10/2/2013: Irish Services Index: Still Searching for a Catalyst

Catching up with some data updates, the latest monthly data for Services sectors activity in Ireland was out recently (see link to CSO release here). The data overall points to weaknesses in Services in December 2012, as the summary table shows:

However, let's take a look at subtrends and subsectors:

• Wholesale Trade sub-index fell 4.01% m/m in December 2012 to 112.4 and was down 7.11% y/y. 3mo average through December 2012 is at 115.37 - well ahead of December 2012 monthly reading of 112.4, but down on 3mo average through September 2012 which stood at 116.23. 3mo average through December 2011 was 120.2 - significantly ahead of the average activity recorded in 3mo through December 2012. December 2012 reading was statistically within the historic average.
• Wholesale and Retail Trade, Repair of Vehicles etc sub-sector activity fell 2.65% m/m and was down 4.23% y/y in December 2012. 3mo average through December 2012 (108.57) was ahead of December monthly reading (106.4) and virtually unchanged on 3mo average reading through September 2012 (108.27). However the index reading and its 3mo average were both behind 3mo average through December 2011 (110.57). Similar deterioration in performance marked H2 2012 readings relative to H1 2012 and H2 2011.
• Transportation and Storage sub-sector activity remained relatively flat in December (110.1) compared to November (110.0) rising just 0.09% m/m, although the series are up 6.17% y/y. 3mo average through December 2012 (110.07) is below 3mo average through September 2012 (112.77), but well ahead of 3mo average through December 2011 (101.93). H2 2012 average stands ahead of H1 2012 average.

Per chart above, 

• Accommodation and Food Services sub-sector activity remained largely unchanged in December 2012 (105.5) compared to November 2012 (105.6) with 0.095% decline m/m contrasting 1.74% rise y/y. 3mo average through December 2012 (104.97) was only marginally ahead of 3mo average through September 2012 (104.83) and is ahead of 102.27 reading for 3mo average through December 2011. H1 2012 average was at 101.83 and this rose to 104.9 for H2 2012 average. December 2012 marks the fifth highest index reading since November 2009.
• Within the above sub-sector, Accommodation activity fell 0.18% m/m and rose 9.34% y/y - the largest rise in annual terms of all sub-sectors. Accommodation activity performance was particularly strong in H2 2012 (3mo average through December 2012 was 109.47 and 3mo average through September 2012 was 109.83) when activity index averaged at 109.65, compared to H1 2012 when it averaged 103.95.
• Administrative services fell 2.64% m/m but are still up 3.75% y/y, with 3mo average through December 2012 (102.17) virtually identical to 3mo average through September 2012 (102.20) and both ahead of 3mo average through December 2011 (92.0). H1 activity came in at slower pace than H2.

In heavily exporting sub-sectors of Services:

• ICT services activity rose 4.23% m/m in December 2012 (to 118.3) and was up 9.13% y/y. 3mo average through December 2012 stood at 114.83, ahead of 3mo average through September (110.17) and ahead of 3mo average through December 2011 (107.43). H2 2012 average activity stood at 112.5, up on 110.33 average for H1. The sub-index hit an all-time high in December 2012.
• In contrast with ICT Services, Professional, Scientific & Technical Activities have recorded an unpleasant contraction of 3.82% m/m in December 2012 to 88.2. The index is now 11.8% behind its average activity in 2010 and it has fallen a massive 16.40% y/y. 3mo average through December 2012 stood at 90.23, slightly up on abysmal 3mo average through September 2012 (86.8) but well below the 3 mo average through December 2011 (99.0). H2 average activity (88.52) was well below H1 2012 average activity (92.4) and well below H2 2011 activity (99.45).

