30/12/2011: Taleb's quote

AN excellent quote from Nassim Taleb via @econbrothers :

"If we attempt to systematically extinguish all forest fires, we will eventually experience a big one".

Which, of course, goes to describe concisely and precisely the fallacy of rescuing all banks that Europe has pursued as a principled policy. The old Schumpeterian creative destruction is a required condition for functioning of the private economy, with the latter being the required condition for functioning of the public economy as well. Bankruptcy - as a tool for clearing the hazardously dead forest of private enterprises - must apply to the banks too.

By underwriting the entire private banking system, the EU has created the Mother of All Hazards - a dry forest with numerous pockets of quasi-extinguished fires burning. Now, all we need is wind...

28/12/2011: ECB: New evidence on public-private pay gap: part 2

As an addendum to the previous post on public-private pay gap study, here are the core results for differences in the pay gap based on various income percentiles:

In the table above, levels of income are referenced to percentiles, so wage differentials are estimated for public-private sector gap per each income percentile. In general, for most countries other than Spain, Ireland and Portugal, "the public sector gap is higher at the lower quantiles and declines along the wage distribution. This is further evidence that the dispersion of the wages in the public sector is much smaller than in the private sector. In this context, public sector employees with low wages earn a higher wage premium relative to higher income employees [again, ex- Spain, Ireland and Portugal]."

In the case of Ireland, the premium lowest for top-earners, second lowest for bottom-earners. The premium rises slightly for 25th percentile and 75th percentile and peaks at 50th percentile. So Irish public sector premium is highest for mid-range earners, lowest for top-range earners, and second lowest for low earners.

28/12/2011: Brain-drain & IRL's knowledge economy

When Government policy-supported brain-drain is compounded by heavily subsidised 3rd level education system, Ireland risks turning into a third world-styled resources supplier to our more dynamic trading partners:

http://www.irishtimes.com/newspaper/ireland/2011/1228/1224309553505.html

HT to @dalkeyhead

That's the 'Knowledge Economy' in the absence of real jobs creation: taxpayers pay for knowledge, private holders of knowledge emigrate to earn private returns, taxpayers pay for more 'Knowledge Economy' boffins and pamphlets... but do not worry - 20 years from now, the IDA will have plenty of new ex-Irish execs in UK, US, Australia, Canada, etc to beg for FDI.

28/12/2011: ECB: New evidence on public-private pay gap: part 1

ECB Working Paper 1406 (December 2011) titled "The Public Sector Pay Gap in a Selection of Euro Area Countries" looks at the relationship between public and private sector wages over recent decades in the light of "the increase in public sector employment in many countries, with relevant implications for the overall macroeconomic performance and for public finances". The study considered ten euro area countries: Austria, Belgium, France, Germany, Greece, Ireland, Italy, Portugal, Slovenia and Spain.

Per authors: "According to national account aggregate data, the wage earned by a representative public sector employee is higher than the one earned by a representative private sector employee in all the countries of this study, except Belgium, France and Germany. In particular, in the period 1995-2009 the ratio of public to private compensation per employee is found to be consistently below one in the case of France, slightly below one in the cases of Germany and Belgium, around 1.1 for Austria, around 1.2-1.3 for Italy, Spain, Greece, Ireland and Slovenia, and above 1.5 for Portugal."

"Available data on union membership – referring to the period 1997-2009 depending on the country - show that union density (measured by the ratio between reported membership and employed dependent labour force) is typically much higher in the public than in the private sector (in the European countries approximately twice as much). Among the countries included in this study, union density rates are relatively high in Belgium (around 50%), followed by Austria, Ireland, Italy and Portugal (in the 30- 40% range) and Germany (27%); it is relatively low in France (about 8%) and Spain (16%)."

The summary of the premium evolution is provided here:

In the chart above, Ireland has the second highest gap after Portugal.

