15/6/2012: Few links worth checking out

Few worthy links accumulated over recent weeks:

What about that jobs creation by MNCs? Well, actually, its a net jobs loss: link here. Note that the net rate of jobs destruction amongst MNCs in the 2008-2011 period is roughly-speaking around 8-9%. Which is below that for the whole economy, but looks to be above that for the economy less construction and retail sectors. Hmmm...

EU Commission issued its guidelines for dealing with 'future' banking crises (assuming we end this one with some banking left for the future crises to challenge): link here.

Quick quote from Lobard Street Research on subordination in the Spanish 'rescue' case - the topic I covered for ages and that I believe is now also related to the ECB reluctance in engaging with secondary markets purchases of peripheral sovereign debt - link here.

Meanwhile, Spanish banks have now surpassed Italian bank in ECB borrowing: here.

Excellent as ever NamaWineLake blog on 18% performing loans ratio at NAMA: here. Stay tuned for my Sunday Times column this weekend where I cover European data on commercial real estate mortgages backed securities that will make Nama look, relatively, not that bad...

BIS blog post on their Q2 2012 quarterly: here. Some nice charts on international debt issuance, showing pick up in debt issuance in the wake of LTROs.

A position paper by Daniel Gros and Dirk Schoenmaker on Spain and Greece backstops: here. With some elements of the solutions that I've been advocating in my Sunday Times articles over the last few weeks - including deposits insurance. I disagree with them on the point that ESM should be used to recapitalize insolvent banks which are to be held in SPVs, presumably until they are 'repaired' to be fit for disposal. This is simply a prescription for de fact protectionism and politically motivated preservation of incumbents. In the end it will lead to European banking becoming fully politicised and ineffective. ESM can be used to cover losses in the banks, but insolvent banks should be shit down and their assets sold off to private investors and other banks to make certain that state-ESM-controlled zombies do not block the banking system.

A thought-provoking presentation on the state of the global economy by Raoul Pal: here.

13/6/2012: IMF Assessment of Russian Economy

IMF issued an interesting assessment of the Russian economy: link.

12/6/2012: Show Some Will, Will Ya?

From EuroIntelligence.com today [emphasis mine]: 

"Christine Lagarde told CNN (via a report in El Pais) that she agreed with George Soros’ assessment that the EU had about three months to save the euro. She added that this was not a precise date, but what mattered at this stage is the demonstration of a clear political will to solve the crisis."

Quick note to Ms Lagarde & Mr Soros: at certain point in any crisis, demonstration of a will to solve it becomes insufficient to dealing with the crisis. That point 

1. Arrives once actual resolution becomes requisite due to the conditions of the crisis becoming immediately unsustainable (6.5% yields on Spanish & 6.1% yields on Italian 10 year bonds would qualify), and
2. Usually arises due to continued postponement of the said resolution.

In brief - Christine Lagarde might be right on timing (3 months, but with a margin of error both ways), but she is wrong on the required course of the action. Showing will is no longer an option. Deploying solutions is now the only immediately necessary step the EU can take.

11/6/2012: ESM / EFSF : building a bypass to nowhere

A quick one. Why ESM+EFSF lending capacity can't take Spain 3-years of funding (if Exchequer funds are drawn)? Here's a chart from Bridgewater:

Estimates for banking sector needs of Spain alone are running on average around €250 billion, with some sovereign supports, this rises to €370-470 billion. This will more than top the €700 billion hypothetical capacity of EFSF/ESM funding. With full 3 years Exchequer supports, the above mid range estimate can rise to ca €550 billion. That scenario (rather benign, given the markets conditions) will leave EFSF/ESM with ca €150 billion of funds (assuming Cyprus and Ireland do not dip into the funds this year or next) and that is nopt enough to fund Italian deficits and debt redemptions for even 1 years.

As the song goes: So long and thanks for all the fish...

9/6/2012: Chinese equity FDI in Europe

An interesting set of stats on Chinese equity FDI in 2011. The source is here.

