3/2/2013: Argentina v Chile: Government & External Balances

In the previous post I looked at the real economy comparatives between Latin America's best-in-class Chile and worst-in-class Argentina.

As promised, now a quick look at the Government and external balances.

If in terms of real economy comparatives, Argentina hardly significantly underperformed Chile since the mid 2000s, in terms of straight down the line General Government Deficits the country is a veritable basket case:

Just as in the case of the real economy, Chile moved dramatically away from Argentina in terms of gross deficits in 1996-2008, outperforming Argentina over that period of time in every year. After 2010, the same picture repeats. On a 5-year average basis, in 1996-2000, average General Deficit in Argentina stood at -3.0%, rising to 6.13% in 2001-2005, declining to -1.74% in 2006-2010 and rising again to -2.83% for 2011-2015 (based on IMF forecasts). Over the same periods of time, Chile recorded average surpluses in every 5 year period: +0.37% in 1996-2000, +0.90% in 2001-2005, +3.03% in 2006-2010 and forecast +0.02% in 2011-2015.

However, much of the headline deficit underperformance by Argentina relates directly to the burden of debt servicing. In this context, Primary Deficits are much more benign to Argentina's case, as illustrated in two charts below:

Again, consider 5-year periods in average annual terms. Due to lack of comprable data for Argentina for 1996-2000, let's omit this subperiod. In 2001-2005, Argentina's primary balance was on average in a surplus of 3.60%, with surplus declining to +2.26% in 2006-2010 and turning a deficit of -0.38% in 2011-2015 forecast period. Meanwhile, Chile enjoyed lower surplus of 1.38% in 2001-2005 epriod, higher surplus of 2.92% in 2006-2010 and a surplus of +0.17% in 2011-2015 period. So while overall Chile did show stronger performance, Argentina's primary deficits were hardly a substantial issue over the period of 2001-present.

Of course, Argentina's debt mountain is legendary... or should it be 'was legendary'?

Argentina's Government Debt/GDP ratio has peaked at 165% in the crisis year of 2002. So much is true. However, overall, the ramp up of debt (dynamics of debt accumulation) and the reduction in debt ratio to economy since the peak have been more than telling. In 1996-2000 Argentina's Government debt/GDP ratio averaged 40.6% - hardly a significant drag on either growth or public finances. In 2001-2005 the same stood at 114.44% of GDP - clearly well in excess of the known bounds for debt sustainability. With debt restructuring and return of economic growth, Argentina's Government debt/GDP ratio fell to 61.99% average for 2006-2010 period and is now on track to hit 43.42% average for 2011-2015. In other words, the country is expected to basically return to pre-crisis levels of Government debt burden by the end of 2015, some 13 years after the crisis.

Over the same period of time, Chile showed exemplary debt performance. Government debt/GDP ratio stood at 13.29% on average during 1996-2000 period, falling to 11.91% in 2001-2005 period and to 5.65% in 2006-2010. Since the devastating earthquake in 2010, debt/GDP ratio notched up to 12.09% for 2011-2015 period.

On external account side, Chile has been a recipient of the strong capital inflows from abroad over recent decades, the position that allowed the country to run significant deficits on trade side. Despite this, overall exports in both countries have been growing roughly-speaking in tandem, with slightly higher volatility for Argentina:

Thus, cumulated current account deficits in the case of Chile run at -104.2% of GDP over 1980-2017 period, against a cumulated deficit of just 24.54% for Argentina. Since 1990 through 2017, Argentina's current account deficits on a cumulated basis will amount to 4.43% of GDP against Chile's 36.62%. And over the period 2000-2017, the IMF is projecting cumulated current account deficit of 9.91% for Chile and a surplus of 20.62% for Argentina.

On the net, excluding fiscal performance and inflation, and keeping in mind that some of the official stats from Argentina are rather dodgy, there is little evidence to suggest that Argentine economy is a 'veritable basket case'. Instead, it is rather an economy struggling with Government debt overhang and fiscal situation whereby benign primary deficits are simply overwhelmed by debt servicing costs. In that sense, Argentina is closer to Italy (correcting for differences in growth rates) than to the 1990s crisis-stricken HIPCs.