Chart above provides outline for the overall Services Activity Index:

• The index has declined marginally (-0.66%) m/m to 106.0 in December 2012 and is now down 1.12% y/y. 3mo average through December 2012 was slightly healthier at 106.43 than the 3mo average reading through September 2012 (104.87), with 3mo average through December 2011 recording 105.0. However, overall H2 2012 average was practically unchanged at 105.65 against H1 2012 average of 105.43.
• The index is now reading below its momentum trend and is only marginally above (statistically) its historical average. As the chart above clearly shows, Irish Services Sector has been bouncing along a flat for some 13 months now, following a rise in twelve months before December 2011.
• Overall, thus, the data is not very encouraging. The sector seems to be searching for a catalyst to either the upside or the downside. Transport & Storage, ICT Services and Accommodation provide some hope (on the basis of y/y comparatives for 3mo average through December 2012, as well as December own y/y changes) for the future, whilst Wholesale services, as well as Professional, Scientific and Technical services creating a powerful downward drag.

10/3/2013: New Car Sales: Back to the Future of Exports-led Recovery

In line with the grand claims of revival of domestic demand around Christmas season 2012 and of green shoots sprouting everywhere where IBEC & IDA cast their eyes, the latest car sales stats are showing the glorious return of the autotrade to the late 1970s and late 1980s.

Per latest data, covering January 2013, as released by CSO (link here), gains in Irish trade competitiveness (aka contraction in domestic demand-driven imports) have bit hard into the motor sales sector.

Table below summarises short-term trends:

But possibly even more revealing are the stats for the month of January taken from 1965 onward:

Not a pretty sight. Current levels of All Vehicles new registrations are running at the levels of 1994, below 1989-1991 and below the levels of 1978-1981. Ditto for New Vehicles registrations and New Private Cars registrations. All three series are marginally above 2010 disaster year and the differences of all three from January 2010 are statistically insignificant.

Welcome back to the future where exports are rescuing us... possibly from ourselves. 

10/2/2013: EU Budget 'cut': neither reformist, nor significant enough

EU has agreed the next multi-annual framework for its budget. One of the best summaries I have read is here: http://www.bruegel.org/nc/blog/detail/article/1010-how-to-read-the-eu-budget-deal/#.URfavqFaZF8

The framework covers 2014-2020 period.

The reduction of the EU Budget from from 1.12% of GNI to 1% of GNI, in my opinion, is in line with the overall fiscal tightening across the EU and is a good thing (note, obviously my analysis will be different from that of Bruegel - linked above). The reason why I perceive this to be a strength of the Budget is that I generally do not perceive EU expenditure as being more economically efficient or necessary than that by the Member States. The further you detach spending from the sources of revenues (and the EU Budget is as far detached as feasible to imagine), the more weakly is the expenditure anchored to the needs of the economy.

Net reduction - as measured by the payments, is from EUR988bn to EUR908.5bn - is a relatively marginal 8.05%, not exactly an earth-shattering level of fiscal crunching. Furthermore, much of planned payments allocated in the past have gone unspent, implying that the effective 'cut' is most likely going to turn out much shallower than 8.05% headline figure.

Crucially, I disagree with the implicit Brugel position (based on their criticism of the Budget's 'pro-growth' momentum) that the EU expenditure should be considered in the light of economic growth enhancement or economic contraction. The EU Budget allocations can and do set dangerous precedents of creating permanent interest groups reliant on EU funding for jobs and demand generation. One of the best examples are EU research and development subsidies. Since the EU budget is drawn out of the national resources, any 'stimulus' the EU Budget can create is at the very best a reallocation of similar stimuli from national economies. Synergies at the pan-European or cross-European investment levels (e.g. building common integrated infrastructure etc) enhance the EU Budget growth-support capacity, but bureaucratic duplication, and interest groups politics reduce it in return. With much of EU Budget going to 'soft' programmes, where (1) substitution effects relative to nationally-administered programmes are unclear, and (2) transfers are subject to EU-level political and bureaucratic objectives and constraints, it is hard to imagine the EU expenditure to be more 'stimulative' than a national expenditure.

Furthermore, in the environment of continued debt consolidation and budgetary tightening policies at the national levels, it is hard to imagine that the EU spending priorities would see more efficient allocation of funds than tighter national priorities. In other words, one has to ask a simple question of whether funding another cross-border EU 'cohesion' project is the better use of increasingly scarce resources in the environment where both countries involved are cutting back hospitals and schools.

