2/10/2012: Irish Exchequer Receipts Q3 2012

Headline figure on Tax Receipts is €26,118mln collected in Q3 2012 against profile of €25,733mln a surplus over the profile of 1.5%. However, in January-August  2012 the same surplus was 1.7% and January-June 2012 it was running at 3.1% surplus on target. In other words, target is being met, but performance is deteriorating and the Department is correct to sound cautiously here, constantly reiterating the importance of Q4 in terms of receipts delivery. The cushion as it stands at the end of September was €385 million on profile.

Year on year headline figure shows improvement in 9 months through September (up 8.4% on unadjusted basis, and up 6.2% on adjusted basis) compared to 8 months through August (7.7% on unadjusted basis and 5.2% on adjusted basis). This is the good news for the Exchequer.

On adjusted basis, tax revenues are up €1,491 mln in Q3 2012, having been up €1,063 mln in 8 months through August. This suggests that September monthly performance was pretty robust even once we adjust for the various reclassifications of tax revenues.

Now, let's try to see what is going on behind the headlines.

Adjustments - covering reclassifications of USC and delayed accounting for corporate tax receipts (carryover from 2011) - were running at €511 million in 8 months through August 2012. In Q1-Q3 2012 these were booked at €529 million - a suspiciously low differential for the whole month. I noted the same suspicion back in August. 

In addition, the Department seemingly does not account for reclassification of the Corporate Tax receipts from 2011 to 2012 in full. Instead, the Department does subtract the revenues booked in 2012 due to carry over from 2011 from 2012 figures, but it does not add these carry over amounts back into 2011 comparative Corporation Tax figure.

On non-tax revenues side, banking-related receipts are running at €2.057bn in 9 months through September 2012 against €1.643bn in the same period 2011.Semi-states dividends (another indirect tax on the economy) are at €88mln against €31mln in 2011. Pensions levies are at €11mln against €8.6mln in 2011. Adjusting for banks receipts alone (see my August note as to why such adjustments are warranted), total current receipts (tax and non-tax) are at €26,471mln in January-September 2012 against €24,455 in the same period 2011 (+8.25% y/y). 

Now, adding to these adjustments on tax revenues (explained above), total adjusted current receipts are up 6.1% y/y, not the 9.3% headlined in the exchequer figures.

Excluding the Sinking Fund transfers (deficit neutral), Capital Receipts are down at €813 mln in 9 months through September 2012 compared to €1,038mln in the same period 2011.

Let's combine all receipts ex-Sinking Fund receipts:

• Official numbers are: Total tax and Non-Tax Current and Capital Receipts amounted to €29.342bn in January-September 2012, up 8.13% on the same period 2011 (€27.136bn).
• Adjusting for Banks-related receipts and adjusting for tax revenues reclassifications, total receipts amounted to €26.755bn in 2012 and €25.655bn in 2011 (January-September periods), a rise of 4.29% y/y or €1.1bn.
• The above is still an impressive performance, given stagnant economy, but it is a far cry from what is needed to close the funding gap for the Exchequer.
• Critically, while tax performance cushion on target is getting thinner, it is still positive and is likely to stay non-negative through Q4 2012. In other words, it appears that we will deliver on targets on tax revenue side. This represents the reversal to some threats emerging in July-August.

1/10/2012: ECB in two charts

ECB in 2 charts:

30/9/2012: Ireland's Demographic Dividend Turns Negative?

Ireland has one of the highest and healthiest birth rates in the advanced economies club, a fact that remains valid even today, amidst the economic downturn. In the past, this has prompted some economists and commentators to label this trend 'the demographic dividend'. I always pointed to the fact that if this indeed is a 'dividend', then retaining it within the Irish economy (society) is as important as generating it in the first place. Alas, over the recent years, our demographic dividend has been largely squandered away by the combination of a cyclical downturn (temporary loss of jobs) and more importantly by the structural recession (longer term loss of jobs). I highlighted the top line trends in our migration in the previous posts (here and here).

Here, let's take a quick look at the 'demographic dividend'.

With many caveats, let us define two groups of population: those in active working age group (20-64 years old) and those outside this group (0-19 years old and over 65 years old). The reason for these definitions is that younger people  under 20 years of age are significantly engaged in education systems and although some of the students do work, they are not engaged in career-enhancing work and/or work part time. Similarly, some of the people in age category over 65 are still very much gainfully employed, but vast majority of people in this age category either work part time, or do not work at all. Again, all of this relates to formal employment, so we omit household work, which is important in the economy as well, but is hard to quantify.