2/2/2013: Argentina v Chile: Real Economy Side

Can't say much, but some debate has rekindled earlier today on twitter about the merits or failures of the Argentine model. In part, this revival of interest stems from the IMF issuing another Executive Board statement on the country (here) basically confirming Argentina's continued failure to implement measures to bring the country back on track with the IMF programme. In part, the said interest has been kept alive by various economics commentators, most notably Paul Krugman (see example here), putting Argentina forward as some sort of a maverick economy with miraculous escape velocity from the clutches of the IMF.

I am of no camp on Argentina. It has made hash of long term macroeconomic management, and had seen virtually no structural change on its erroneous ways of the past. On the other hand, by many macro aggregates, the country is muddling through its perpetual crisis rather well. Yet, some indicators point to very deep problems, namely: inflation, and government spending. It's a mixed bag and I have never advocated its mode of policy choices as a road for anyone to copy.

So with this rather neutral stance, here are some comparatives between Argentina and the strongest economy in the region, Chile (now, Chile is in many ways an example of policy reforms I do like and do put forward occasionally as an example for other countries to pursue).

Let's start from the top: real GDP growth:

All in, based on 5 year averages, Argentina's economy expanded at the average rates of 4.78% in 1991-1995, 2.66% in 1996-2000, 2.35% in 2001-2005, 6.78% in 2006-2010 and expected to grow at 4.47% in 2011-2015 period. At the same time, Chilean economy grew, respectively at 7.88%, 4.21%, 4.4%, 3.86% and 4.91%. Thus, Argentina managed to outperform Chile in growth terms only in one five-year period, namely in 2006-2010 period. How much of this outperformance was due to potentially 'massaged' figures from Argentina on inflation and growth, no one knows.

To make the growth comparatives more clear, let's create two indices, setting GDP at 100 for 1990 and for 2000 for both countries and then computing cumulated path of GDP. It is clear that Chilean economy relative outperformance during the 1990s is the core driver for cumulated differences between the two economies, with that difference becoming virtually zero on aggregate during the 2000-2013 period.

GDP at an aggregate level can present a distorted picture of actual activity, due to a number of demographic factors and price comparatives differentials. Here is what has been happening in the two countries in terms of PPP-adjusted (controlling for price and FX rates differentials) GDP per capita.
Per chart below, the comparatives are sensitive to the specific sub-period:

In absolute terms, per capita income in both countries is tracing relatively similar path, although Chile is running slightly ahead of Argentina since 2012 and this is expected to amplify slightly in 2013-2017. However, the starting point for these comparatives was a significant gap between Chile and Argentina in incomes in the 1980s that became erased by 2000. To see this better, consider the index of GDP epr capital, PPP-adjusted that normalises both countries incomes to 100 in 1980:

Since parity in the 1980 (imposed by assumption here) two countries' incomes closely matched each other until ca 1987. There after, Chile saw dramatic uplift in income per capita, while Argentina experienced relative stagnation until roughly 2001-2002. Since 2002, however, both countries income per capita are growing in relatively parallele fashion, although Chile remains an out-performer compared to Argentina.

Relative differences between the countries in terms of income per capita dynamics are closely matched to difference in savings and investment:

Chile strongly outperformed Argentina in terms of gross national investment in 1991-2005 with average investment rate (by 5 year averages) running at 17.23% in 1991-1995, 19.36% in 1996-2000 and 15.98% in 2001-2005 for Argentina, against 27.46%, 26.84% and 22.33% for Chile. In 2006-2011 this was reversed, with Argentina's gross investment running at 23.56% against 22.19% in Chile. In 2011-2015 it is forecast that Argentina's investment rate will remain at high 24.87% while Chile's investment rate is expected to rise to even more robust 25.53% of GDP.

Identical to investment dynamics are traceable across Gross National Savings:

Thus, there were few notable differences in the savings/investment gap between the two countries, with exception for the period of immediate default in Argentina. Both countries reliance on borrowing and external investment was roughly identical in the period 2006-2010, with weaker reliance in Chile in 1996-2005 and stronger reliance in Chile prior to 1995.

Per unemployment - another variable heavily 'massage-able' by the Governments (and Argentina had quite a share of accusations here):

It is very clear that for Argentina, sky-high rates of unemployment that were present in 1994-2004 period have been declining over time, with 2008-2013 unemployment rates virtually identical for both Chile and Argentina. There is little drama here, as far as we can trust Argentine numbers.

I will focus my attention on comparatives between two countries in terms of fiscal and external balance in the next post, but so far, there is little evidence to suggests hugely dramatic underperformance of Argentine economy in recent years compared to 'best-in-class' case of Chile - a country that as it happens is similar to Argentina in terms of income per capita (which is, of course, a major reason why Argentina should not be compared directly with Brazil).