In absolute terms (from the original source):

And in per capita terms (computed by me):

An interesting observation: were Ireland attracting Chinese investment at the rate of Malta (ranked 1 in the EU27), our total stock of Chinese FDI would have been around €923mln as compared to our current stock of €324mln, ranking us 5th in absolute terms in EU27 instead of current 9th. Of course, one has to keep in mind that China's investments in Malta are extremely concentrated.

As is, our performance with respect to Chinese equity investments is not too bad. Some room for growth is left, but 6th place on per-capita terms is not too bad, given we are late-comers to the game of attracting Chinese FDI.

It is also worth noting just how low does Greece rank in both charts. And worthy of the is the stellar UK performance in both charts. Here's a trouble, though, folks. The UK is, allegedly, marginalized from the 'centre table' of 'Europe' and is not in the common currency mad... err... hot... house. And notice that Denmark is doing not too badly either. So what does this UK's (and Denmark's)performance tell us about the argument the thesis so commonly advanced in Ireland that 'investors want euro membership'?

9/6/2012: Why IMF 'vision' on EA crisis is missing major points

An interesting speech given by the IMF Managing Director, Ms Christine Lagarde to the Annual Leaders’ Dialogue Hosted by Süddeutsche Zeitung last night. Here are some extensive exerts from it and my thoughts - sketched out, rather than focused - about her ideas.


Part 2 of the speech focused on the need for breaking the cycles of the crisis(that amplify risks to the economy, including global economy). Do note - coincidentally, the theme is exactly identical to my forthcoming Sunday Times article and to the research note currently awaiting legal clearance (both will be posted here early next week).


Per Ms Lagarde:
"One is an economic cycle. The feedback loop between weak sovereigns, weak banks and weak growth that continually undermine each other.

"...Another cycle on my mind: the political economy. It is a cycle that has become too familiar since the start of the crisis, like a movie we have watched one too many times. It looks something like this. Tensions escalate and, out of necessity, policymakers take action. But, just enough for the danger to subside. Then the urgency is lost, momentum wanes, and the policy discourse begins to fracture, too focused on their own backyards and not enough on the big picture. And so tensions start to rise again.
But, with the passing of each cycle, we reach a higher and higher level of uncertainty, and the stakes rise.

"In the case of Europe, the cycles are now threatening the very existence of the European project. We must break both of these cycles if we are to break the back of this crisis. And one cannot happen without the other."

So far, on the money, although Ms Lagarde seems to be unwilling to recognize that we also have a structural growth problem in Europe, a problem linked with the above cycles, but also independently grave enough to warrant concern.

To break these cycles, "...the policy debate needs to move beyond the false dichotomies of growth versus austerity, stability versus opportunity, national versus international interests. We need to agree on a comprehensive strategy that is good for stability and good for growth."

So, per Ms Lagarde, the core pillars of such a strategy are: "First, macroeconomic policies should help support the recovery and also tackle the underlying causes of the crisis.

• Monetary policy should continue to be very supportive. Central banks, in particular the ECB, should further loosen monetary conditions, and remain ready to use unconventional tools to ease tensions and provide funding to address liquidity constraints. [In other words, Ms Lagarde is wisely going well beyond the rates policy alone. Good news, but no specifics.]
• Public debt remains too high and countries need credible and ambitious roadmaps to bring it down over the medium term. For the most part, that adjustment should be gradual and steady, unless countries are forced by markets to move more aggressively—which is, of course, the case for several countries in the Eurozone. If growth becomes weaker than expected, countries should stick to announced fiscal measures, rather than announced fiscal targets—as economists say, they should let the automatic stabilizers to operate. [Basically: do austerity policies, but don't chase targets too much. Unless you have to. In which case... well, nothing really new. Just do something?]