With caveats, then:

• Between 2006 and 2009 working age group population in Ireland grew by 189,100 and in the period of 2010-2012 it shrunk by 27,000. Quite a reversal in the 'demographic dividend' if you ask me.
• The same group share of total population grew by 0.1 percentage point in 2006-2009 period and contracted by 1.0 percent in 2010-2012 period.
• Meanwhile, the opposite side of the 'dividend' performed in exactly the opposite direction: non-working age population grew in 2006-2009 period by 114,500 and then again expanded by 57,700 in the period of 2010-2012. 
• The share of total population that is captured by the non-working age population shrunk by 0.1% in 2006-2009 period and grew by 1.0% in 2010-2012.
• Let's sum this up: in 2006-2012 period, working age population expanded by 150,800, while non-working age population grew 201,600. If this is a dividend, so far it is coming up negative. Proportion of working age population as a share of total population shrunk 1.5% and proportion of non-working age population expanded by 1.5%.

Charts to illustrate:

The above, of course, leaves out the account of unemployment. But even abstracting away from this, Ireland is now at risk of suffering from rising twin dependency: fewer working-age people funding more non-working-age people. All because of emigration. Dividend...

30/9/2012: Retail Sales data for Ireland August 2012

Retail sales figures for August are out this week with some positive, if only fragile, news.

• Core retail sales Value Index rose to 96.0 from 95.3 in July, up 0.73% m/m. Value index is still down 0.31% on 3mo ago, but the index is up 1.48% y/y.
• 6mo MA is at 95.42, so August reading is slightly ahead of the longer-term average. Previous 6mo MA through February 2012 was at 95.3.
• August reading is still below the 2010-2011 average (96.63).
• August marked second consecutive rise in Value index, although the overall index still did not fully recover from June sharp drop.
• Core retail sales Volume index remained relatively unchanged in August at 99.2 after posting 99.1 reading in July. The index is up on 98.0 in July, but is still below May reading of 99.5.
• Volume index in August was at -0.30% below the reading 3 mo ago and is up 0.3% y/y. The gap between volume and value indices changes over the last 12 months suggests acceleration in inflation.

Charts below show overall trends, including the trends in consumer confidence:

As usual, my own Retail  Sector Activity Index (RSAI) based on the above series:

RSAI rose to 110.1 in August from 108.9 in July due to a combination of increases in the Value and Volume Indices and Consumer Confidence. RSAI is now 1.15% up m/m and 6% up y/y with core y/y driver being consumer confidence (+25.4% y/y in August). The problem is that on general, the Consumer Confidence indicator is largely irrelevant as a metric to the sector performance. For example, all indices set at 100=2005 level of activity. By this metric, Volume of activity is still down 0.82%, while the Value index is down 4.0% on 2005 levels of activity. Consumer Confidence is 38.3% up. 

So the positives are, at least through August, as follows:

1. Value Index of retail sector activity is up 2 months in a row, but at a weak rate of increases so far;
2. Volume index is basically flat (at least not declining)
3. Confidence is up, but I would advise serious caution in interpreting this.
4. RSAI is up and may be signaling some future firming up in sales, assuming confidence indicator is not going completely out of connection with the real economy. 

29/9/2012: Detailed analysis of Irish migration by nationality

On foot of some comments to my earlier post on Ireland's migration flows, here are three charts to show in more details nationality breakdown of the core flows: Data refers to April-April data, so 2012 references period of April 2011 - April 2012.

Annual immigration:

• Total immigration peaked at 151,100 in 2007 and declined to the low point of 41,800 in 2010. Since then, it bounced somewhat back to 53,300 in 2011 and to 52,700 in 2012.

Annual emigration:

• Annual emigration hit bottom in 2006 at 36,000 and rose steadily to 49,200 in 2008. Thereafter, total emigration rose to 72,000 in 2009, dropped slightly to 69,200 in 2010 and shot up in 2011 (80,600) and 2012 (87,100).

Cumulated flows for 2006-2012:

• Cumulated net inflows for the period of 2006-2012 stood at 153,500 in April 2012.
• Irish nationals represent the only category of residents that registered net cumulated outflow (-23,400) in the period of 2006-2012.
• In 2006-2008, there were cumulated net inflows of 32,100 for Irish nationals and in 2009-2012 this was reversed to a cumulated net outflow of 55,500
• In 2006-2008, there were cumulated net inflows of 11,400 of UK nationals into Ireland, which was reversed to a cumulated net outflow of 2,300 in the 2009-2012 period
• In 2006-2008, there were cumulated net inflows of 14,100 for 'Rest of EU15' nationals and in 2009-2012 this was reversed to a cumulated net outflow of 5,800
• In 2006-2008, there were cumulated net inflows of 152,900 for EU12 nationals and in 2009-2012 this was reversed to a cumulated net outflow of 27,300
• In 2006-2008, there were cumulated net inflows of 30,600 for nationals from the rest of the world and in 2009-2012 there was a shallower net cumulated inflow of 3,600.