Stay tuned for more.

1/2/2013: The Innocence of Double-Irish

Irish corporate tax policies issues have now penetrated (agt last) into the RTE newsflow - link here.  Of course, the most priceless reaction is, surprise, surprise, via our Minister Noonan:

"In the Dáil in recent weeks, Finance Minister Michael Noonan said: “The problem with the so-called ‘Double Irish’ from Ireland’s point of view is that it has that name. People think that something we do here gives rise to it. That is not the case.” Mr Noonan blamed tax codes elsewhere, including the way the US government treats certain tax arrangements."

Yep, folks, that's right, Irish law allowing dodgy entities set up off-shore to be tax exempt is, apparently, not Irish problem. Serves those Americans right, then...

I'd love to see him repeat this comes St Patricks Day in Washington. Should be the joke of the dinner.

Yes, US tax codes are to be blamed. And so are the UK, German, French, etc Governments' inability to tackle what is rampant tax optimisation. But in the end, Double-Irish is Double-Irish. Not a Double-Japanese or a Tripple-Mongolian.

Note: here are some lists of recent literature on Irish corporate tax heaven.

31/1/2013: Summary of David Hall's Case on Anglo Promo Notes

With the latest twist in David Hall's case on IBRC Promo Notes constitutionality, I decided to post, at last, the summary of David's case as was read out (note - this is not an exact transcript, but darn close to it) in the court earlier this week.

Needless to say, I am disappointed with the ruling issued today, in so far as it simply rejected consideration of the merits of the case, and thus, the case remain outstanding.

Here are the main points of the High Court action taken by David Hall against the legality/constitutionality of the IBRC and EBS promo notes that was presented this week in the court by the Plaintiff. I could not attend the defence statement due to ill health.

Please note, I am no legal expert, so will try to offer the below without a comment on the constitutional or legal issues.

Per Plaintiff's presentation, in a statement made by the Minister for Finance to Dail Eireann on the 30th of March 2010, the Minister announced provision of capital support by the State to the Anglo Irish Bank. The announcement referenced capital injection during that week in the specific form of the Promissory Note payable over the period of 10-15 years. The Minister for Finance, therefore, supplied capital of EUR31 billion to 3 financial institutions: ca EUR25.3 billion to Anglo, EUR5.4 billion to INBS (split as EUR5.3bn in Promissory Note and EUR100mln as a Special Investment Scheme) and EUR350mln to EBS (split as EUR250mln in Promissory Note and EUR100mln in Special Investment Scheme).

The Minister for Finance has also provided the Central Bank of Ireland with the letters of comfort, confirming that the Government of Ireland would indemnify the CBofI in the case of any losses arising from the ELA provision to the Anglo, INBS and EBS. The above financial institutions were thus enabled to borrow, using the Promissory Note as collateral, from the Emergency Liquidity Assistance funds (ELA) of the Central Bank of Ireland.

The key point of this is that the Promo Notes and SIS measures were entered into the General Government Deficit in 2010, raising the headline figure to 32% of GDP and adding to the General Government Debt in 2010, however, since the requirement for these payments did not arise until during the course of 2010, none of these expenditures estimates appeared in the forecasts made in Budget 2010 that were prepared back in December 2009. The next point it that the Government, pursuant to Article 28 of Bunreacht na hEireann, prepared and presented to Dail Eireann the 2011 Estimates of Receipts and Expenditure for the year ending 31st December 2011. Payment of the Promissory Notes was contained in Note 6 under 'Non-Voted Capital Expenditure'. Non-Voted Capital Expenditure means that the Dail did not vote on the expenditure.

Key points: The Dail Eireann did not vote in the Promissory Note expenditure in Budget 2010 or Budget 2011.

The case taken is based on the constitutional argument relating to:

Article 28.4.4 of Bunreacht na hEireann: The Government shall prepare Estimates of the Receipts and Estimates of the Expenditure of the State for each financial year, and shall present them to Dail Eireann for consideration.

Article 17.1 of Bunreacht na hEireann: 1. As soon as possible after the presentation to Dail Eireann under Article 28 of this Constittution of the Estimates of receipts and Estimates of expenditure of the State for any financial year, Dail Eireann shall consider such Estimates. 2. Save in so far as may be provided by specific enactment in each case, the legislation to give effect to the Financial Resolution of each year shall be enacted within that year.