"Second, more effective crisis management. This is very urgent and mainly an issue for the euro area. But, a broader element is the collective effort to reinforce the global financial safety net. In this context, I welcome the increase in the IMF’s resources by $430 billion." [A complete 'Fail' for Ms Lagarde here. Increasing 'global safety net' is hardly the only factor in carrying out effective crisis management. How about recognizing that all problems are inter-linked with each other, and thus effective crisis management should be not about creating another pot from which lending can occur to the sovereigns, but actually creating a system that can permanently and swiftly resolve the singular core pressure cause that might be specific for each country? E.g. for Ireland - a system that can address the banking sector debts loaded into the real economy, for Greece - a system that can write off a large portion of the country sovereign debt without restructuring it into new debt, and so on]

"Third, we need more determined progress on structural reforms. For example, labor market and product market reforms that can carry the torch of growth beyond the immediate support from macroeconomic policies.' [Again, Ms Lagarde is exceptionally weak on specifics, in part because structural reforms are country-specific, but in part despite the fact that structural reforms for the euro area must include some - e.g. markets structure changes, moving economy away from state-dominated management and investment etc.]


In part 3 of her speech, Ms Lagarde focused on financial sector reforms.


"Let me be clear: the heart of European bank repair lies in Europe. That means more Europe, not less. ... To break the vicious cycle of financial-sovereign risks, there simply must be more risk-sharing across borders in the banking system. ...In the near term, this should include a pan-euro area facility that has the capacity to take direct stakes in banks. Looking a little further ahead, monetary union needs to be supported by building a true financial union that includes unified supervision; a single bank resolution authority with a common backstop; and a single deposit insurance fund."

[Aside from the 'true financial union', the common deposits insurance system is exactly what I suggest as well, although my proposals go further to include a common resolution mechanism for banks insolvencies that is systemic, not debt-based, unlike Ms Lagarde's approach that will simply pool bad debts into a larger warehousing facility, other than national one. Sadly, the logic of failed banking resolution policies to-date escapes Ms Lagarde. Pooling bad debts into a pan-European system instead of current national systems is equivalent to suggesting that putting all sick and healthy patients in one ward will somehow prevent contagion.]

"Moves toward deeper fiscal integration should go hand-in-hand with these efforts. In particular, the area needs to take the further step of some form of fiscal risk-sharing. Options here include some form of common bonds or a debt redemption fund. This would allow for common support before economic dislocation in one country develops into a costly crisis for the entire euro area." [This is an extraordinary statement for IMF MD - as I show in my forthcoming Sunday Times article, pooling sovereign debt risks will mean euro area sovereign debt/GDP ratio in excess of 110% by 2014-2015. Where is Europe's capacity to raise such debts and where its economic capacity to finance such debts?]

"And, on the upside, breaking the shackles of the sovereign-financial nexus will allow financial institutions to deliver credit and, in turn, create growth and jobs." [This is a rather silly conclusion/ promise that resembles the Irish Government's promises that first a global systemic guarantee, then Nama, subsequently extensive recaps - all policies advocated in this speech by Ms Lagarde, albeit at EA-wide level, instead of national levels - will create a healthy banking system with ample funding and risk-taking capacity to lend into the economy. In Irish case - this clearly did not happen. Neither has it happened in Japan. Why increasing the scale and spread of the diseases - the insolvent banking system - to supernational level should do the opposite?]

8/6/2012: QNHS Q1 2012: Employment by skills and occupation

In previous blog posts I covered core results from QNHS, sectoral decomposition of QNHS, public sector numbers, and on broader measures of unemployment. In this fifth post I will deal with occupational distribution of employment.


CSO reports seasonally unadjusted data for occupation distributions by 9 broader categories of workers. Thus, core comparatives should be performed on annual (y/y) basis, rather than quarterly.


In Q1 2012 there were 145,700 Managers, directors and senior officials employed in Ireland, representing 8.16% of total employment. Numbers employed in this occupation rose 4.37% y/y in Q1 2012, after posting a shallow 0.71% contraction y/y in Q1 2011 and growth of 3.15% y/y in Q1 2010. Between Q1 2008 and Q1 2012, numbers of Managers, directors and senior officials in employment in Ireland rose 2.10%.