The paper provides a reminder of a number of studies that have examined the public-private sector wage gap in Ireland:

• Boyle at. al. (2004) report wage premia for public sector workers, greater for low-paid workers and smaller for public sector workers at the top of the earnings distribution using microdata from the European Community Household Panel Survey. 
• Foley and O’Callaghan (2009), using micro data from the 2007 National Employment Survey, also find a sizable public sector wage premium, highest at the lower ends of the earnings distribution. The authors use a variety of estimation techniques and control for work place and employee characteristics such as age, education, gender, occupation, etc. However, the authors urge caution in reaching a definitive conclusions on the average public sector premium. 
• Kelly et. al. (2009), using data from the 2003 and 2006 National Employment Surveys, analise the public- private sector wage gap in Ireland. Their results indicate that the public sector pay premium increased considerably from 14 to 26 per cent between 2003 and 2006. Moreover, they also reported that there was significant variation across public service sub-sectors.

The ECB research provides controls for a number of variables that can theoretically explain diferences in pay between public and private sector, such as education as skills proxy and gender,  earnings groupings by percentiles,  and firm size. All are found to retain statistically signifcant public sector earnings premium in the case of Ireland. 

The study also looks at one specific category - Education. "On average workers in “Education” earn much higher wages with respect to workers with similar characteristics in the private sector relative to workers in the other sub-sectors, while workers in the “Health” sector are less at advantage, and as in the case of Germany even at disadvantage with respect to their private sector counterparts. This finding is confirmed on the basis of a formal statistical test..."

And the premium holds when controlling for workers' own education:

So overall, the study finds that: "A large body of literature has analysed the issue using micro-data on single countries. Most of these studies find a differential in favour of public sector workers, even after taking into account some observable individual characteristics. As in the previous studies, our results, referring to the period 2004-2007, point to a conditional pay differential in favour of the public sector that is generally higher for women, for workers at the bottom of the wage distribution, in the Education and the Public administration sectors rather than in the Health sector. We also find notable differences across countries, with Greece, Ireland, Italy, Portugal and Spain exhibiting higher public sector premia than other countries. The differential generally decreases when considering monthly wages as opposed to hourly wages and if we restrict our comparison to large private firms."

There goes one of those "We are not Greece" comparatives that the Irish Government is so keen on. When it comes to pay premium in the public sector, we are in the Club Med (PIIGS) group after all.

26/12/2011: LTRO will not solve Euro banks' problem

As the annus horribilis concludes for the terminally ill, but refused (by the ECB & EU & the respective Governments) death, Euro area banks, the key note of that Mahlerian (the 5^th symphony-styled) Trauermarsch is the LTRO allocation of cheap 3 year €489 billion worth of ECB credit (at 1%) to the European banks. And, thus, the theme for 2012, the second movement in the opus magnum of the Euro destruction, is the looming recapitalization deadline for the said zombies – the end of June.

Alas, the hope that seems to sweep the markets to boost, albeit moderately, Euro area banks valuations – the hope that having the mother of all carry trades can help these banks recover their margins just in time to use ‘organic’ recapitalization path through mid 2012 – is seemingly out of reach.

Firstly, I put ‘organic’ in the inverted commas, since the margins rebuilding on the back of ECB-created artificial liquidity boost is about as organic as performing a puppet show with a corpse is ‘live-like’.

Secondly, the carry trade I am talking about - for those readers of this blog who are unfamiliar with finance – is the artificial exercise of taking cheap loans in one country/currency and carrying funds into purchase of assets in another country/currency. Of course, with nothing but loss making (or near-loss making) assets in the markets of the Euro zone, any banks who borrowed funds in the LTRO will be either buying Government paper (yielding on average, say, 3.0 percent margin on borrowings gives Euro area banks pre-tax uplift of just €7.3 billion in 6 months time (and no, there are no capital gains realizable, since buying today and selling into mid-2012 will leave this paper, at best, capital gains neutral). Thus, to make even a dent in the capital demand, the banks will be needing assets yielding more than double the junkier Euro area sovereign yields, which means carry trade, and all associated currency and asset risks.

Of course, Euro area banks can try to magnify their returns via ECB-offered leveraged carry trades. But unless ECB offers more LTRO-styled longer term operations, doing so at 3mo or even 11mo liquidity supply windows would be simply mad. 