Article 17.2 of Bunreacht na hEireann: Dail Eireann shall not pass any vote or resolution, and no law shall be enacted, for the appropriation of revenue or other public monies unless the purpose of the appropriation shall have been recommended to Dail Eireann by a message from the government signed by the Taoiseach.

Article 21.1.1 of Bunreacht na hEireann: Money Bills shall be initiated in Dail Eireann only.

Thus, Bunreacht na hEireann gives to Dail Eireann a constitutional primacy in the area of State finances and mandate the actual, real and continued involvement of Dail Eireann in the appropriation of revenue and/or public monies. Central to the democratic nature of the State is the oversight of public expenditure by the elected representatives of the People who under Article 6 of Bunreacht na hEireann are sovereign and from whom all power is derived.

As Plaintiff stated, the Promissory Notes were created and funds for their financing were allocated by the Minister for Finance, including the related letters of comfort without involving the elected legislators. Furthermore, the issue of letters of comfort purported to appropriate and has appropriated public funds in an unspecified and unlimited amount in relation to the provision of liquidity assistance in the banking sector.

Per key points 1 & 2 above, the members of Dail Eireann did not consider the making of the Promissory Notes and/or the giving of letters of comfort, did not vote on whether or not to make the Promissory Notes and/or grant such an indemnity; and did not mandate or otherwise authorise the Promissory Notes and/or letters of comfort.

Considering that the Promissory Notes and letters of comfort were extended funding commitments over the time horizon of originally envisioned 10-15 years, the making or provision by the Minister for Finance of Promissory Notes, extending over such a long period of time and over such enormous sums of public funds and/or provision of a purported indemnity to CBofI constituted an attack on the democratic nature of the State and was unlawful and is unconstitutional being contrary to Articles 6 and/or 15 and/or 17 and/or 22 and/or 28 of Bunreacht na hEireann.

As I'd say, Bang! Up to 6 articles of Constitution potentially violated by the previous Government.

Plaintiff requested in the case for the Minister for Finance to identify the precise statutory or other legal basis authorising then provision of the Promissory Note. Alas, to-date there has been no response to this request. Two acts potentially can be argued provide such basis: 

-- Credit Institutions (Financial Support) Act, 2008 and/or

-- Anglo Irish Bank Corporation Act 2009

However, per Plaintiff statement in court, neither makes adequate legal provision for the financial assistance of the extent and/or nature and/or duration committed to by the Minister for Finance. Here are the reasons - as argued by the Plaintiff - for this.

Regarding the Credit Institutions Act 2008:

-- In 2010, the provisions of the Section 6 of the Act prohibited the giving of financial support beyond the 31st of December 2015 and from the 23rd of November 2010 beyond the 20th of June 2016. Of course, the promissory Notes extend to 2025 and thus, could not therefore have been authorised by the said Act.

-- The above provisions cannot be construed as authorising the making of Promissory Notes appropriating public monies, absent a requirement for a resolution of Dail Eireann prior to the provision of same having regard to the requirements of Bunreacht na hEireann.

-- The provisions of section 6(1) Credit Insitutions Act, 2008 do not provide for or allow or permit the Minister to make such large scale and long term financial support to a third party credit institution and did not permit for the provision of support equally a sum in excess of EUR31 billion to the Notice Parties herein.

Regarding the Anglo Irish Bank Corporation Act 2009:

-- There is no lawful basis for provision of financial support through the Promissory Notes to continue to 2025 or at all and the making and provision of such Promissory Notes was ultra fires the power of the Minister of Finance with the consequence that the said Promissory Notes are null and void.

-- Neither the 2009 nor 2008 Acts can act to excuse the absence of a resolution providing for Promissory Notes voted upon by Dail Eireann in accordance with Article 17 of Bunreacht na hEireann.

The implications of the case are massive. The Plaintiff actually argues that

-- The Promissory Notes and the associated letters of comfort are unconstitutional and, if that is proven to be the case, these instruments are illegal and have no real validity. 

-- The repayment of the Notes in March 2011 was illegal

-- The swap for direct Government debt of the note in March 2012 was illegal

-- The Minister for Finance actions constitute the unlawful delegation or transfer of constitutional power from Dail Eireann to the Minister.