In Q1 2012 there were 333,400 Professionals employed in Ireland, representing 18.67% of total employment. Numbers employed in this occupation fell 0.66% y/y in Q1 2012, after posting a slightly deeper 0.83% contraction y/y in Q1 2011 and growth of 3.93% y/y in Q1 2010. Between Q1 2008 and Q1 2012, numbers of Professionals in employment in Ireland rose 1.62%. So not sign of that MNCs-led jobs boom for professional category of employees, yet. In fact - none for 2 years in a row.


In Q1 2012 there were 215,500 Associate professional and technical staff employed in Ireland, representing 12.07% of total employment. Numbers employed in this occupation rose 2.81% y/y in Q1 2012, after posting a rise of 3.87% y/y in Q1 2011 and a decline of 2.66% y/y in Q1 2010. Between Q1 2008 and Q1 2012, numbers of Associate professional and technical grade workers in employment in Ireland rose 6.11%. Aha, this is, then the MNCs-jobs boom, except, sadly, it is happening at the lower end of wages distribution for higher-skilled, not at the top (Professional grade). Which, of course, begs a question: what sorts of jobs are being created in the sector?


In Q1 2012 there were 205,600 Administrative and secretarial staff employed in Ireland, representing 11.51% of total employment. Numbers employed in this occupation fell 7.55% y/y in Q1 2012, after posting a drop of 8.36% contraction y/y in Q1 2011 and a decline of 1.94% y/y in Q1 2010. Between Q1 2008 and Q1 2012, numbers of Administrative and secretarial staff in employment in Ireland fell a massive 19.02% making this category of employees the third hardest hit by the crisis. 


In Q1 2012 there were 258,700 Skilled trades staff employed in Ireland, representing 14.48% of total employment. It is worth noting that these are skilled tradesmen and tradeswomen many of whom have substantial skills and can add significant value-added to the economy. Numbers employed in this occupation fell 1.71% y/y in Q1 2012, after posting much deeper drops of 10.11% and 18.10% y/y in Q1 2011 and Q1 2010, respectively. Between Q1 2008 and Q1 2012, numbers of Skilled trades staff in employment in Ireland fell a massive 39.46% making this category of employees the hardest hit by the crisis. 


Chart below illustrates the above trends

Other categories are shown below:

Overall, classifying the categories of Professional and Associate professional and technical staff as 'knowledge economy'-related categories of employment, we have:

Per above, quarterly rise in the higher and specialist skills categories of employees has been significant in Q1 2012. However, given series volatility and lack of seasonal adjustments to data, y/y comparatives show that overall rise in Q1 2012 compared to Q1 2011 was just 0.68%, down on a rise of 0.93% in a year to Q1 2011 and 1.37% in a year to Q1 2010. In other words, although employment in the 'knowledge'-intensive occupations is rising, it is rising at much slower rate today than in previous years.

8/6/2012: QNHS Q1 2012: Irish broader unemployment metrics

In previous blog posts I covered core results from QNHS, sectoral decomposition of QNHS, and public sector numbers. This post will focus on broader measures of unemployment.

CSO reports seasonally unadjusted data for part time employment that disaggregates part-time employees into those considered to be underemployed and employed. Those considered to be underemployed are individuals who hold part time employment, but are willing and available to work additional hours (new definition).

At the end of Q1 2012 there were 282,600 individuals who were working part time but did not report themselves to be underemployed - a number below 283,300 in Q4 2011 and well below 304,800 in Q1 2011. At the same time, 135,200 individuals were reported as underemployed - down from 141,500 in Q4 2011 and up on 121,900 in Q1 2011. In fact, Q1 2012 marked absolute record for any Q1 since the series started. Keeping in mind that it is seasonally unadjusted series, y/y comparatives are what matters. In Q1 2012, annual rate of increase in underemployed was 10.9% down from 18% in Q1 2011 and up on 5.2% in Q1 2010. Since the crisis began, the number of those underemployed rose 3,458% - that's right - almost 35-fold.