So, having borrowed through LTRO, Euro area banks will purchase Government bonds which then can be used as a collateral for further ECB borrowing. So let us assume that the banks will be buying liquid debt, e.g. Spanish or Italian. The margin earned by banks is ca 2.6-3.5% per annum after they cover the cost of LTRO borrowing. Note, this carry trade will turn loss-making for the bank if the sovereign bonds yields fall below 1% cost of ECB LTRO funds. In my view, this is highly unlikely.

So the whole operation can provide some €14.6 billion annually to the banks in terms of profits earned. And this is pretty much the unleveraged maximum. Nice one, but through June 2012 hardly enough to support banks recaps. Even if EBA deadline is shifted to December 2012, profits from LTRO are nowhere near the required funds to cover recapitalizations. Recall that under 9% Core Tier 1 scenario, euro area banks require something to the tune of €119 billion in fresh capital.

The downside from this conclusion is that the Euro area banks will require, post LTRO either a warrant to die (the preferred option, assuming the death warrant involves orderly shutdown of the insolvent banks) or a public bailout of immense proportion. Given the EU hit some serious trouble coming up with €200 billion for loans to IMF, good luck with that latter option.

23/12/2011: EU - 2013 = Year of Citizens, Rest of Time = Years of Brussels?

So 2013 theme for EU is "The European Year of Citizens". I know, it was proposed some months ago, but...

The challenges for the "Year of Citizens" will be to:

• Raise citizens' awareness of their right to reside freely within the European Union and of how they can benefit from EU rights and policies [Though, of course, if they happen to be Russian-speaking near-majority in some Baltic States, they are not quite 'citizens' and if they happen to be from certain EEC member states, they can reside, but have no right to work in other member states, plus if they live in Ireland, they have a duty to repay banks bondholders in other member states, and if they live in Greece, they have no right to have a referendum on their own economic policies, and... oh, well... the list goes on];
• Stimulate citizens' active participation in EU policy-making [because, as we know it, European 'citizens' are starting to get tired of the farcical nature of governance in the EU, especially when it comes to that pesky democratic deficit (chart below is from Spiegel Online):

• Build debate about the impact and potential of the right to free movement, especially on strengthening cohesion and people's mutual understanding of one another [no comment here, since we are currently living through the period when many member states are starting to put in place measures to reduce that 'free movement']

But overall, did anyone ask the EU Commission and the European Parliament the following question: If 2013 is the year of European citizens, then, pardon me for using foreign turn of phrase here, what the hell were all the previous and will the subsequent years be about? Years of Brussels? 

23/12/2011: Composition of Irish exports to Russia

For those of you who asked: composition of Ireland's exports to Russia, data through August 2011:

This shows pretty decent diversification and the stronger role for indigenous enterprises, especially in Agrifood sector (26.2%, plus some segment of Other category).

22/12/2011: Irish Foreign Assets and Liabilities: Q3 2011

Some interesting data courtesy of CSO's Quarterly International Investment Position and External Debt for Q3 2011.

The summary:

Yep, pretty dramatic. The above is in billions of euros. Let's look at the historical series and decomposition by IFSC and non-IFSC:

• Overall Total Foreign Assets in the country amounted to €2,587,566 million (€2.59 trillion) in Q3 2011, which is up on €2,544,483mln in Q2 2011. Total Foreign Assets are up 1.69% qoq and down 1.51% yoy.
• Of the above, €2,093,152mln accrues to IFSC or 80.89% of all our Foreign Assets. This is up from €2,039,307mln in Q2 2011. IFSC assets are up 2.64% qoq and 1.35% yoy.
• Non-IFSC Foreign Assets amounted to €494,404mln or 19.11% of our total Foreign Assets. These assets are down 2.13% qoq and 11.99% yoy.
• Overall, Total Foreign Liabilities (Debt) are up from €2,678,809mln (€2.68 trillion) in Q2 2011 to €2,735,556mln (€2.74 trillion) in Q3 2011. Total Foreign Liabilities are now 2.12% qoq but down 1.50% yoy.
• Of the above, €2,072,484mln accrues to IFSC or 75.76% of all our Foreign Liabilities. This is up from €2,007,592mln in Q2 2011. IFSC liabilities are up 3.23% qoq but down 0.2% yoy.
• Non-IFSC Foreign Liabilities amounted to €663,072mln or 24.24% of our total Foreign Liabilities. These debts are down 1.21% qoq and down 5.34% yoy.

