) and Electrical Goods (+2.9%) were the only categories that showed year-on-year increases in the volume of retail sales this month. Hardware Paints & Glass (-13.9%), Other Retail Sales (-10.3%) and Fuel (-9.9), were amongst the eleven categories that showed year-on-year decreases in the volume of retail sales this month." Interestingly, despite declines in volume, fuel sales were up 1.1% yoy in terms of value, implying rampant inflation in the category. In contrast, decline in value of sales in Furniture & Lighting (-14.5%) outpaced declines in volume of sales (-13.9%) implying deflation on top of collapsing volumes. In Electrical Goods, a rise in volume was offset by a 3.1 drop in value (yoy), implying deflation canceling out positive effects of growth in the volume of sales.

As of April 2011, Ireland (-4.9%) posted the second largest monthly drop in retail sales volumes in the Euro area after Malta (-8.0%), although Greece (likely to show deeper fall than Ireland) is yet to report comparative data. In March 2011 we recorded 5th highest drop in volumes, same as in February and January.

29/06/2011: Live Register - June 2011

Live Register figures for June are out, so let's updated the charts.

Headline numbers are for implied standardised unemployment rate which is up in June to 14.2% from 14.1% in May. Remember, this change is reflective of the past adjustments made to the Live Register-implied standardised unemployment rate made on the foot of latest QNHS-derived official unemployment rate which in Q1 2011 stood at 14.0%.

So:

• Standardized unemployment rate was driven up by 2,900 new entrants to seasonally adjusted LR (+0.7% mom)
• Overall in June 2011 there were 457,948 people signing on the Live Register (not seasonally adjusted) -- an increase of 5,066 (+1.1%) yoy. In May 2011, yoy increase was 3,025 (+0.7%)
• Increase in the first 6 months of the year was 37,420(+9.0%) relative to the first six months of 2010. Obviously, that is down from a massive jump of 194,651 (+88.2%) in Live Register for the first six months period between 2009 and 2010

In seasonally adjusted terms: there was a 5,000 (+1.13%) increase in the numbers on Live Register in June 2011 relative to June 2010. May 2011 increase on May 2010 was 2,900 (+0.66%). Taking 3-mo MA: current 3mo MA (Q2) rose 0.604% on previous 3-mo period (Q1) and current (Q2) 3mo average is up 0.925% yoy. This suggests renewed acceleration, albeit weak, in LR numbers. Monthly increases in LR were 2,900 (seasonally adjusted) for June and May, a decrease of 600 in April and a rise of 1,000 in March. Not an exceptional level of volatility in the series to suggest general upward trend. Since January 1, 2011 we have added 5,300 to the seasonally adjusted Live Register figures.

Some other results from the latest release:

• Seasonally adjusted, there was a monthly increases of 2,000 males and 900 females, but year on year the number of females on LR has risen by 3.8% (+5,975) while the number of males is down 0.3% (-909). In the six months through June 2010, 15,797 (+11.3%) females were added to the LR against 21,623 (+7.9%) males
  
• Perhaps expected, but extremely worrisome is the rise of long term claimants by 49,448 in the year to June 2011, in the words of CSO: "bringing to 40.8% the number of claimants that have now been on the Live Register for one year or more. In June 2010 long term claimants made up just over 30% of the total Live Register." The problem with is that long duration of unemployment spell implies structural unemployment, with requisite loss of skills, continuity of experience and subsequently reduced employability.
• Youth unemployment has eased somewhat in June. LR for those under 25 years of age has fallen 4,500 year on year (-5.18%), but zero percent mom. In May 2011, yoy decline in this category was 4,800 (-5.50%), so not exactly an improving trend here. But at least some good news. In contrast, LR for those 25 years of age and over increased 9,500 yoy (+2.68%), against May 2011 yoy increase of 7,600 (+2.15%).

• Numbers of casual and part-time workers on LR increased 6,526 yoy (+8.23%) in June, up from the increase of 6,058 (+7.68%) in May, suggesting that the overall quality of employment gained by LR signees is low. Current 3mo average yoy rise is 8.04% against previous 3mo average rise of 7.82%. Not dramatic, but certainly not signaling any improvement in jobs creation quality.
• Lastly, the numbers of non-Irish nationals on LR has risen by 76 in June 2011 relative to June 2010 (+0.1%) while the number of Irish nationals was up 4,990 (+1.33%). In May 2011, yoy changes in these two groups were: -1,091 (-1.40%) and +4,116 (1.14%). 3mo averages also suggest strong divergence in LR in favour of lower non-Irish nationals participation and higher Irish nationals participation.