The chart below shows only those underemployed as defined under new methodology.

Combining unemployed and under-employed we have:

Which implies that our 'dependency' ratio - the ratio of full-time employees to total adult population of 15 years and older is still rending down, having already reached a new all time low in Q1 2012:

While traditional seasonally unadjusted unemployment rate is now at 14.7%, combined unemployed, underemployed and marginally attached to labour force ratio to the labour force - or what I term a broad unemployment rate is now 21.94%, up on 21.76% in Q4 2011 and 20.77% in Q1 2011.

7/6/2012: QNHS Q1 2012 - Public Sector

In the previous post I covered some data for the public sector employment based on the main tables in QNHS dataset. QNHS also, handily, provides a specific public sector employment series that are supplied as an appendix and cover data for employment including and excluding census workers. This post deals with these.

Two charts below show the breakdown of public sector only employment by categories:

Interestingly, data suggests that reduction of public sector employment in health and education has been offset by increases in private sector employment in these sub-sectors (see previous post for more detailed analysis of total employment in these sub-sectors). This might be due to staff substitution and early retirees coming back via private sector.

Table below summarizes the data:

7/6/2012: QNHS Q1 2012: Sectoral Decomposition

In the previous post I covered the top-of-the-line data on QNHS for Q1 2012. This time, lets take a look at some sub-trends by occupation and public v private sector numbers.

A handy summary table to outline changes by occupation:

Few surprises in the above table are:

• Twin (q/q and y/y) rises in Wholesale & Retail Trade category, 
• Y/y rise in Accommodation and food service activities with a level increase of 8,600. This appears to confirm the Government claims on the sectoral jobs creation on the foot of jobs stimulus. The problem with comparatives is that the y/y increase comes on foot of a sudden decline in employment in the sub-sector in Q1 2011 when it fell to surprisingly low, seasonally-unjustified level of 102,900. Sub-sector employment remains down on Q1 2010 when it stood at 123,700 or 12,100 ahead of Q1 2012, and it is down on Q4 2011 when it was at 113,400 against Q1 2012 at 111,600. The core factor in Q1 2012 differential on Q1 2011 might have been not so much jobs creation as the increased expense of jobs reductions under Budget 2012. This, however, is speculative argument at best. My suggestion would be to wait and see how the numbers employed in the sector pan out in Q2 2012.
• Another surprising thing is that in the category of skills closely aligned with Accommodation and food service activities there was a decrease, not an increase, y/y in terms of employment. Caring, leisure and other service category of workers saw employment drop from 142,300 in Q1 2011 to 141,500 in Q1 2012. Something is not adding up, unless the jobs created in the sub-sector were managerial and/or associate professional and technical.
• Not surprisingly, ICT sub-sector grew employment y/y with 6.81% increase on Q1 2011 - the only private sector sub-sector that posted an increase in jobs on 2007 levels (+5.31%), with only other two sectors adding jobs on 2007 levels being Education (+4.64%) and Human Health and Social Activities (+6.57%).
• For all the claims of MNCs employment gains, the core sub-sector of Professional, Scientific and Technical Activities has seen employment shrinking, not rising in Q1 2012 relative to Q4 2011 (-0.53%), to Q1 2011 (-7.56%) and on 2007 (-15.44%). Striking feature of these changes is that this sector was the hardest hit in Q1 2012 of all sub-sectors listed by CSO, amidst the robust IDA and Government claims that jobs creation in MNCs is ongoing and that R&D and innovation activities are booming.