Charts illustrate:

The above figures are massive, but the balance of them is shocking:

• In Q3 2011, Net External Liabilities position (Net IIP) was €148,000mln up 10.18% qoq but down 1.37% yoy
• The above accounted for the surplus of €20,668mln in IFSC - down 34.83% qoq but up 282% yoy
• Which means that non-IFSC net debt was €168,668mln - more than our entire GDP - which is up 1.58% qoq and 21.6% yoy.

Yes, that's right - the 'bad' IFSC had a positive impact on our net External Liabilities position in Q3 2011, while the 'good' Ireland Inc had a massive shortfall of more than 100% of its GDP.

So now, let's think in relative terms - relative to our GDP:

• In Q3 2011 our Total Gross External Liabilities stood at a massive 1,738.9% of our GDP
• Of the above, 1,317.4% of our GDP was accounted for IFSC, and
• 421.5% of our GDP was captured by non-IFSC.

Now, that's pretty impressive... 17.4 times the GDP! And even at 4.2 times the GDP for non-IFSC foreign liabilities (keep in mind, these are just foreign liabilities, not capturing internal debts and other internal liabilities) we are pretty heavily under water.

22/12/2011: Retail Sector Activity Index: November 2011

I covered detailed retail sales for November data in the previous post (link here). Now is the time to update the Retail Sector Activity Index.


It is worth noting that my Retail Sector Activity Index for October has predicted November moderate uplift in sales - a nice surprise for the index just created:
"A large jump in consumer confidence in October (to 63.7 from September reading of 53.3) is the core driver of improvement in the overall Index od Retail Sector Activity, which now stands at 102.2 - above the expansion level of 100. This means that we can expect a small uplift in retail sector activity in months ahead, but this uplift can manifest itself through improved volumes of sales (value static, so margins declining) or improved value of sales (inflation) or both (more demand-driven uplift)."


As shown in my detailed analysis (linked above), the retail sales did indeed improve in November, and the improvement took place across all three possible drivers (depending on specific areas of sales):
" Only notable increases yoy are in Non-specialized stores ex-Department Stores (where inflationary pressures drove value up 1.4% while volume was up only 0.5%), Fuel (where inflation was so rampant that value of sales rose 10.3% while volume of sales fell 3.7%) and Electrical goods (where season sales started early and cuts were running deep with value +0.5% and volume up 7.5% yoy). Everything else was either down or flat."

So now to that data update:

• Retail sales (core) volume index rose to 100.6 in November from 98.8 in October. 
• Retail sales (core) value index rose from 94.6 in October to 95.6 in November
• Consumer confidence, however, declined from 63.7 in October to 60.1 in November.

The above implies that RSAI have dropped slightly from 108.64 in October to 107.96 in November. Dynamics however remain encouraging for continued firming up of sales:

• RSAI November reading is 3% ahead of 3mo ago, and 5.33% above the reading a year ago.
• 6mo MA now stands at 105.94, ahead of previous 6mo MA of 104.91, signaling what can be a moderate uplift.
• For comparison, 2006-2007 average is 125.41.

Charts to illustrate:

Medium-term, however, the indices remain below historical trends, with more firm confidence still failing to drive up retail volumes and values:

In other words, structural weakness in the sector remains unchanged. It will take couple of months of solid gains in retail sales (annual gains of 1.5-2% minimum per month) to deliver signs of real structural improvement.

22/12/2011: Europe's policy errors

By now, you have figured it out - I am a big fan of my old UofC professor, John Cochrane. And in this latest article (here) he delivers even more real common sense.