Beyond this, the Plaintiff case argues that the creation of the Notes was in contravention of the Article 123 of the Treaty of the Functioning of the European Union by:

-- Extending financing from the public purse to third parties (as prohibited by Article 123 (2) of the Treaty) and clarified by the Council Regulation (EC) No 3603/93 of 13 December 1993.

-- Violation of Article 123 in provision by the Central Bank of Ireland of ELA to the IBRC.

-- Absence of lawful basis for the issue of the letters of comfort

The Plaintiff stated in court that in the absence of the Promissory Notes, the Irish Central Bank has accepted that the IBRC is insolvent and that the provision of ELA to an insolvent credit institution is illegal. Thus, the provision of Promissory Notes to the Anglo Irish Bank was an unlawful ruse to create the pretence of solvency so as to enable the provision of ELA. Fighting words these are. But there's more. The provision of ELA was in turn used to repay third party liabilities of Anglo Irish Bank. Further it was intended by the Minister for Finance and by the Central Bank of Ireland that the Irish people would in effect, over the period of the Promissory Notes, repay the ELA on behalf of Anglo Irish Bank. The members of Dail Eireann were expressly removed from and denied any involvement in this decision which was an egregious attack on the democratic nature of the State.

I hope to provide a summary of the State responses to the statement as delivered in court.

30/1/2013: German Economy: Returning to zero growth in January 2013

Germany's CESIfo published the latests (January 2013) assessment of the state of the German economy in Manufacturing and these are slightly more upbeat than at the end of Q4 2012, albeit with some clear seasonal supports.

"In manufacturing the business climate indicator continued to rise. Manufacturers are more satisfied with their current business situation than last month. The improvement in expectations with regard to future business developments continued into the New Year. Optimism is returning. After three successive declines, capacity utilisation rates also rose."

As per data below, in manufacturing 'optimism' is not exactly 'returning', but rather 'pessimism is receding', as business expectations remain below 0 on balances:

"In wholesaling, on the other hand, the business climate clouded over. Wholesalers are less satisfied with their current business situation and slightly more pessimistic about future business developments. In retailing the business climate indicator rose somewhat. This was due to a slightly more positive assessment of the business situation, while retailers’ business expectations remained unchanged.

In construction the business climate index rose sharply. This was primarily due to far more optimistic expectations, which last reached such a high level in March 2012. Assessments of the current business situation also improved."

It is worth noting that in Construction sector, it was business expectations that drove overall index up sharply and these are exceptionally seasonally-driven:

 However, as balances data below shows clearly, three of five sub-sectors continue showing weaknesses:

Overall, the three core aggregate series are above 100 for the first time since May 2012 (good news), but at levels that are signalling stagnant or very weak growth.

• Climate indicator reading is at 104.2 - only sixth highest reading in last 12 months, and substantially below 108.2 reading in January 2012;
• Situation indicator is at 108.0, which is only 10th highest reading in last 12 months, and well below 116.3 recorded a year ago.
• Expectations are at 100.5, marking 5th highest reading in 12 months, down marginally on 100.7 in January 2012.

In terms of overall impact on the euro area, the above figures suggest that the January 2013 eurocoin indicator-based forecast (see details here) of -0.4% growth in January 2013 should be more moderate. Not enough data yet to recompute the actual forecast figure from -0.4%, but I believe it can be closer to -0.2-0.1%.

27/1/2013: Eurocoin January 2013: Misery broadly unchanged isn't a sign of stabilization

You might be forgiven for thinking that the euro crisis is over and that we are returning to the 'Old Normal' of growth, recovery, stability etc... Much of the recent commentary has been focused on the 'restoration of markets confidence' in sovereign finances, citing yields declines across the euro area.

I covered the latest data on sovereign yields from the CMA quarterly report for Q4 2012 here.

However, euro area remains a global (that's right - global) growth laggard on par with the gravely sick Japan - as the IMF latest WEO update clearly shown (see details here).

And here are the most up-to-date data on leading economic growth indicator from CEPR and Banca d'Italia - the eurocoin - for January 2013:

• In January 2013 eurocoin stood at -0.23, an improvement on -0.27 in December 2012 and the highest reading since June 2012, but still in the negative territory.
• January marked 16th consecutive month of below zero reading in eurocoin and based on historical trends, this gives us forecast for the euro area economic growth of -0.4% in Q4 2012 and same for January 2013.
• In 2008-2009 recession, eurocoin average reading stood at -0.31. In 6 months period through January 2013, the average reading is at -0.29. 
• Ominously, while in 2008-2009 recession period, average ECB rate stood at 2.54%, last 6 months average rate was 0.75%, suggesting that easing of monetary conditions has little effect on the real economy.