29/9/2012: Eurocoin for September 2012

In the previous post I promised the update for the leading economic indicator, eurocoin, results for September.

In September, eurocoin remained at broadly-speaking the same level as in August, singaling contraction of -0.32 (August reading was -0.33). The indicator was on the positive side in equity markets and sovereign debt components, but came in with deterioration on firms and households surveys side.

This marks twelve consecutive months of sib-zero readings.

3mo MA for the indicator is now at -0.297, 6mo MA is at -0.195 and y/y the swing in the eurocoin is -0.35 points. Current reading is slightly worse than -0.31 average reading for 2008-2009.

Growth forecast based on eurocoin suggests -0.4-0.5% economic contraction in Q3 2012.

Monetary policy is now consistent with accommodative stance:

However, monetary policy remains outside the inflation targeting range:

Economic deterioration continues in y/y terms, while moderating inflation is also on track, suggesting that some further easing in the policy is still feasible in months ahead. My expectation would be for an ECB rate cut in October-November of 25bps.

28/9/2012: Two points of note from today's economics news

Two points of note today (and no, none relating to the non-scientific fiction of the Spanish banks stress tests):

Point one: IMF assessment of Iceland's economy (in a second post-programme note):

"Growth has recovered and the outlook is good. Following a deep and protracted recession, the economy grew by 2.6 percent in 2011—a performance that looks set to be broadly repeated in 2012 and sustained over the medium term. The output gap is closing, unemployment has decreased, and inflation, though still high, is expected to converge toward the Central Bank’s target of 2½ percent in the medium term if monetary tightening resumes. Public and external debt ratios are on a downward path and financial sector conditions are improving."

Now, I did stress in italics few bits there…

IMF continues by pointing out that Iceland - to guard against downside risks - should aim to continue current fiscal path and 

"For the 2013 budget, additional measures amounting to about 0.2 percent of GDP would put the overall balance firmly on track for a balanced position in 2014"

Now, the best-in-class Ireland, of course, is aiming to deliver a budgetary deficit of 5% in 2014 - not a balanced budget and to achieve the same target that IMF suggests would take Iceland a precautionary cut of 0.2% of GDP for Ireland would imply dropping deficit by at least 7.7% in 2013. Hmmm… right… the 'bad boy' Iceland = 0.2%, the 'good boy' Ireland = 7.7%…

But wait, the real point two to consider is not about Ireland-Iceland 1-letter difference comparatives, but about Iceland v Euro area ones. Today, Eurocoin - the CEPR and Bank of Italy joint-run leading economic indicator for the Euro area economy came out for September, showing that Euro area economic growth has stabilized at around -0.3-0.5% GDP. Now, run this by me again? Iceland stabilized at around +2.6% growth, Euro area stabilized at around -0.3%… Oh, dear.

See Eurocoin details in the next post...

28/9/2012: Thou Shalt Not Read Into the ECB PRs Too Much

You'll read a load about the Spanish Banks 'stress' tests (which they largely passed with just minor blemishes) in days ahead, but one thing worth remembering is that all the congratulatory patting on the back the Spanish authorities about to receive means diddly-nothing.

Here's what the ECB had to say about the most farcical of all 'stress' tests ever conducted anywhere this side of the Zimbabwean border - the stress tests of July 2010 which even the Irish banks passed with flying colors:

"The stress-testing exercise is comprehensive and rigorous. It confirms the resilience of EU and euro area banking systems to major economic and financial shocks. The exercise, therefore, represents an important step forward in supporting the stability of the EU and euro area banking sectors."

The farcical bit was of course that the 'comprehensive and rigorous' tests of 2010 found all euro area banks needing just €3.5bn of capital...

And here's what the ECB had to say about July 2011 stress tests that failed to find much at fault with the Spanish banking system (italics are mine):

"The European Central Bank (ECB) welcomes the publication today of the results of the EU-wide stress-testing exercise, which was prepared and conducted by the European Banking Authority (EBA) and the national supervisory authorities. The EU-wide stress test in the banking sector has proved to be an important tool to enhance transparency in the EU banking system. It provides for the disclosure of all the information that is relevant for the market to assess the resilience of the institutions in the context of an adverse scenario."