Defaults:

"Conventional wisdom says that sovereign defaults mean the end of the euro: If Greece defaults it has to leave the single currency; German taxpayers have to bail out southern governments to save the union.
This is nonsense. U.S. states and local governments have defaulted on dollar debts, just as companies default."

Cochrane is correct. Orange County, CA - size ca 1/2 Ireland - has defaulted before and so... no end to the State of California or to the Feds and, crucially, no bailout. New York went bust in 1975, Cleveland in 1978. Fitch did a study in 1999, updated in 2003, that shows 2,339 cases of municipal bonds defaults in the US for 1980-2002 totaling USD32.8 billion. And guess what: no bailouts and yet the dollar still exists. Fitch estimated cumulative default rate for 1980-1986 issuance of 1.5%m cumulative default rate for 1987-1994 issuance of 0.63%, average recovery rates were around 63-64%, consistent with standardized CPD pricing practice of 40% haircut. This is not to say that defaults are costless or easy, but there is no ex-ante intrinsic reason for the common currency to implode were a country like Greece - expected by all to default - to restructure its sovereign debts.

Bailouts:
"Bailouts are the real threat to the euro. The ECB has been buying Greek, Italian, Portuguese and Spanish debt. It has been lending money to banks that, in turn, buy the debt. There is strong pressure for the ECB to buy or guarantee more. When the debt finally defaults, either the rest of Europe will have to raise trillions of euros in fresh taxes to replenish the central bank, or the euro will inflate away."

Correct again: latest LTRO allocation of €489bn this week, with €235bn of this being lent in excess of the banks covering shorter-term ECB debt is the case in point. ECB's hope is that the banks - already sick from overloading with low quality sovereign debts on their balance sheets - will use €235bn to buy more sovereign debt. This, of course, will help ECB to cut back its own purchases of Government bonds and to, thus, pretend that 'the market' for sovereign debt in Europe is somehow being repaired. The madness of this 'solution' is that it creates even greater link between ECB, banks and sovereign debt - the very cause of the crisis contagion. You can see an excellent, albeit a bit politically-correct piece on this in the Economist (here).

And to correct for the 'politically correct' bit - here's my view of LTRO: In a nutshell, the ECB will lend the banks unlimited money at 1% so they can buy PIIGS+Belgian+French debt making 2-6% margin as pure profit and benefiting from capital gains in the process. As bonds prices firm up on the back of these purchases, banks collateral deposited with ECB will also improve in value, allowing them to borrow even more. This positive correlation between banks borrowings from ECB and their profits gains will continue until in 3 years from now the entire pyramid collapses - the banks will have to repay ECB funds, prompting massive sales of bonds. And in the mean time, there will be no lending in the real economy, as banks funding will be tied into financing Government spending and banks will continue to deleverage out of real assets. This makes LTRO an equivalent of an RX to a drug addict for unlimited supply of free opiate.

As Cochrane puts it:
"Sovereign default would damage the financial system, however, for the simple reason that Europe has allowed its banks to load up on debt, kept on the books at face value, and treated as riskless and buffered by no capital. Indebted governments have been pressuring banks to buy more debt, not less.

As banks have been increasing capital, they have loaded up even more on “risk-free” sovereign debt, which they can use as collateral for ECB loans. The big ECB “liquidity operation” that took place yesterday will give banks hundreds of billions of euros to increase their sovereign bets. Bank depositors and creditors have figured this out, and are running for the exits.

...By stuffing the banks with sovereign debt, European politicians and regulators are making the inevitable default much more financially dangerous. So much for the faith that regulation will keep banks safe."



Fiscal Union:
"More fiscal union hurts the euro. Think of Poland or Slovakia. ...A common currency without a fiscal union could have universal appeal. A currency union with a bailout-based fiscal union will remain a small affair."

"Europeans leaders think their job is to stop “contagion,” to “calm markets.” They blame “speculation” for their troubles. They keep looking for the Big Announcement that will soothe markets into rolling over another few hundred billion euros of debt. Alas, the problem is reality, not psychology, and governments are poor psychologists. You just can’t fill a trillion-euro hole with psychology."