Some charts to illustrate:

The next set of charts shows that the ECB policy remains in a bizarre no-man's land of neither delivering price 'stability' target (close to, but below 2%), nor supporting growth.

So no easing of the real economic crisis in sight and no signs of the euro 'saviour' ECB when it comes to dealing with the growth collapse.

26/1/2013: A quick reading list

My reading list these days includes two excellent essays on State Capitalism (here) and the moral limits of markets (here). A third essay is on Europe's Next Big Mistake (here). All via Project Syndicate. Reminds me exactly why I was the first editor in Ireland to bring Project Syndicate content to public domain, back in the days when I edited Business & Finance. 

23/1/2013: IMF WEO Update: Euro Area snapshot

In the previous post (link here) I have looked at the headline numbers from the IMF revision to their World Economic Outlook. Now, a quick summary for the Euro area:


"The euro area continues to pose a large downside risk to the global outlook. In particular, risks of prolonged stagnation in the euro area as a whole will rise if the momentum for reform is not maintained. Adjustment efforts in the periphery countries need to be sustained and must be supported by the center, including through full deployment of European firewalls, utilization of the
flexibility offered by the Fiscal Compact, and further steps toward full banking union and greater fiscal integration."

To summarise the forecasts and their revisions:

The above clearly show that the euro area remains the weak point for global growth and that this picture is likely to continue in 2013 and 2014. More importantly, the revisions since October 2012 show that the IMF pessimism about the euro area growth prospects is getting deeper, compared to other economies.

Time stamp

23/1/2013: IMF World Economic Outlook Update

IMF WEO is out just now. Headline reading is:

"Global growth is projected to increase during 2013, as the factors underlying soft global activity are expected to subside."

"However, this upturn is projected to be more gradual than in the October 2012 World Economic 

Outlook (WEO) projections."

"Policy actions have lowered acute crisis risks in the euro area and the United States. But in the euro area, the return to recovery after a protracted contraction is delayed. While Japan has slid into recession, stimulus is expected to boost growth in the near term. At the same time, policies have 

supported a modest growth pickup in some emerging market economies, although others continue to struggle with weak external demand and domestic bottlenecks. If crisis risks do not materialize and financial conditions continue to improve, global growth could be stronger than projected. However, downside risks remain significant, including renewed setbacks in the euro area and risks of excessive near-term fiscal consolidation in the United States. Policy action must urgently address these risks."

On Global growth drivers:

• The IMF expectations are for World Trade Volumes to rise 3.8% in 2013 and 5.5% in 2014, after posting increases of 5.9% in 2011 and 2.8% in 2012. In other words, the average growth rate in 2011-2012 was 4.4% and in 2013-2014 the projection is for the average of 4.7% growth. Not exactly a massively rapid recovery. 
• World Trade Volume forecasts have been revised down -0.7 ppt for 2013 and -0.3 ppt for 2014 compared to october 2012 forecasts, implying that average growth in trade over 2013-2014 was expected to hit 5.15% annually back in October 2012 and this has been brought down now to 4.7%.
• The IMF further predicts exports volumes for Advanced Economies to rise 2.8% in 2013 and 4.5% in 2014, with annual average of 3.7% forecast. This contrast with exports growth of 5.6% in 2011 and 2.1% in 2012 - an annual average of 3.9%. 
• Back in October 2012, the IMF forecast for exports growth in Advanced Economies was for an average rate of growth of 4.25% pa in 2013-2014. This has now been brought down to 3.7%.
• The IMF forecast for exports growth in the Emerging Markets & Developing Economies for 2013 of 5.5% and 2014 of 6.9%, down from 5.7% and 7.1% projections issued back in October 2012. 
• However, in 2011 the growth rate in exports from the Emerging Markets & Developing Economies reached 6.6% and this has fallen to 3.6% in 2012. Thus, 2011-2012 annual average rate of growth was 5.1%, 2013-2014 projection is for 6.2% and this represents a reduction from October 2012 forecast of 6.4%. In other words, in contrast with the Advanced Economies, the Emerging Markets & Developing Economies are expected to accelerate significantly in growth of exports compared to 2011-2012.

23/1/2013: CDS markets in Q4 2012 - CMA report

CMA published Q4 2012 report on sovereign CDS markets and there are some interesting trends and stats highlighted.