So let's not exercise too much about today's ECB 'welcoming' of the Spanish stress tests (link here)...

28/9/2012: 2012 Emigration hits record levels

Latest data from the CSO on Migration and Population changes estimates for the 12 months period April 2011-April 2012 shows that during the period of so-called 'economic turnaround' marked by the officially 'EU-average growth' attained in Ireland, Irish emigration has hit new post-1990 record levels.

Top line numbers are:

• In April 2011-April 2012 Ireland registered 74,000 new births - a number representing the fourth highest number of births in any year since 1987.
• Over the same period, the number of deaths stood at 29,200, implying the natural rate of increase in Irish population of 44,900 - also the fourth highest rate in history of the series, tied with the identical rate achieved in 2008.
• In April 2011 - April 2012 52,700 people migrated into Ireland well below 69,900 average for 200-2006 period.
• Over the said period 87,100 people left Ireland - a historical record level, beating 80,600 record set in April 2010 - April 2011 period and more than tripple the average rate of outward emigration (28,500) for 2000-2006 period. Overall rate of emigration is now 23% above that attained in the peak pre-crisis year of 1989.
• Net emigration reached 34,400 in April 2011 - April 2012, marking the third highest rate of net emigration in history of the series. In 2000-2006 we averaged 41,400 net immigration per annum, implying a downward swing of 75,800 per annum. Net emigration hit the post-1990 record in the 12 months through April 2012.
• As the result, Irish population expanded by only 10,500 in April 2011 - April 2012 period - the slowest rate of growth since 1990. In 2000-2006 period, Irish population grew on average at the rate of 71,200 per annum.

Charts to illustrate these trends:

Breakdown of net emigration by nationalities shows that the principal driver of emigration from Ireland is outflow of Irish nationals from the country, confirming the trend established in 2011.

Referencing the trends in migration that existed prior to the crisis, the current crisis period is associated with potential net loss of 219,300 persons in the period of 2008-2012. In gross numbers terms, 358,100 people actually emigrated from Ireland in 2008-2012.

If there is such a thing as 'demographic dividend' Ireland today is running at a massive demographic 'loss'.

27/9/2012: Planning Permissions, Ireland, Q2 2012

Planning Permissions for Q2 2012 were published today for Ireland, offering basically continuation of the trend established the end of 2010 which marks slower rate of decline in overall planning permissions. Chart below illustrates:

Total number of planning permissions rose 9.03% q/q in Q2 2012 to 3,672 (still 13.48% down on Q2 2011 and 78.8% down on peak).

In Q2 2012, overall number of planning permissions in Ireland for new dwellings dropped to 942 from 957 in Q1 2012 (-1.57% q/q), which is down 25.47% y/y and down 87.5% on peak. In contrast with new dwellings, other new construction permissions rose from 695 in Q1 2012 to 828 in Q2 2012 (up 19.14% q/q and up 14.84% y/y), which is still down 86.7% on peak.

Annual rates of change clearly show that the slowdown in the rate of decline is now persistent over two quarters for total number of planning permissions, while there is an acceleration in the rate of decline in the planning permissions for new dwellings.

Average square footage relating to new permissions granted is now moving sideways since Q3 2011, suggesting there is really no life in the market for new construction, even in the potential pipeline of work planned.

Sorry to say this, but no good news here.

26/9/2012: Nama valuations & August property prices

As promised - in the last post on today's data release for Irish Residential Property Price Index (RPPI) here's the summary of impact of latest price index movements on Nama valuations.

Note: the figures referenced are approximate and relate to averages of valuations, so these should be treated as a guide. Keep in mind that property prices reaching Nama valuations levels (adjusted for risk-sharing cushion and long-term economic value premium) still imply a loss on Nama books, in my view, due to costs associated with operations, plus the discounts on disposals of properties in volume and over time. Inflation adjustment further increases real loss.

Summary table:

In other words, we need 60%+ uplift on current price levels to achieve a break even on Nama average valuations.

26/9/2012: 2012 forecast for property prices in Ireland

In the previous post I covered main data for August Residential Property Price Index for Ireland. Now, annual forecasts based on data through August:

These imply a cumulated decline of ca3.2% on August 2012 through December 2012, a decline of 2.4-2.5% for Houses, a decline of 3.4-3.5% for Apartments, and a rise of 0-0.25% for Dublin. Obviously, these are not precise figures, so treat with caution.

I currently foresee decline of 51.5% for all properties in 2012 relative to the peak with range of forecasts of 55-61% decline through 2013 relative to peak for all properties index.

I have not updated these figures for some time now - over 6 months so there you go...