Conclusion:

"The euro’s fatal flaw then wasn’t to unite areas with differing levels and types of development under one currency. ...Nor was it to deprive governments of the ephemeral pleasures of devaluation. Nor was it to envision a currency union without fiscal union.

Banking misregulation was the euro’s fatal flaw [emphasis is mine]. Sovereign debt, which can always avoid explicit default when countries print money, doesn’t remain risk-free in a currency union. Yet banking regulators and ECB rules continue to pretend otherwise.

So, by artful application of bad ideas, Europe has taken a plain-vanilla sovereign restructuring and turned it into a banking crisis, a currency crisis, a fiscal crisis, and now a political crisis."

And then,
"When the era of wishful thinking ends, Europe will face a stark choice.

1. It can have a monetary union without sovereign defaults. That option means fiscal union, accepting real German control of Greek and Italian (and maybe French) budgets. Nobody wants that, with good reason.
2. Or Europe can have a monetary union without fiscal union. That would work well, but it needs to be based on two central ideas: Sovereigns must be able to default just like companies, and banks, including the central bank, must treat sovereign debt just like company debt.
3. The final option is a breakup, probably after a crisis and inflation. The euro, like the meter, is a great idea. Throwing it away would be a real and needless tragedy."

I agree.

22/12/2011: Retail Sales for November

Ok, folks, RTE is shouting "Biggest Retail Sales Rise Since March" (see link here) but you do know to turn to this blog to see the real numbers. So here are the updated charts and historical trends and some analysis.

It is worth noting that my Retail Sector Activity Index for October has predicted this uplift:
"A large jump in consumer confidence in October (to 63.7 from September reading of 53.3) is the core driver of improvement in the  overall Index od Retail Sector Activity, which now stands at 102.2 - above the expansion level of 100. This means that we can expect a small uplift in retail sector activity in months ahead, but this uplift can manifest itself through improved volumes of sales (value static, so margins declining) or improved value of sales (inflation) or both (more demand-driven uplift)."
Please note that below analysis exactly confirms the above predictions.

However, this does not mean that I share with the RTE headline excitement about the actual sales indices performance in November 2011. Here's why:

First of all - general retail sales (including motors), seasonally adjusted:

• Value of retail sales rose from 87.2 in October to 88.2 in November, an increase of 1.1% mom, a drop of 0.68% yoy. History in making? Well, not really - in 2 months of October and November, retail sales rose 1.50%, in 2 months of May-June retail sales value grew 1.25% (statistically indifferent from 1.5% gain in last two months), and in 2 months between February and March they rose 1.26%, which is again identical - statistically-speaking - to the rise in last 2 months. So history is not being made here.
• Significantly, annual rate of declines has slowed down in November to -0.7%, which is the best reading since June when there was zero change in retail sales year on year, but then, again, in January value of sales was up 4.3% yoy and then in February it was down just -0.2% yoy. Now, again, no historical headlines here.
• Let's take a look at the trends. At 88.2 current reading is ahead of 3mo MA of 87.4 and 6mo MA of 87.7, but it is below 201 average of 88.86. In other words, current sales are worse than monthly average for 2010. And current sales are slightly ahead of 2011 monthly average to-date of 87.82%. Not that the RTE would bother mentioning that.
• Relative to the peak, value of retail sales is still down 24.10% in November.
• In Volume terms, there was a 1.6% monthly rise from 91.9 in October to 93.3 in November. This is statistically insignificant difference too. In 2 months through November, index of the volume of retail sales rose 1.97%, in May-June it was up 2.07% and we do know that it was not exactly boom time on the high street back then.
• Volume index is now down 0.8% yoy and 19.8% down on peak. 3moMA is at 92.23 and 6mo MA at 92.47. However, 2010 monthly average is at 93.6, which is ahead of November monthly reading. So, as with value index, the 'record sales' in November are lower than the average monthly sales volumes in 2010. 