In the core series for sub-sectors:

• There was a recorded rise in Education sub-sector. Employment in education stood at 144,200 in Q1 2012 - up 2.2% (or 3,100) on Q4 2011 and down 2.2% (-3,200) on Q1 2011. Since Q1 2007, employment in the sector grew by 4.64% or +6,400.
• Employment levels in Health and social work activities fell q/q by 1.96% (-2,000) but are up on Q1 2011 by 1.72% (+4,000). Compared to Q1 2007, Q1 2012 employment in the sector is up 6.57% (+14,600). 
• The two sectors above represent front-line services in their definition.  Between them, during the austerity period the two sub-sectors added 29,700 new jobs.

And lastly, two charts on dependencies ratios. Without any comment.

7/6/2012: QNHS Q1 2012: First results

The latest QNHS results for Q1 2012 are out. Headline readings from CSO release:

• There was an annual decrease in employment of 1.0% or 18,100 in the year to the first quarter of 2012, bringing total employment to 1,786,100. 
• This compares with an annual decrease in employment of 0.8% in the previous quarter and a decrease of 2.9% in the year to Q1 2011.
• On a seasonally adjusted basis, employment fell by 7,300 (-0.4%) in the quarter. This follows on from a seasonally adjusted increase in employment of 11,100 (+0.6%) in Q4 2011.
• Unemployment increased by 13,300 (+4.5%) in the year to Q1 2012. This brings the total number of persons unemployed to 309,000 with male unemployment increasing by 3,600 (+1.8%) to 205,400 and female unemployment increasing by 9,800 (+10.4%) to 103,600.
• The long-term unemployment rate increased from 7.8% to 8.9% over the year to Q1 2012. Long-term unemployment accounted for 60.6% of total unemployment in Q1 2012 compared with 55.1% a year earlier and 40.9% in the first quarter of 2010.
• The seasonally adjusted unemployment rate increased from 14.5% to 14.8% over the quarter.
• The total number of persons in the labour force in the first quarter of 2012 was 2,095,100, representing a decrease of 4,800 (-0.2%) over the year. This compares with an annual labour force decrease of 32,800 (-1.5%) in Q1 2011.

We have the above data to offset the incessant chatter from the Government about stabilizing unemployment and jobs creation. The success of the Irish State unemployment activation programmes and training schemes is clearly some time off, despite more than a year of current policies and the build-up of similar activation efforts under the previous Government.

Now to more detailed analysis. This post will focus on top-of-the-line numbers and subsequent posts will look at sectoral breakdown and other details.

Labor force participation has fallen to 2,107,800 in Q1 2012, down from 2,113,400 in Q4 2011 and down on the peak of 2,251,400 in Q1 2008. The annual rate of decline of 0.3% in Q1 2012 is shallower than Q1 2010-2011 rate of -1.6% and Q1 2009-2010 rate of -2.6%. Which is good news, kind of.

Numbers of those not in the labor force rose to 1,390,500 in Q1 2012 up from 1,389,600 in Q4 2011 - a shallow hike. Year on year, the rise was 0.2%, much more mild than 1.75% hike in Q1 2010-2011 and 2.94% rise in Q1 2009-2010. Again, sort of good news.

Numbers in employment fell to 1,800,300 in Q1 2012 from 1,807,600 in Q4 2011. (See breakdown of full v part time employment below). Again, the anual rate of change trend is toward shallower declines. In Q1 2011-2012 the rate of decline was 1.0%, against -2.85% in Q1 2010-2011 and -5.46% in Q1 2009-2010. At the peak, there were 2,140,600 in employment, now the number is down 340,300.

Overall number of unemployed rose from 307,300 in Q4 2011 to 312,800 in Q1 2012. At the lowest point in recent history we had 94,200 unemployed. Unemployed counts rose 4.6% y/y in Q1 2012, compared to growth of 8.13% in Q1 2011 and 24.54% in Q1 2010.