25/06/2011: Daft.ie v CSO RPPI - property prices in Ireland

Courtesy of the CSO RPPI - published for the first time this year - Ireland now has two series of property prices data to compare - Daft.ie asking prices and rents, and CSO's RPPI. Since Daft.ie pre-dates CSO dataset and since Daft.ie is a private undertaking with no access to the resources of the state in paying for and collecting data, it might be of interest to see how the two series compare.

This is exactly the exercise I performed.

Let's take a look at the CSO RPPI (an index) and Daft.ie (prices):
So a strong relation in terms of asking prices and RPPI - some 97% of variation explained.

Similarly, a very strong relationship between RPPI and Daft.ie reported asking rents:
Note that there are serious lags in the asking prices and rents relative to what RPPI is measuring, but overall, Daft.ie seems to be doing as good of a job of capturing prices over the long term as CSO data.

It is worth noting that when I converted Daft.ie prices to an index comparable directly to CSO RPPI, the results remained the same. So well done to Daft.ie gang - they really managed to run (and continue running) a superb database.

Another interesting issue is the relationship between property prices and rents:
Really, self-explanatory.

23/06/2011: Quarterly National Accounts Q1 2011

QNA results for Q1 2011 are in today. Some are expected, some are not. Her's a quick snapshot of the core data. Keep in mind - these are initial estimates subject to future revisions.

Seasonally adjusted GDP rose 1.3% qoq. Surprised? You shouldn't be - in 2010 the same Q1 rise was 1.0%.

If a base year chosen for real variables adjustment was 2008 as before Q1 2011, year on year the increase in Q1 2011 was just 0.04%, so annualized growth extrapolated from Q1 result is effectively zero. At the same time, as predicted in my analysis of Q4 2010 results, GNP crashed on the back of strong outflows of net factor income. GNP is now down 4.32% qoq and down 0.65% yoy. The GNP decline was, as I mentioned before, predictable. In Q4 2010 many MNCs parked their profits in Ireland in hope of getting a new repatriation deal out of the US administration in 2011. Thus, they forward-loaded profits into Q1 2011, pushing transfers up and GNP down. Net factor outflows abroad rose to €7,712mln (constant prices seasonally adjusted terms) up 34.3% qoq.

Of course, CSO re-based their data to 2009 for the main series, which means that in constant prices terms, seasonally adjusted:

• Agriculture, Forestry & Fishing sectors output in GVA terms fell 2.2% qoq and rose 4.3% yoy, while still posting a 5.4% decline on the peak
• Industry GVA fell 0.4% qoq and 0.9% yoy to post -4.5% contraction on the peak quarterly performance
• Building & Construction sub-sector of Industry posted a 15.4% contraction qoq and 18.7% fall yoy, to end Q1 2011 at 75.7% below its quarterly historical peak
• Distribution, Transport & Communications sector grew 1.3% qoq, but still down 0.9% yoy and 15.7% below peak
• Public Administration and Defence shrunk 0.7% qoq and 2.2% yoy - not exactly what you'd expect in the age of severe austerity. The sector GVA is now 8.2% below its peak
• Other Services, including rents show 0.7% increase qoq and 1.7% decline yoy and are 8.3% below the peak
• Taxes net of subsidies were 2.2% down qoq and 2.2% down yoy, showing overall decline of 36.6% on the peak, implying that savings from austerity are not catching up with declines in taxes net of subsidies
• GDP in constant market prices and seasonally adjusted terms, based on GVA, had risen 1.3% qoq and is flat at +0.04% yoy and down 11.5% on peak
• GNP based on GVA is down 4.3% qoq, down 0.65% yoy and is 15.4% below its quarterly peak
  

Thus, the GDP/GNP gap has widened once again. On GVA basis (constant prices seasonally adjusted) the gap is now 19.62% up from 14.93% in Q4 2010 and 19.07% in Q1 2010. This is the record quarterly GDP/GNP gap in the history of the series.
So on the basis of GVA (Gross Value Added), Irish economy (GDP) grew solely on the back of Distribution, Transport & Communications sector expansion (qoq) and Other Services, including rents (qoq). For all the boom in manufacturing we are experiencing, industry still contracted qoq. Year-on-Year, the only positive contributor to GDP was Agriculture, Forestry and Fishing sector. Not exactly a boom time, folks.

