18/8/2012: What the IDA forecasts don't tell us?

I waited for several days before posting about the latest mystery of Irish statistics. 

This presentation from IDA contains the following chart:

Now, IDA is correct in highlighting the Current Account as a key to our recovery 'policies'. For a number of reasons:

1. In virtually all debt overhang recessions in the past, return to positive surpluses on current account were required as a necessary, albeit not always sufficient, condition to restore economy to a stable path
2. In Ireland, we have witnessed some significant improvements in the Current Account so far during the Great Recession

Alas, the above chart is a mystery to me. Let me explain.

Firstly, it cites CSO as the source of the chart. I have contacted CSO about their 'forecasts' for 2012-2017 period for the Current Account and their reply was: 

"Having consulted with my colleagues they assure me that they do not produce forecasts, let alone five year forecasts. Furthermore, my colleague suggested that the figures might be derived from a paper published by the Dept. of Finance (page 9): http://budget.gov.ie/budgets/2012/Documents/Economic%20and%20Fiscal%20Outlook.pdf It should be stressed, however, that these figures are the department's and not the CSO's."

Now, here are two forecasts for Ireland's Current Account known to me, sourced from the updated IMF database (July 2012 update to WEO database) and the above link from the Department of Finance:

Clearly, no source, bar IMF projects anything beyond 2015. Also, clearly, even the IMF projections appear (one can't really properly read IDA chart) to be as 'upbeat' as IDA's chart in 2013-2017 projections range. 

But wait, recall that IMF is providing a forecast, based on their central tendency scenario. They also provide useful assumptions and data that went into their scenarios assessments which allow us to compute historical confidence intervals for their own forecast. And, ahem, it turns out the IMF 'central' tendency forecast - illustrated above - firmly falls outside the reasonable 90% single tail confidence interval (adjusting for sample size, but caveating this). In other words, it is improbable, were historical Irish performance on current account balance to be out guide. The same applies to the stress-testing metric on current accounts used by the IMF - the primary current account balances (current account ex-interest payments).

So the IMF forecasts above assume massive change in Irish current account performance relative to history, the change that - may be IDA can expand on this - is supposed to come in the environment of adverse global trading conditions, pharma cliff hitting Irish exports, and re-orientation of trade flows worldwide away from North-South shipments of higher value added goods and services toward South-South flows.

But wait, things are actually worse than that. DofF forecasts deviate from the average for the above sources ex-DofF by a cumulative 1.7% of GDP and from those by the IMF by a cumulative of 2.5% of GDP for the period 2011-2015, which means that DofF forecasts are even less probabilistically likely to materialise than those for the IMF.

Even were the IMF to materialise, Ireland's current account surplus in 2012-2017 will be 2.78% of GDP on average - an impressive swing from a recent historical performance, yet contrasted by the economy with ca 120% debt/GDP metric on Government side alone! Anyone out there really thinking this is going to be a silver bullet for our economy?

So things are a bit less rosy than the IDA seems willing to admit to the prospective Foreign Direct Investors and the media. 

16/8/2012: €1.05 trillion bad loans + €2-2.5 trillion deleveraging problems

I twitted about the PWC stats on non-performing loans based on German newspaper report earlier today, and here's WSJ article on same. Frightening numbers.

16/8/2012: Italy's 'this time, it's different' moment

This time it's different for Italy now... according to an excellent article by Charles Wyplosz here. Read the whole thing, Wyplosz is excellent on the basics of the Italian situation.

Update: new link to the article.

16/8/2012: Financial Repression - Round 2

Financial repression continues to gain speed in Ireland: link here.

Basic idea: having raided actual pensions funds, the Irish Government is to issue special annuities (priced accordingly to reflect State's 'grudging acceptance' for now of the pensions tax break) for insurance and pensions providers.

The good part of the idea is, as Fitch points in the note, added funding stream for the Government.

The bad parts are, as Fitch does not bother to note:

• Deleveraging economy means that funds will be taken out of the already diminished private investment stream, should the annuities be successful in raising such funds;
• Risks of claims exposure to Ireland for Ireland-based providers will now be amplified by more assets tied to Ireland (de-diversification);
• The new funding is debt, priced more expensively than what we can avail of from the Troika programme and subsequently from the ESM (at least access to and the cheapness of the ESM funds was the Government-own rationale for convincing the voters to back the Fiscal Compact earlier this year - something that the rating agencies have confirmed, as I recall);
• The new funding is still debt, which means that the new 'source' is not going to help restoring Irish public finances to sustainability path;
• Payments on these annuities will be subject to the same seepage out to imports (consumption of recipient households) as any other income and thus will have lower impact on our GDP, and an even worse impact on our GNP, than were the annuities structured using foreign governments' bonds;
• Share of the Irish state liabilities held by domestic investors will rise, which automatically implies riskier profile for both: Exchequer future funding and pensions;
• The latter (pensions funding risk profile deterioration) will also induce higher expected value of future unfunded liabilities (basically, as risk of pensions funding rises, probability of claims on state in the future to fund public pensions rises as well), and so on.