As Bruegel correctly points out, there are no reforms undertaken in the Budget. My concern here, however, is more on the expenditure side, while Bruegel concern is focused on revenue side. I simply do not see the EU Commission to currently have either democratic or fiscal capacity to begin collecting direct taxes of any variety. Proposed move of the Commission into indirect taxation (e.g. FTT etc) is likely to cement further the democratic deficit in the EU by providing EU Commission with all the trappings of sovereign power and requiring no direct accountability usually associated with direct taxation.

7/2/2013: Trading Debt for Cash Flow Relief?

Muy thoughts (quick one between lecturing) on the deal:

As I understand it,

1. We have converted quasi-governmental debt into pure Government bond.
2. Maturity profile is very good - long dated, no restriction on NTMA raising funds at 20 year + 
3. We are gaining some cash flow improvements up front (where they matter most), but 
4. We are not getting a major write down on the debt overall. 
5. Deficit impact is one-off 500mln, that will be absorbed into improvement over 2014 Budget and that's it as it becomes 'repeated measure' equivalent in 2015 and after. 
6. So material saving to the economy is really 500mln and that is at the peak (2014-2015), after that the savings will decline, until finally, around ca 2020-2025 (needs more precise calculations here) the savings will become negative as we will be paying more in interest than we would have been paying before.
7. Additional second order effect is that improved bond markets profile is likely to result in slightly lower borrowing costs over time, but this impact is off-set by the reduced Central Bank revenues remittable back to the Exchequer. 

The deal is not putting any final closure to the Anglo or INBS 'odious' debt, but simply constitutes an extension of the debt. 

It can result in the lower real value of the debt over the period of time, assuming Ireland can issue bonds at negative real interest rates (bond coupons below inflation rate), which is unlikely. 

Neither is the deal reducing the debt overall, which means the deal has no effect on the adverse impact of debt drag on growth. The Government never asked for a debt writedown (reduction in the overall debt levels).

The deal is a net positive, but materially not significant enough.

Basic summary - as expected last night on VinB.

6/2/2013: Irish Manufacturing PMI - January 2013

Last night I wrote briefly about the Services PMI for January for Ireland (see post here and an added post on the longer term link between PMI and Services Index here). Going over the database, however, made me realise that I have not posted on the latest Manufacturing PMI figures for January, so correcting this, here's the analysis.

Headline seasonally adjusted Manufacturing PMI posted a decline from 51.4 in December 2012 to 50.3 in January 2013, leaving the index notionally above 50.0 line for 11th month in a row. Alas, 50.3 is not statistically significantly different from 50.0 and in total out of the 11 months of consecutive notional readings above 50, in reality only 3 months posted readings that are significantly distinct from 50.0 zero-growth line.

Dynamics are flat at just around 51.5 (also not statistically distinct from 50.0), with 12mo MA at 51.5, 3mo MA at 51.4 and previous 3 mo MA at 51.6. This, however, compares relatively positively with 3mo MA through January 2012 (48.5) and 3mo MA through January 2010 (48.6) although the current 3mo MA reading is below 53.1 reading for 3mo MA through January 2011. 6mo MA is 51.5.

In brief - growth is sluggish and lacking a catalyst.

Charts:

Per above, Output index posted a slight rise in headline reading from 51.2 in December to 51.5 in January, marking 9th consecutive month of above 50 notional readings, with just 4 of these months posting readings statistically consistent with being above 50.0. 3mo MA was at 52.2 in 3mos through October 2012 and is at 52.2 in 3mo through January 2013. It is bang-on in line with 12mo MA of 52.1 and is identical to 52.2 6mo MA.

New Orders sub-index posted surprise contraction to 49.5 (not statistically distinct from zero-growth, so a very shallow contraction if any) in January from shallow growth of 50.9 in December. 12mo MA is at 52.0, with 3mo MA through January 2013 at 50.8 and 3mo MA through October 2012 at 52.3, marking a clear slowdown in growth over the last 6 months. That said, January 2013 was the first sub-50 reading in the series since January 2012.

New Export Orders posted slower rate of expansion at 50.9 in January 2013, down from 53.6 in December 2012. Again, as above, 50.9 is not statistically different from 50.0, although 53.6 was clearly statistically above 50.0. January 2013 reading was the weakest in 4 months and the second weakest in 11 months. 3mo MA through January 2013 is at 52.2, above 51.2 3mo MA through October 2012, 6mo MA at 51.7 and 12mo MA is at 52.5, so by all averages, January came in relatively weak.