Both full-time and part-time unemployment levels shrunk in Q1 2012. Full-time employment is down to 1,383,500 in Q1 2012 from 1,385,000 in Q4 2011, while part-time employment is down to 417,900 in Q1 2012 from 422,300 in Q4 2011. Y/y full-time employment is down 0.6% compared to Q1 2011 y/y decline of 4.47% and Q1 2010 y/y drop of 7.25%. Part-time employment is down 2.1% in Q1 2012, against a rise of 3.24% in Q1 2011 and a rise of 1.847% in Q1 2010.

Unemployment rate has now reached its crisis-period peak of 14.8, more than erasing the slight moderation achieved in Q3 2011 to Q4 2011 (drop from 14.6% to 14.5%). A year ago, just as the new Government came to power, the unemployment rate stood at 14.1%. Of course, the previous Government has presided over much more dramatic rise in unemployment rates. In addition, economic conditions that the current Government has inherited clearly do not warrant much of optimism, especially in such sticky series as unemployment. Thus, the current numbers are not the matter for a blame game.

Participation rate has remained flat at 60.3% in Q1 2012, same as in Q4 2011, but is down from 60.4% in Q1 2011. At the peak we had participation rate of 64.1%.

The above has meant that our dependency ratios worsened in Q1 2012. Ratio of those employed to the rest of the working age population has fallen from 65.35% in Q4 2011 to 65.22% in Q1 2012. In Q1 2011 this ratio stood at 65.80% and in Q1 2010 it was 70.90%. At the beginning of the crisis the ratio was 98.80%. In other words, the proportion of those working in the economy is declining.

Summary of headline stats:

7/6/2012: Sunday Times June 3, 2012

This is an unedited version of my Sunday Times article from June 3, 2012.

In early 2008, Brian Cowen described Ireland’s predicament with a catchy phrase ‘We are where we are’. Ever since this became synonymous with gross incompetence, epic failure and outright venality of our elites.

Fast forward to May 2012. In the heat of the EU Referendum campaigns, both Government parties have paraded their up-beat assessments of the economy, their own stewardship and achievements. The factual record of the current Government on economic policies is only slightly ahead of that attained by their predecessors.

Don’t’ take my words for this. Look at just where exactly ‘we’ – Ireland – ‘are’ in the crisis after a year of stewardship by the Coalition.

We are officially in a recession. Both GDP and GNP have shrunk in the last half of 2011 and all indications are, growth is unlikely to have returned in Q1 2012 either. Should Ireland post another quarter of negative growth, we will join the club of Italy, Cyprus, the Netherlands and Portugal. This select group of the euro area countries have managed to record GDP declines in three consecutive quarters since the end of June 2011. For Ireland, this abysmal economic performance comes on foot of the overall 17.6% decline in GDP and 24.2% drop in GNP since 2007 peak through the end of 2011. This didn’t stop this Government from declaring, as its predecessors did, various ‘turnarounds’ and ‘improvements’ in the economy, as a part of their credit, even though so far, the actual record of this Government on growth is negative. Since the Coalition came into power, GDP grew just 0.7% and GNP shrunk 4.1%, investment is down 12.8%, personal consumption fell 1.6%, while expatriation of profits by the MNCs operating here rose 24.6%.

Despite accelerating emigration and ever-rising numbers of unemployed being reclassified as engaged in state-sponsored training programmes, the latest unemployment remains stuck at 14.3% exactly identical to that recorded a year ago. In May 2011, there were 444,400 people on the Live Register and 71,231 in various state training schemes, this month these numbers were 436,700 and 82,331, respectively. Year on year, numbers at risk of underemployment rose 3,131. The Government has claimed that it has helped creating some tens of thousands new jobs, ranging from MNCs-supported ‘smart economy’ workers to hospitality sector. In reality, once training programmes are added, the numbers of those drawing unemployment supports rose 3,400 over the tenure of this Coalition.