But, hey, why would the Irish State bother with any of these concerns when they've found another quick fix to €3-5 billion of our cash?

And on a more macro level, financial repression is back on the EU agenda too. The latest spike in French rhetoric about the need for 'own-funding' of the EU operations (link here) is just that, have no doubt. The idea is to give EU some central taxation powers so, as claim goes, it reduces the 'burden' on national governments. So far so good? Not exactly. Neither the French, nor any other Government in Europe at this stage is planning to 'rebate' (or reduce) internal tax burdens to compensate for EU new tax burden. In other words, the Governments ill simply pocket the 'savings'. Which, to put it simply, means the new 'powers' will simply be new taxes for the already heavily over-taxed and recession-weakened economies of Europe.

All in the name of deleveraging the State at the expense of the real economy. And that is exactly what the financial repression is all about.

Updated: And just in case we need more 'creative' thinking, here's an example of financial suppression: It turns out Nama (Irish State Bad Bank - don't argue that SPV thingy, please) should use public purse to suppress normal price discovery processes in Irish property markets. Right... you really can't make this up. Irish elites are now so desperate for relevance, they are fishing that Confidence Genie anytime anyone is feigning some attention to what they have to say.

15/8/2012: Total Insolvency in Greece Meets Total Denial in Europe

And so as predicted here back in February, Greece is now in a complete meltdown when it comes to fiscal targets (report here). The only thing that is keeping this Euro charade still rolling is seemingly endless willingness of the European 'leaders' to deny the reality of Greek complete and total insolvency.

13/8/2012: Telling tales about our 'Productivity'?

IDA recently used the following chart in the context of Irish competitiveness comparatives to the rest of EEC:

According to the above, Irish labour productivity per person employed is at 136.9% of the EU27 average, which makes us the second most productive economy in the Euro Area and the third most productive in the EEC. Of course, the thing that jumps out in the chart is the massive over-performance in output terms by two other 'special' countries: Luxembourg and Norway. This should ring lots of alarm bells when it comes to trusting the above data to base actual comparative assessments on.

It turns out that adjusting our productivity performance for GDP/GNP gap so as to remove the portion of our output that has absolutely no anchoring in Ireland (net after-tax factor payments to foreign investors) implies Irish productivity index at around 102-106% of the EU27 average, placing us below-to-just-above Germany and ahead of Greece.

I wouldn't argue that that is indeed where we are positioned, but rather that the chart used by IDA is simply reflective of vastly over-inflated real productivity of our workforce, just as it is for Norway (petro-dollars economy) and Lux (an economy with massively undercounted non-resident workforce and an industrial scale 'dry cleaning laundry' for European, EEC & Eastern European corporates).

13/8/2012: National Competitiveness: Not Exactly Good Numbers for Ireland

An interesting paper, THE DETERMINANTS OF NATIONAL COMPETITIVENESS by Mercedes Delgado, Christian Ketels, Michael E. Porter and Scott Stern (NBER Working Paper 18249) looked at three broad and interrelated drivers of foundational competitiveness:

• social infrastructure and political institutions (SIPI),
• monetary and fiscal policy (MFP), and 
• the microeconomic environment. 

The study defined foundational competitiveness as "the expected level of output per working-age individual that is supported by the overall quality of a country as a place to do business".  The paper focused on output per potential worker, which is "a broader measure of national productivity than output per current worker". This "reflects the dual role of workforce participation and output per worker in determining a nation’s standard of living".


Using data "covering more than 130 countries over the 2001-2008 period", the authors found "a positive and separate influence of each driver on output per potential worker". Specifically, "we find significant evidence for the positive and separate influence of SIPI, MFP, and the microeconomic conditions on national competitiveness":

• Consistent with prior studies, institutions (SIPI) positively influence national output per potential worker;
• However, microeconomic conditions have a strong positive impact as well, even after controlling for current institutional conditions;
• Microeconomic conditions have a positive influence on competitiveness even after controlling for historical institutional conditions and incorporating country fixed effects (which offer a broader measure of a country’s unobserved legacy);
• Current institutions and macroeconomic policies "seem largely endogenous to historical legacies";
• "Overall, the findings strongly suggest that contemporaneous public and private choices, especially those that relate to microeconomic competitiveness, are an important driver of country output per potential worker and, ultimately, prosperity".