Now, take a look at the expenditure basis of GDP calculations. Chart below illustrates:

Let's take a closer look. In constant market prices, seasonally adjusted:

• Personal consumption of goods and services fell 1.88% qoq and 2.72% yoy. This was the first time since Q2 2005 that personal consumption fell below €21 billion in any quarter. Relative to peak quarter performance, Q1 2011 consumption stands at -12%
• Net expenditure by central and local government has declined 1.93% qoq and 4.16% yoy, reaching -10.3% decline on peak historical quarterly performance. If you think that this austerity, then let's put it into euro value terms. Q1 2011 net government expenditure was just €131mln below Q4 2010 and €290mln below Q1 2010. Relative to the peak quarterly expenditure, Q1 2011 spending was down just €765mln or annualized savings of less than €3.1 billion. Not to say this is not a painful correction, but hardly a sign of severe austerity and certainly not enough to undo our €17 billion-odd annual deficit
• Gross domestic fixed capital formation improved - at last, posting 1.08% gain qoq, although still 8.85% below Q1 2010. Relative to peak, investment in fixed capital is now 59.2% below historical quarterly high
• Exports of goods and services boomed once again, rising 3.79% qoq and 6.85% yoy (an annual rate consistent with the IMF forecasts, but well behind the projections by the DofF and ESRI). Relative to historical peak Q1 2011 exports were 0.9% above historical high
• Imports have fallen 0.34% qoq providing positive contribution to GDP, but are up 3.79% yoy. Imports are now 10.6% below quarterly historical high
• Thus, GDP at constant market prices was 1.26% above Q4 2010 and 0.04% above Q1 2010, while GNP was 4.32% below Q4 2010 and 0.65% below Q1 2010.
  

In other words, GDP was supported in growth by Gross domestic fixed capital investment, smaller stocks drawdown, exports increases and imports declines. Qoq, net exports (exports minus imports) grew by €1,557m (20.6%) at constant 2009 prices. Domestic demand, on the other hand, declined by €990m (-3.1%) over the same period with personal consumption down by 2.9%.
Note the line showing trade surplus net of transfers of factor income abroad - after 3 quarters of registering positive net trade surplus, Irish economy has posted another deficit in Q1 2011 of €358mln. In other words, the value of all of our trade, once imports and profits of MNCs are accounted for, is negative, broadly speaking.

22/06/11: Residential Property Index - May 2011

The CSO released their latest data for the new Residential Property Price Index (RPPI) for May 2011. Here are the highlights and updates, including forecast for 2011 (see last chart).

• Year on year May 2011 residential property prices nationally are down 12.16% with RPPI standing at 77.3 in May down from 78.2 in April. The 6mo average rate of decline is now at 1.2% per month and 12mo average rate of decline is now 1.07% monthly.
• Relative to peak prices across the nation are down 40.77%.
• 3mo MA RPPI is at 78.17 in may, down from 79.2 in April.
• RPPI is now down consecutively month on month since its peak in September 2007 with exception for August 2010 when it posted no change mom relative to July. Last time the index posted increase in yoy terms was January 2008.
  

So per chart above, the crunch is getting crunchier (note accelerated average rate of decline for 6mo relative to the average for 12mo), and mom changes are also posting acceleration downward from -1.01% in April to -1.15% in May.

Breaking down across two property types:

• RPPI for houses fell to 80.4 in May from 81.3 in April, down 1.11% mom. This marks consecutive monthly contraction since August 2010 when it rose statistically insignificant 0.11%. Relative to peak the series now down 39.1%. the 6mo average monthly rate of decline is 1.21% well ahead of 12mo average of 1.03%
• RPPI for apartments is down at 60 in may from 60.4 in April (-0.66%). Apartments prices index is down 51.57% on peak and 6mo average at -1.19% per month is signaling slower rate of decline compared to 12mo average of 1.41%

As a signal of stronger regional economy, Dublin presents a slightly divergent picture to May national level data:

• Dublin RPPI rose from 70.5 in April to 70.8 in May (+0.43%mom), marking the first monthly increase since April 2008. This increase is statistically insignificant, however. In addition, 6mo average decrease rate of 1.06% monthly is still ahead of 12mo average of 1.01%, suggesting the latest move is unlikely to be a trend-breaker to the upside.
• Dublin prices index is now 47.4% below the peak.