First 25 top riskiest sovereigns (CPD referes to cumulative probability of default over 5 years):

Note that Ireland is no longer in top 10 riskiest states. Good news. A bit more on this below.


Per CMA: "Global CDS prices ended the year on a strong note, tightening 16% overall as Europe rallies strongly and Greece repurchases debt allaying fears of an exit from the Euro. Only Argentina and Egypt widen significantly on the quarter."

"Argentina CDS ended a volatile quarter as the most risky sovereign reaching a high of 4832bps at the end of November on concerns over USA debt guarantees, but rallied to finish on 1450bps. CDS spreads in Spain tightened from 384bps to 295bps as spreads in Western Europe as a whole tightened 19%."


Next, top 25 least riskiest states:

Note that only 3 euro afea states make it into top 10.

Per CMA:
"Sweden edged Norway off the top spot of the least risky table by 1bps, as the Scandinavian countries ended a strong quarter on the back of a good performance in Europe as a whole. The USA slipped two positions, as a solution to the “Fiscal Cliff” and debt ceiling concerns continue into year end. Austria and Netherlands enter the table with the spreads aligning with the strong economies of Germany and Switzerland." The latter rationale is most bizarre one I heard - the Netherlands are in a serious economic recession, deeper and longer than the rest of the euro area, so I have no idea what CMA are talking about.

Now, some interesting charts relating to Western Europe. Per CMA: "Western Europe continued on the rally from Q3 into Q4, with spreads tightening 19% overall and Greece looking more likely to stay in the Euro. Spreads in Portugal creeped over the 600bps level mid-November but ended the year at 436bps, 13%  tighter. Ireland tightened 31% closing the year at 218bps as the turnaround story continues. Spain and Italy, seen as the key economies in southern Europe, tightened 23% and 19% respectively."

Recall that European CDS overall tightened 19% in Q4 2012 and overall global momentum was very strongly on tightening side.

Note that Ireland experienced comparable (in levels) declines in CDS to all other peripheral countries excluding Cyprus (which saw an increase) and Portugal (where declines were more pronounced, when considered relative to peak reached in the Quarter. It is hard to tell - in this environment - whether Irish performance is driven by own fundamentals or by a combination of these said fundamentals and overall improved investor tolerance for risk.

In terms of percentages declines, we did perform stronger than other peripherals (ex-Portugal) and the Western Europe as a whole.

However, it is still too early to claim that Ireland - based on CDS valuations - is not a part of the 'peripheral' euro area group. Hopefully, more progress in near future will get us decoupled from this camp.

23/1/2013: One Face of 'Irish Confidence Heroes'

Go to Minute 15 to hear this distressed assets investor bragging about forcing the Irish taxpayers to pay for his speculative bets on distressed junior bonds from BofI:
http://www.zerohedge.com/news/2013-01-22/teppers-balls-wall-reappear-lead-explosion-greatness

You wanted to see those 'investors' who have 'confidence' in Ireland? There's one. He got burned by Russians in a similar setting, but, what the hell, Irish Government conveniently made sure same didn't happen to him here. He was made whole on his exceptionally speculative bet.

22/1/2013: US Existing Home Sales Signal Restart of Household Investment in 2012

Cycle returned to the upswing in 2012 in the US Household Investment area, despite a headline dip on monthly series basis:

• Sales of existing homes in the US fell 1% in December to a seasonally adjusted annual rate of 4.94 million, according to the National Association of Realtors. The rate in November was revised down to 4.99 million from an estimate of 5.04 million released earlier. This was the highest rate of sales since November 2009. 
• Lawrence Yun, NAR's chief economist: "Record low mortgage interest rates clearly are helping many home buyers, but tight inventory and restrictive mortgage underwriting standards are limiting sales." 
• On annual basis, existing-home sales are up 12.8% from 2011. 
• The median existing-home price rose 11.5% from 2011 to $180,800. 
• Overall over 2012, existing-home sales hit 4.65 million annual rate of sales, the highest rate since 2007 and up 9.2% on full year 2011. 
• The median price reached $176,600 in 2012, rising 6.3% on 2011 and marking the highest annual growth since 2005

The Calculated Risk has an excellent analysis of underlying data: http://www.calculatedriskblog.com/2013/01/existing-home-sales-another-solid-report.html

Chart from Calculated Risk summarising trends: