10/12/15: Irish National Accounts 3Q: Post 3: Quarterly GDP and GNP Growth

In the first post of the series, I covered Irish National Accounts 3Q: Sectoral Growth results (http://trueeconomics.blogspot.ie/2015/12/101215-irish-national-accounts-3q-part.html).

The second post covered year-on-year growth rates in GDP and GNP (http://trueeconomics.blogspot.ie/2015/12/101215-irish-national-accounts-3q-post.html)

Now, consider quarterly growth rates analysis.

While things were bustlingly rosy for GDP and GNP based on year-on-year growth figures, the picture is much more mixed when it comes to quarterly growth rates.

Firstly, GDP at constant factor costs rose 1.43% q/q in 3Q 2015, down from 2.4% growth recorded in 2Q 2015 and on 2.54% growth recorded in 3Q 2014. In so far as this reflects sectoral activity, this slower 3Q 2015 growth is hard to interpret.

Taxes at constant factor costs actually fell 1.49% q/q in 3Q 2015, having risen just 0.37% q/q in 2Q 2015. 2014 3Q contraction was much sharper at 6.65%.

GDP at constant market prices rose 1.37% q/q in 3Q 2015, once again posting slower rates of growth than in 2Q 2015 (+1.89%) and in 3Q 2014 (+2.06%). The current rate of q/q growth in GDP was the slowest in 3 quarters, but remains significant (above 1.33% average for the period of 1Q 2013 - 3Q 2015.

GNP surprised to a downside, falling 0.81% q/q in 3Q 2015, having previously posted growth of 1.35% in 2Q 2015 and having expanded 2.71% in 3Q 2014. In fact, 3Q 2015 is the worst quarter-on-quarter growth result for GNP since 4Q 2013 and the second quarter of negative growth over the last 4 quarters (previous one was in 1Q 2015 at -0.24%).

Over the first three quarters of 2015, GNP growth averaged 0.1%, which compares poorly to 1.97% average for the first three quarters of 2014 and 3.21% average growth posted for the first 3 quarters of 2013, and ditto for 2012.

The key takeaways here are:

1. Q/Q GDP growth remains robust, but is now the lowest in 3 consecutive quarters;
2. Q/Q GNP growth has turned negative once again in 3Q 2015, posting the worst reading for any quarter since 4Q 2013.
3. Meanwhile, net factor income outflows to the rest of the world are booming, hitting (on seasonally adjusted basis) the highest level since 4Q 2011 and the second highest level on record. 

In other words, MNCs extraction of profits from the economy is ramping out, which is helping the Exchequer and pushes up GDP, but also is leading to GNP growth lagging that of GDP.


Stay tuned for more analysis coming up.

10/12/15: Irish National Accounts 3Q: Post 2: Annual GDP and GNP Growth

In the first post of the series, I covered Irish National Accounts 3Q: Sectoral Growth results (http://trueeconomics.blogspot.ie/2015/12/101215-irish-national-accounts-3q-part.html).

Now, consider data for GDP and GNP aggregates. Starting with seasonally unadjusted data (real variables) to allow for y/y comparatives.

Taxes at Constant Factor Costs:

• In 3Q 2015, Taxes at Constant Factor Costs rose at 6.95% y/y, having previously posted an increase of 6.04% in 2Q 2015 and a rise of 1.67% y/y in 3Q 2014. Taxes at Constant Factor Costs added EUR403 million to official GDP in 3Q 2015, a rise on the increase of EUR279 million in 2Q 2015 and a massive jump compared to the y/y uplift of EUR95 million in 3Q 2014. This clearly correlates with the data from the Exchequer and most likely is dominated by unexpected (and unexplained) growth in corporation tax receipts. 
• Over nine months through September 2015, Taxes at Constant Factor Costs rose EUR1.129 billion (+7.05%) compared to the same period of 2014. This rise now accounts for 16.9% of the increase in GNP over the same period. 

GDP at Constant Market Prices:

• GDP rose incredible 6.95% y/y in 3Q 2015, having previously posted growth of 6.84% y/y in 2Q 2015, both up on 3.75% growth in 3Q 2014. Year on year, 3Q 2015 rose EUR3.384 billion, which was up on 2Q 2015 growth of 3.234 billion, with both quarters posting massive uplift compared to 3Q 2014 growth of EUR1.757 billion.
• In 3 quarters of 2015, GDP rose by EUR9.943 billion which corresponds to annual growth of 7.04% and amounts to 148% uplift compared to the rise in GNP.

GNP at Constant Market Prices:

• -GNP rose 3.18% y/y in 3Q 2015, less than half the rate of increase in GDP. This comes on foot of the 5.5% y/y growth in 2Q 2015 and lower than 3Q 2014 growth of 3.68%. 
• Over the 9 months through September 2015, Irish GNP grew cumulative EUR6.694 billion (+5.58%) compared to the same period of 2014. This is appreciable growth, but it is far short of the GDP expansion over the same period. 

Per chart above, both GDP and GNP continue on the upward trend, albeit at different rates of growth. This divergence is now translating into widening (once again) GDP/GNP gap. In 2Q 2015, the GDP/GNP gap stood at 18.9%. In 3Q 2015 the gap widened to 21.65% - the largest since 1Q 2012 and well above the average of 17.8% for the period from 1Q 2013 through 3Q 2015. This gap used to reflect most of the over-statement of actual economic activity due to the MNCs trading in the Irish economy, but it no longer does, as new accounting standards now push up (superficially) or investment (via R&D reclassification in recent years, and through the upcoming ‘Knowledge Development Box’) and as MNCs continue to alter their pattern of profit flows through Ireland.

The latter aspect is reflected in rising volatility of Net Factor Income Flows which rose to 17.8% as a share of GDP in 3Q 2015, the highest level since 1Q 2012.

Incidentally, Net Factor Income for Rest of the World stood at a whooping EUR9.264 billion in 3Q 2015 - the highest level on record. Over nine months through September, MNCs-driven outflows of payments from Ireland exceeded inflows of payments into Ireland by a massive EUR24.67 billion which is 15.2 percent higher than for the same period of 2014.

Here is a comparative to ponder: in the first three quarters of 2015, GNP rose EUR6.69 billion on the same period of 2014, while net outflows of factor payments out of Ireland rose EUR3.25 billion, almost 1/3 of the increase in GDP and 1/5 of the increase in GNP.

Still, it is worth noting that for all of the above caveats, based on 4 quarters rolling cumulative measure, Irish GDP is now 6.97% above pre-crisis peak and is 6.78% ahead of where it was a year ago. For GNP, current 4 quarters cumulative reading is 8% ahead of pre-crisis peak and 6.45 above last year’s reading.


Stay tuned for quarterly growth rates analysis coming up next.

10/12/15: Irish National Accounts 3Q: Part 1: Sectoral Growth

CSO released data for national accounts for Ireland, so in the next few posts I will be covering headline results. As usual, starting with sectoral accounts, showing decomposition of growth by sector. All data is based on seasonally unadjusted figures, allowing for y/y comparatives and expressed in real terms.

Agriculture, Forestry and Fishing sector contribution to GDP:

• Real activity in Agriculture, Forestry and Fishing sector rose strong 16.0% y/y in 3Q 2015 a rate of growth that was more robust than 9.97% expansion recorded in the sector in 3Q 2014. This is the fastest pace of y/y growth in 3 quarters, and especially welcoming given that 2Q 2015 growth came in at negative -2.87% y/y. Overall, Agriculture, Forestry and Fishing sector contributed EUR210 million to GDP growth in 3Q 2015, which amounts to 7% of total 3Q 2015 expansion in GDP y/y. On a cumulative 3 quarters basis, Agriculture, Forestry and Fishing sector expanded its activity by EUR200 million or +5.67% y/y, which is well below same period 2014 growth that stood at EUR502 million and +16.58%. 
• One key conclusion from the above figures is that Agriculture Forestry and Fishing has expanded robustly over both 3Q 2015 and on the cumulative basis over the first nine months of 2015. Which is good news.

Industry sector contribution to GDP:

• Overall Industry, including construction posted expansion of 16.08% y/y in 3Q 2015, which compares favourably to 5.15% growth in 2Q 2015 and to 4.23% growth y/y in 3Q 2014. Industry contribution to GDP growth over the first nine months of 2015 stood at EUR3.519 billion up 10.17% y/y. This is an improvement on the sector contribution over the first nine months of 2014 which stood at EUR2.25 billion (+6.95% y/y).
• Within Industry sector, Transportable Goods Industries and Utilities sub-sector activity rose 17.83% y/y in 3Q 2015 - a pace of growth well ahead of 5.51% growth in 2Q 2015 and 3.70% in 3Q 2014. Over the first nine months of 2015, Transportable Goods Industries and Utilities sub-sector added EUR3.412 billion to our GDP (+10.97% y/y), which vastly outstrips EUR1.913 billion added by the sub-sector to the economy over the first nine months of 2014. 
• So, our second core conclusion from these data is that Transportable Goods Industries and Utilities sub-sector - dominated strongly by MNCs - has been growing at unbelievably high rates of 10.97% y/y over the first 3 months of 2015. This is consistent with sector activity more than doubling in less than 7 years - a rate of expansion that consistent with a rapidly growing emerging economy, rather than with a mature economy. The Transportable Goods Industries and Utilities sub-sector was responsible for 54.3% of total growth in GDP over 3Q 2015 and 39% of total growth in Irish GDP over the period of 1Q-3Q 2015. Again, these are simply incredible figures, suggesting high degree of distortions from MNCs accounting practices and, potentially, exchange rates changes.
• Building and Construction sub-sector of Industry showed much more modest rates of growth, with 3Q 2015 y/y expansion at 3.49%, better than 1.52% growth recorded in 2Q 2015, but less than 7.8% growth in 3Q 2014. Construction sector contributed 1.47% to the overall gains in Irish GDP over 3Q period. For the first nine months of 2015, cumulative y/y growth in Building and Construction sub-sector output amounted to just EUR108 million (+3.09% y/y) which is three times slower in terms of the rates of growth recorded in the sub-sector over the same period of 2014.
• Our third core conclusion, therefore, is that traditional activity - proxied by Building and Construction sub-sector is growing in Ireland at rates probably closer to 3.5-4 percent - appreciable and positive, but not as massive as 6.8% growth recorded by the sectoral GDP (GDP at factor cost).

Distribution Transport Software and Communication (DTSC) sector activity:

• Distribution Transport Software and Communication sector activity grew at 8.28% y/y in 3Q 2015, which is slower than 11.2% growth recorded in 2Q 2015, but faster than 7.52% growth penned in 3Q 2014. The sector contributed EUR1.05 billion to GDP expansion in 3Q 2015 which amounts to 35.1% of the total growth in the GDP at factor cost. On the 9 months cumulative basis, Distribution Transport Software and Communication sector activity grew by EUR3.38 billion (+9.7% y/y) in 2015 compared to 2014.
• Once again, robust rates of growth in the sector are most likely reflective of the shifting MNCs strategies relating to tax optimisation, plus, potentially, the effects of exchange rates changes.

Public Administration and Defence sector contribution to GDP at factor cost:

• Public Administration and Defence sector activity shrunk 0.97% y/y in 3Q 2015, which is shallower contraction that -4.37% decline y/y in 2Q 2015 and -2.58% drop y/y in 3Q 2014. On a 9 months basis, Public Administration and Defence sector activity reduced our GDP at factor cost by EUR167 million (-3.59%). 
• 3Q 2015 contraction in sector activity was the shallowest in 5 quarters.

Other Services (including Rent) sector activity:

• Other Services (including Rent) activity rose 3.84% y/y in 3Q 2015, having previously posted 4.35% expansion in 2Q 2015 and 5.23% growth in 3Q 2014. 
• The sector contributed 22.9% of total growth in GDP at factor cost in 3Q 2015. 

As chart above shows, GDP at factor cost posted rates of growth above 2012 - 3Q 2015 average in every quarter since Q1 2014. Also, since 1Q 2015, rates of growth have been running above pre-crisis period average (Q4 2002-Q4 2007).

All of this is good, with positive dynamics in trends:

However, growth by sources remains unbalanced and most likely reflects skew in favour of MNCs-led sub-sectors:

Key conclusions are:

• Irish sectoral growth shows strong aggregate figures, with GDP at factor cost expansion over the first nine months of 2015 amounting to EUR8.831 billion (+6.91%) year on year, which is stronger than growth recorded over the same period of 2014 (EUR5.852 billion or +4.80% y/y).
• Sectoral contribution to growth show continued evolution of unbalanced economy skewed in favour of MNCs-led sectors, with Transportable Goods Industries and Utilities sector accounting for 38% of total growth recorded over the first nine months of 2015 compared to the same period of 2014, followed by Distribution Transport Software and Communication (38% share of total growth) and Other Services (including Rent) (+24% share). (Note: these shares add up to more than actual GDP at factor cost due to the ways in which CSO computes GDP at factor cost totals)
• All indications are that despite the MNCs bias in the figures, domestic activity did improve and is currently running at higher rates than in 2Q 2015 and over the first nine months of 2014.

Stay tuned for more analysis. 

10/12/15: Europe's M&A activity lowest in 17 years

While the U.S. companies are gorging themselves on M&As (see post here: http://trueeconomics.blogspot.ie/2015/12/71215-another-nothing-to-see-here-chart.html), while shying real organic investment (see post here: http://trueeconomics.blogspot.ie/2015/11/141115-more-evidence-us-capex-cycle-is.html), Europe's 'repaired' economy is shying away from both.

Europe's M&A cycle is weak - second weakest for the period of 1998-2015:

Which makes for some interesting reading, especially when one realises that most recent quarterly growth in Europe was underpinned by domestic demand and inventories build up... Time for ECB to start buying companies outright...

10/12/15: U.S. Corporate Debt: It's Getting Boomier

U.S. Non-financial Corporations debt - the other 'third' of the real economic debt equation - is on the rise, again. Deleveraging is not only over, but has been pushed aside. The new cycle of debt boom is well under way, and with it, the next cycle of a bust is getting closer...

10/12/15: Europe's Negative Yields Ship of Fools

Those of you who follow my work would know that I hold little compassion for the 'investors' who are willing to give money away to the governments whilst whingeing about high rates of taxation they endure on their incomes. Well, Europe is full of this sort of investors:

And it is getting more full by the minute at EUR2.7 trillion and counting. So, happy waisting your money...

10/12/15: R v G and all the Pikettian Theory Malarky

You know the Pikettian Thesis that if return on capital exceeds in the long run economic growth, then capital income appreciation relative to wages income growth will lead to rising wealth inequality. Except, err...

Source: @MaxCRoser 

Which says, really, that since the start of the 20th century, wages income of the richest 1% became more important in the determination of their full income, whilst entrepreneurial income remained roughly the same, and capital income shrunk. R > G and all that malarky...

8/12/15: Irish Rents: A Longer Term View

Much has been written about the plight of renters in Ireland. Much of it is correct - there have been some atrocious rises in rents, primarily private rents, in recent years. Year on year, in the last 3 months (though October 2015), private rents rose 10.35% against local authority rents falling 1.11% and mortgage interest declining 8.88%. A year ago - over 3mo through October 2014, private rents inflation was running at 8.95% against local authorities rents rising 1.06% and mortgage interest falling 10.26%.

Which makes for a depressing reading for the renters. Actual rents paid by tenants were up 8.83% in 3mo period through October 2015 and they rose 7.93% y/y in the 3mo period through October 2014. So inflation rate in rents is going up.

However, rents inflation has to be taken over the longer period of time. And here, things are not as clear cut as in the short run. Comparable CSO data goes only back to January 2003. So we have no reliable benchmark for earlier periods, albeit some bootstrapped comparatives are possible. As the result, let’s consider 1Q 2003 as the starting point for inflation - with a host of caveats attached.

Setting 1Q 2003 average level of price indices at 100, inflation in overall Housing, water, electricity, gas and other fuels category that includes rents, mortgages and other housing costs stood at 55.94% in October 2015. Actual rentals paid by tenants over the same period of time were up 26.93%. Private rents rose over 1Q 2003 to October 2015 by 18.62% while local authority rents rose 73.36% and mortgages rose 24.33%.

In other words, cumulated inflation since 1Q 2003 was higher in Local authority rents and mortgage interest than in private rents. Chart below illustrates:

Pretty much the same picture emerges if we take the entire 2003 average (not just 1Q 2003) as a benchmark. In fact, compared to 2003 levels, mortgage interest inflation is just above actual rents paid and is still higher than private rents inflation.

Setting levels aside, let’s take a look at inflation rates (y/y changes in indices). Historical average y/y inflation in Housing, Water, Electricity, Gas & Other fuels category is 4.50% against historical mortgages interest costs inflation of 5.29%, historical private rents inflation of 1.56%, historical local authorities rents inflation of 4.56% and historical inflation in actual rentals paid by tenants of 2.00%.

Once again, timing is everything: given low level of transactions in the purchasing markets for property over the current crisis, majority of mortgage payees today have lived through the period of pre-crisis spike in mortgage costs. Their current savings (reduced cost of mortgages interest) are simply lagged off-sets to this high cost reality of the past. On the other hand, renters faced far lower volatility in rents than mortgagees in mortgage interest. Their current pain is a delayed cost uplift on past moderation in inflation.

Which is, of course, not to say there is less pain because of this or that Irish rental markets are somehow functioning well in terms of pricing. Just to point out that timing of comparatives is important and that one should be careful pitching the (real) pain of Irish renters against the allegedly easy-times for other participants in the markets.

8/12/15: Commodities Rot Runs Ahead

Commodities rot continues unabated, as Bloomberg Commodities Index fell to its lowest reading since June 1999:

Source: @Schuldensuehner

Which, of course prompted another repricing of the commodities-linked currencies:

 Source: @Schuldensuehner

As I noted few days ago (post here) for the Russian Ruble, there is some room to the downside from here on.

Here is an interesting discussion of the historical trend/cycles in commodities busts via Carmen Reinhart: https://www.project-syndicate.org/commentary/commodity-price-decline-will-continue-by-carmen-reinhart-2015-11. And long-view chart of same:

Trend-wise, that is 160 years of deflation...

7/12/15: A new study on psychology of crisis response & the role of the media

This is a new study developed by an excellent young Irish psychologist - Seamus Power - at the University of Chicago. 

All Irish people, over the age of 18, are eligible to take part in this survey and all walks of life, ages, demographics etc are really needed. The survey should take under 15 minutes to complete.

Seamus is interested in your responses to a range of questions and your reactions to a randomly assigned media article covering the topics relating to policy responses to the recent crisis.

I can't really stress enough how important this topic is for Ireland and for social sciences, so please, take a few minutes to complete it. We need data-based evidence and Seamus will be sharing his findings with all of us.

Study link here: http://ssd.az1.qualtrics.com/jfe/form/SV_bKESEHr6IXjkXGt .

7/12/15: CX Future of Work Summit: Dublin

Another excellent video from the CXC Corporate's "Future of Work" summit on the Gig Economy: https://vimeo.com/148042205.

You can see more on the event, including my slides here: http://trueeconomics.blogspot.ie/2015/11/111115-gig-economy-challenge.html

7/12/15: Of Monetary Activism and Growth: CB Balancesheets vs Economies Balancesheets

There is much talk around two matters relating to the monetary policy expectations:

1. The 'normalisation' course allegedly pursued by the Fed (rates rises); and
2. The justification for (1) by references to the monetary policy-repaired economy, made wholesome once again thanks to the Central Banks' activism (see recent Janet Yellen speech on the subject here)

Except, of course, the second point is... err... questionable. For all the estimates of percentage points of growth uplifts and unemployment reductions delivered by the Fed-linked economics analysts, there are two simple facts stubbornly persisting out there:

Fact 1: U.S. (and European, and Japanese, and global) growth since the end of the Great Recession has been much slower than historical records for recoveries suggest; and

Fact 2: Fact 1 comes on foot of a historically unprecedented monetary expansions, that are, by far, not over yet.

Here are two charts on the second fact:

Now, observe: as of today, Big 4 CB balancesheets expanded almost 4-fold. By the end of 2017 (per BAML), projected balancesheets are expected to rise even further, by more than 4.5-fold. Both BOJ and ECB will be leading this latter stage of monetary easing - the two economies that are by far fairing the worst throughout the crisis, despite the fact that whilst the ECB adopted a more conservative stand in the earlier stages of the crisis, BOJ raced ahead of everyone else with Abenomics arrival.

In other words, since 2012 through 2015, CB balancesheets grew by more than 50 percent. Meanwhile, what happened to growth rates and growth expectations?

Which, sort of, suggests that all this 'normalisation' of growth under the monetary policies activism is... well... imaginary?..