Other series summed up in the charts below:

Output prices posted a clear decline in January 2013 (48.2) after posting a mild expansion (and a surprise one) in December 2012 (51.3). Overall, in last 24 months, only 9 months posted notional above 50.0 readings, when it comes to output prices. Meanwhile, input prices continued to inflate, with index reading of 57.1 in January 2012 being somewhat lower than 59.9 in December. In last 24 months, there was only one instance when input prices inflation was negative. All of which does not bode well for profit margins: in 3 mo through January 2013, average input prices inflation was consistent with 58.7 and in 3mo through October 2012 it stood at 59.4. At the same time, output prices were contracting by 49.7 in 3mo through January 2013 and were expanding at a slower pace than inputs costs were inflating (51.7 vs 59.4) in 3 months through October. In other words, profitability has been shrinking, on average over last 6 months and indeed over the last 12 months.

Now onto composite measures of current and future activity. These are computed based on my own formula, so not a part of NCB-released data. The Current Composite index is based on a  weighted average of Output and headline PMI index, relating current PMI to Output, as opposed to changes in stocks of goods and purchases orders. The Forward Composite Index is based on a weighted average of New Orders and New Export Orders, weighted relative to each series correlation to headline PMI. As such, both indices attempt to remove impact of temporary factors on underlying activity.

Current Composite Manufacturing PMI (CCM index) fell from 51.3 in December 2012 to 50.9 in January 2013, with overall notional levels above 50 recorded now in 9 consecutive months. However, statistically, the CCM Index was above 50.0 in only four out of the last 12 months. Forward Composite PMI (FCM index) also slipped in January from 52.2 in December 2012 to 50.2. Above 50.0 notional readings were now recorded in 11 consecutive months, although only four months posted readings statistically above 50.0.

On the net, the indices mark significant slowdown in current and forward activity, although current readings are consistent with progressing weak recovery (statistically indifferent from stagnation). Given overall global improvements in sentiment and trade, this can represent simply a lagging effect to global growth (upside potential) and / or drag on Irish activity from the Euro area and the UK economies weaker-than-global performance (downside potential).

5/2/2013: Services PMI v CSO Services Index... hmm...

In the previous post, I raised some questions about the real tangible quality of the PMI data for Services when it comes to reflecting upon the Irish economy. Here is a bit of more disturbing evidence. I plotted in the chart below the contemporaneous index of services sectors activity as measured by the CSO and the services PMI.

In short - there is no relationship. It is effectively zero. So either PMI does not accurately reflect services activity, or services activity index doesn't reflect it. Or more likely - both series have serious shortfalls. However, overall the question about PMI for services validity in providing an insight into the real economy is still open...

5/2/2013: Irish Services PMI for January 2013

The latest data from Services PMIs - released this am - is full of positive news. In this light, it is both hard and, perhaps, unjust to rain on the parade with detailed analysis of hypotheticals. But, alas, this is what needed for the dose of reality check.

Before we do, here are the straight forward numbers.

Overall headline Business Activity index rose to 56.8 in January 2013 from seasonally adjusted 55.8 in December 2012 - a strong level of activity that marks the highest index reading for any month since August 2007 when the index reached 57.0.

This is the good bit. And it gets even better when we consider 3mo MA to smooth out some of the monthly index volatility: current 3mo MA stands at 56.2, ahead of previous 3mo MA through October 2012 of 53.9. Year ago, 3mo MA was at contractionary 49.8 and in 2011 the same period 3mo MA was at 50.7 against 2010 3mo MA through January reading 46.5. In other words, we have solid increase in 3mo MA, which is more sustainable reading than monthly series.

12mo MA is at robust 53.0, implying that last 6 months have seen, on average, stronger activity in the sector (55.1) than February-July 2012 (50.9). Also good news.