Now, using 5 months data for 2011 we can attempt a very crude forecast for the entire 2011, as shown in the figure below.
So far, all indications are - we are looking at another brutal year when it comes to property prices here. then, again, with zombie banks not lending and continuously hiking the cost of mortgages for existent clients, with Nama still hell-bent on derailing any sort of market bottoming-out dynamic, with all fundamentals signalling decreasing demand for property and reduced ability to pay for mortgages, it is hard to imagine the upside trend establishing in Irish property markets any time soon.

22/06/2011: DofF latest fiasco

A very revealing article in today's Irish Times - link here and a HT to Prof Brian Lucey - states that "The memo from a senior official in the department rejected the assertion from UCD economist Morgan Kelly of a possible 60 per cent fall in values over nine years. It also advised Mr Cowen, who was minister for finance at the time, that he should warn against overreacting to falling house prices. The document, drawn up by economist John McCarthy in July 2007 and sent to the former taoiseach pointed out that the housing values remained above 2006 levels."

This is another piece in a long string of evidence trickling down from the Merrion Street that points to the nature of advice and analysis conducted by the DofF. In Summer 2007 Irish property markets started showing signs of significant stress and by August we experienced the first slowdown in the rate of growth in stamp duty receipts. National average asking prices for homes, according to Daft.ie, posted seasonally unexpected decline of 0.34%mom in March, bouncing off the historic peak in February 2007. This was followed by another seasonally unexpected decline of 0.44% in April, rebound of 0.69% in May, a decline of 0.09% in June (again out of line with seasonal patterns) and a drop of 0.56% in July. The signs of some sort of sickness in the market were already visible, therefore, at the time the DofF note was issued.

Of course, DofF can be excused for not spotting the turning point in the property market - after all, virtually all data through July 2007 was at the very best inconclusive. But, the report leaves several issues worth addressing:

1. By August it was clear that the global financial markets were suffering significant pressures, which warranted some DofF attention, including on the side of the property markets;
2. What was DofF's business in advising the Minister to 'warn against overreacting to falling house prices'? Should, in an ethical society, the Minister for Finance make any calls whatsoever on private asset markets? Or should, in a functional economy, DofF job cover the need for preparing a policy response to the potentially dangerous situation developing in the major sector of the economy? In other words, was DofF doing its job advising the Minister on a PR exercise, and was it not doing its jobs in not preparing for the contingency of a property market collapse?

Of course, all of this remains academic compared to the brutish bullying stupidity of Mr Cowen's boss who famously barked in response to Prof Morgan Kelly’s articles in 2007 that: “Sitting on the sidelines, cribbing and moaning is a lost opportunity, I don’t know how people who engage in that don’t commit suicide.” (see full record here).


Oh, and just in case you might think DofF has learned any lessons from the July 2007 note debacle? Think again. Per same Irish Times report: "According to fresh analysis conducted by department economist Ronan Hickey – and published yesterday – house prices had fallen by 40 per cent from their 2006 peak by the fourth quarter of 2010." (emphasis is mine)

Err, what a wonderful revelation that is. In fact, the DofF 'analysis' is so ground-breaking that it simply confirms the data released by CSO last month - see report on that here.

But don't blame Mr Hickey for this - blame Irish Times bizarre reporting style. Mr Hickey didn't carry any 'fresh analysis' that Irish Times claims he did. instead, Mr Hickey clearly and transparently quotes from a now discontinued time series data from ESRI and ptsb index that were publicly available for ages now.

You can see this in his own paper/presentation/post available here. Just go to page 10 to see this 'fresh analysis'. Again, Mr Hickey is not doing anything wrong here, it's just the excited Irish Times failing to read his paper reporting old news and new news.

What is, however, amazing about Mr Hickey's paper/presentation/post is that this very information and the same analysis is being provided for free on a number of blogs around the country. In many cases, blogs analysis is actually way better, more data-intensive and detailed. Yet, in age of austerity, the Gov see fit to spend thousands on wages of PR-spin economists working for DofF.