Not surprisingly, consumer demand – accounting for 52% of our overall economic activity (in comparison, net external trade in goods and services accounts for less than one half of that figure) – is shrinking. Hammered by the push toward debts deleveraging, higher taxes, losses of income due to shrinking earnings and strong inflation in state-controlled sectors, Irish consumers are running away from the shops. Retail sales, ex-motors, have fallen 2.3% year on year in April 2012 in value terms and 3.8% in volume. This marks the fourth consecutive month of dual declines in volumes and value and the steepest rates of declines since October 2011 for value series and since May 2011 for volume. Things used to be getting worse at a slower rate in retail services sector. Now they are getting worse at a faster rate.

Banks reforms are truly not paying off for the Government. The latest banks lending survey for April 2012 shows that Irish banks have uniformly tightened, not relaxed, lending to enterprises in Q1 2012, compared to no change in lending standards recorded in Q4 2011. Things have not improved in consumer lending either, with mortgages lending running at just 5% of the levels seen during the peak. Meanwhile, costs remained the same in Q1 2012 as in Q4 2011 across all sources of funding. Following the estimates of foreign analysts, mirroring this column’s earlier prediction, the Central Bank now quietly admits that more funds will be required to offset rising mortgages arrears. More capital will be called on to bring Irish banks balancesheets to Basel III standards in years to come.

We are nowhere near the end of the crisis relating to housing markets. In Q1 2012 the overall level of mortgages at risk of default or already in default has reached 15.3% of the overall outstanding mortgages, 19.3% of all mortgages balances. This compares to 11.1% for levels and 13.6% for balances a year ago.

The game of extend-and-pretend drags on, as the Government publicly makes bombastic pronouncements about ‘stabilization’ and ‘reforms’ achieved in the sector, while reluctantly admitting that mortgages books are in a mess. The strategic response to this is the Government’s hope that the EU will be forced to mutualize banks debts, shifting them off the books of the state.

Housing markets continue to contract and commercial real estate values are still declining. The latest Residential Property Price Index for April shows that overall national property prices are already 50% down on the peak. Two consecutive monthly rises in Apartments and Dublin sub-markets can be interpreted as either a nascent stabilization, or one of the already numerous ‘false starts’ soon to be followed by renewed prices contractions. Take your pick, but either way we are way off any real recovery here.

Since about mid-2011, the Government has been committing a twin fallacy of referencing our bond yields moderation as a sign of ‘improved confidence’ in its policies. In reality, after massive LTROs that saw billions of euros pumped by the Irish banks into Government bonds, Irish yields are now back at the levels seen in January 2012. Over the last 18 months, the Troika programme has seen billions of Irish bonds taken off the market. This, alongside with the lack of new issuance, has meant that our bonds yields no longer provide a signal as to the expected cost of Irish Government borrowing. Since April 2011, the volumes of Irish Government bonds held by foreign investors have fallen by some 20% - the third steepest rate of decline in Europe after Greece and Portugal. The rate of foreign investors’ exiting Irish Government bond holdings has accelerated once again in the last 2 months. Year on year, Irish Credit Default Swaps spread over Germany is up almost 8% and this week our CDS reached 720bps.

The fact is, even by the above metrics, the current relative stability of our fiscal, financial and economic conditions is being supported by exceedingly optimistic assessments of our future growth and fiscal potential. Currently, Ireland runs the highest level of Government deficits in the euro area. Even if we stick to the EU-IMF adjustment programme, based on Department of Finance projections, in 2015 Ireland’s structural deficit will be the second highest amongst the old euro area member states. And to get to this unenviable position, we will need to carry out some €8.6 billion worth of new cuts between Budget 2013 and Budget 2015, taking more than €9,500 in additional funds out of working families’ budgets.

We are where we are – in a worse place than we were a year ago. Given the rates of economic destruction experienced since the onset of the crisis in 2008, this is doubly damaging to the claimed Government credit of reforms. Economics of the crises tell us that, on average, the harder the fall, the faster is the rise in the recovery. Ireland seems to be bucking this historical trend with our L-shaped recession to-date.

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