Chart to illustrate:

Per chart above, Business Activity expansion was backed by New Business Index growth. New Business Index reading reached 56.6 in January, up on already strong reading of 56.4 in December. However, unlike overall activity, new business expansion was not as dramatic in historic terms, with January marking third fastest rate of expansion in 6 months. 3mo MA through January 2013 stood at 56.5 - faster than 54.5 3mo MA through October 2012. In 2012, same period 3mo MA was 49.9 and in 2011 it was 47.6, while in 2010 it was 46.8, which means that the last 3mo MA expansionary reading (and strong one at that) is the first expansionary reading in 4 years.

12mo MA for New Business Activity is now at 53.4, with last 6mo MA at 55.5 against first 6mo MA at 51.3, suggesting that New Business Activity is a major driver behind Overall Business Activity acceleration in the last 6 months.

Chart below shows snapshot of both indices over shorter period of time, allowing for better understanding of the underlying short term trend:

The close coincidence in series since November 2011 is indicative that sector activity is gaining momentum on foot of New Business Orders (as opposed to jobs inventories and backlogs) and trend acceleration since July 2012 also shows sustained momentum.

All of this is good news. And there is more. New Export Business index rose to 63.5 in January from 61.3 in December, marking the highest reading in series history with previous record of 63.3 reached in June 2006. 3mo MA through January 2013 is at 60.3, against previous 3mo MA of 55.5. This contrasts with 3mo MA through January 2012 at 52.4, 3mo MA through January 2011 of 53.1 and 3mo MA through January 2010 of 52.6.

This blistering pace of activity should, however, be treated with some concern. Now, take a look at the rates of expansion here, contrasted with rates of robust rises in Employment. Employment index rose to 56.5 in January from 53.4 in December. The Index posted above 50 readings in 5 months in a row and 3mo MA for the index is now at 54.6, up on previous 3mo MA of 51.3. Over the last 6 months, thus, employment in services sector have expanded rather rapidly.

Meanwhile, profitability in the sector continued to contract: Profitability Index (I compute my own for comparative analysis with Manufacturing, but let's stick to 'official' Profitability reading for now) remained well below 50, at 49.2, marking 62nd consecutive month of contracting profits in the Services sector.

Now, ask yourselves a simple question: 62 months of uninterrupted collapse in profits, plus over the same period 11 months of expanding employment, plus 21 months over the same period of rapidly growing exports, equals what? How can catastrophically less and less profitable business retain relatively robust employment levels and expand dramatically exports? Oh, well, the answer to this dilema is a simple, but unpleasant one - most of our services activity (and roughly speaking 90% of our services exports activity) is dominated by the tax-optimising MNCs. In other words, while the headline numbers are rosy, the underlying reality is probably less tangible to the Irish economy than we would like to believe. Employment growth in these MNCs-led sectors is primarily focused on importing skills (so no effect of reducing unemployment), while shrinking profitability in the Business Services sector and Transport, Travel, Tourism and Leisure sector (which led in profitability decline) means lower revenues for the Exchequer and lower indigenous employment.

One thing Irish Stuffbrokers issuing upbeat reports on PMIs basis are too lazy to check is the composition of what they are talking about at the aggregate levels. Here's a simple snapshot of employment increases over the last 6 months, reported in the PMIs:

Contrasted by 6mo data for profitability:

And contrasted again by New Export Business figures:

It turns out, on average, over 6 months, the ENTIRE range of PMI-covered services subsectors have managed to post increases in employment, and even mor robust rises in New exports, with largest rises, by far in the MNCs-dominated ICT services and Financial Services. But Business Services - the ones that are suffering from deep cuts in profits - are also posting rises in exports and employment. This is either bonkers data collection, or a severe selection bias toward MNCs with tax optimisation, not real activity on their minds.

You can see that new exports are acting to grow current employment, while shrinking profitability seemingly has no effect on current employment (current points marked in red) here:

More on profitability conditions and employment in both Manufacturing and Services PMIs in subsequent posts, but overall, the data is very positive. It is just worth asking a question just how much relevant is this data to real economic activity?

5/2/2012: Global & Irish Economic Conditions: UCC, January 2013

Slides for my recent presentation on the Global Economic environment and Ireland, delivered at UCC (click on individual slides to enlarge):

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.