Charts to illustrate:

Frankly, I am not seeing anything that jumps out on an extraordinary scale. Some uplift, most likely supported by the decline in foreign travel for shopping and by better weather conditions this year than in 2010, but hardly spectacular. Only notable increases yoy are in Non-specialized stores ex-Department Stores (where inflationary pressures drove value up 1.4% while volume was up only 0.5%), Fuel (where inflation was so rampant that value of sales rose 10.3% while volume of sales fell 3.7%) and Electrical goods (where season sales started early and cuts were running deep with value +0.5% and volume up 7.5% yoy). everything else was either down or flat. You tell me if this is something that we can cheer about?

Let's take another look at the pure index numbers: 

• Value index at 88.2 was the highest reading since June when it stood at 88.8. In last 12 months through November, index was in excess of 88.2 or equal to it on 5 occasions other than November 2011, which makes this month's reading oh, sort-of average.
• Volume index at 93.3 in November 2011 is the highest since 93.8 in June 2011 and is the 4th highest in the last 12 months - also not exactly a trend-breaking performance.

So adjusting for motors sales, core retail sales indices were:

• Value of core retail sales rose 1% mom from 94.6 to 95.6 in November. November 2011 reading is 0.1% ahead of November 2010 reading and the current index stands at the 5th highest reading level over the last 12 months.
• Relative to peak value of core retail sales is down 19.39%. 2010 monthly average reading is 97.57% - ahead of November 2011 reading. More ironically, year-to-date 2011 average monthly reading is 95.62 which is identical to the November 2011 reading.
• By all possible comparisons, November 2011 reading for the Value of core retail sales (ex-motors) is average.
• Volume reading reached 100.6 - the first over-100 reading since April 2011. Index is now up 1.8% mom and down -0.8% yoy. This is the set of numbers that excited the RTE the most.
• Yet, 2010 monthly average reading for this index was 102.7 - above the November 2011 reading. However, importantly, 2011 year-to-date average monthly reading is 99.7 - statistically insignificantly different from November 2011, but still below November reading in actual terms.
• Still, November 2011 is worse than the average month of 2010. Not exactly a strong performance.

Charts to illustrate:

Ok, let's summarize the above: supposedly we had an exciting retail sales month in November. Yet, by all measures CSO reports, November performance this year was worse than average monthly performance in 2010, and by 3 out of 4 measures reported by CSO, November was worse than the average month in 11 months from January 2011 through November 2011.

Oh, and as an aside, here are the comparatives in retail sales volumes across Ireland, EU17 and EU27 (data reported with a monthly lag here, so latest we have is for October sales):

22/12/2011: Long term growth and the crisis

Let me highlight the following angle on considering latest Irish economic forecasts. The downgrade by IMF, OECD and EU Comm, plus ESRI to 2012 growth of 0.9-1.0% - as much as I personally think these forecasts to be optimistic as they are - cuts across the strikingly more optimistic Department of Finance forecasts for 1.3% growth (in the Budget) or 1.6% growth (in the documents released one day ahead of the Budget). This is pretty clear.

But the real issue here is that in the long term, IMF projects Irish growth of 2.3%, 2.7% and 3.0% in 2013-2015, with the output gap of 3.6%, 2.2% and 1.1%. The implied loss to the Irish economy due to the crisis, from 2010 through 2015 is a cumulative €37.5bn. In other words, our economy's long-term growth potential for growth, held back by the structural recession and debt overhang, plus fiscal mess, is - between 2010-2015 - €37 billion higher than the expected realized income. Or 20.9% of the expected 2015 GDP.

While differences year on year are significant in terms of fiscal targets, the fact that in 6 years between 2010 and 2015 Ireland's economy will be forced (by our inept Government policies on debt and banks, plus our inept EU 'partners' policies on 'bailout' and banks) to waste almost 21% of our expected annual income shows the following:

• Current policies are incapable to drive Ireland back to its potential long term growth rates, and
• Ireland is clearly distinct from other peripheral countries which, while having a similar crisis, do not have the same potential for future growth as Ireland.