The paper also defined a new concept, global investment attractiveness, "which is the cost of factor inputs relative to a country’s competitiveness".

Using the new metric, the authors rank the countries with respect to their global investment competitiveness:

The unpleasant bit is that in 2010, a year after we began the process of 'competitiveness improvements' that has stalled since around mid 2011, we were ranked just 24th. The pleasant bit... we still made it into top 25.

And in terms of other comparatives, here are few charts:

Oh, the naughty, naughty authors did get some things right: "In the case of Ireland, we used GNP instead of GDP because of the size of dividend outflows to foreign investors".

And here's what they had to say in terms of their analysis of the Global Investment Attractiveness scores (GIA): "Countries with high GIA tend to experience a strong positive growth, including China and India (with growth rates above 8% and 4%, respectively).  In contrast, countries with low GIA tend to experience a high contraction in output with growth rates below the median value, including Italy, Spain, Ireland, and Venezuela, among others."

Now, wait, is that really the neighborhood we (Ireland) are in? You wouldn't think so from our policymakers/IDA/EI/Forfas/ESRI/CBofI/... statements.

13/8/2012: Euro area ABS markets

Here's a good post on what is happening in the European Asset Backed Securities markets: link.

So much for the hopes of a short-term credit demand & supply recovery... 

10/8/2012: What's driving trade surpluses in Ireland?

Here's a question I asked myself recently: Given Irish exports are so heavily dominated by the MNCs, and given that the MNCs operating from Ireland are primarily concerned with transfer pricing and tax optimization (entering as negative factor to our overall trade), does our exports growth (positive contribution to our trade balance) really determine change in our trade balance?

It's a cheeky question. You see - Government policy in effect says "To hell with domestic enterprises, let's put all our bet for a recovery on exports". And furthermore, the policy also says that "Ireland will remain solvent as long as we can generate growth in our external surpluses". Of course both of these strategic choices imply state reliance on MNCs to increase our external balances surpluses, i.e. trade surplus.

So here are two charts (caveat to first chart - obviously estimated relationships are just illustrative, rather than conclusive, since we have few observations to consider as consistent data from CSO covers only 1997-2011 annually, but strangely enough the quarterly data - not suffering from same limitations - confirms annual data results):

The conclusions are rather interesting and worth much deeper exploration:

• Imports growth explains more of the variation in trade surplus growth than exports expansion
• Exports growth explains negligible amount of variation in trade surplus growth
• Growth in profits repatriation by MNCs out of Ireland relates stronger (almost 27 times more) to  trade surplus growth than either imports or exports.

So more questions should be raised than answers given in the end...

9/8/2012: Rip-off Ireland roars again in July

Latest consumer price indices are out for Ireland. Headline number for annual comparatives is moderate inflation at 2.0% in HICP metric and 1.6% on CPI metric. M/m we have deflation.

Alas, the headlines do not tell the whole story. Much is revealed in the following three charts which, in summary, show that most of inflation, including double-digit rampant inflation, is concentrated in state-controlled or state-set prices (marked in red).

You can see that even when it comes to energy, state-controlled prices (e.g. electricity and natural gas) are ahead of inflation driven by virtually identical underlying oil and gas prices (other hydrocarbons-linked fuels).

The above, of course is consistent with the State policies that have prioritized extraction of rents from the private economy in order to close fiscal gap. The State is doing this even though Irish Government is aware that we face a deleveraging crisis among our households and companies. In other words, prioritization of the policy is clear - skin consumers to save the Exchequer and to hell with households barely capable of making ends meet.

Don't think that this is not a prescription for an economic disaster. Killing off private economy to sustain public sector's lack of real reforms as well as to sustain exceptionally costly measures to underwrite Irish financial sector meltdown is not a good thing to do. But, hey, 'international investors' seem to approve.

8/8/2012: Updating 2012-2017 forecasts for Russia

Updating my outlook for Russian economy:

First a table summarizing my outlook and IMF forecasts for key macro variables (note: IMF forecasts are as of July 2012, updating WEO database from April 2012).

Second, two significant trends that will dominate Russian macroeconomic themes in near- and medium-term future:

Both charts above are based on IMF data and projections.

The key to both is understanding that the underlying capital dynamics suggest strong capital investment contribution to the GDP and that much of this will be driven by the private sector. This implies strong growth potential in core capital equipment, construction and manufacturing sectors.

However, my estimates of public investment are above those for the IMF, based on two factors:

1. Last Presidential elections have been dominated by the rhetoric concerning modernization and re-structuring of key Russian sectors and the economy overall. Coupled with accelerating depreciation of infrastructure stocks, this suggests elevated public investment in years to come.
2. Recent portests against the Government have clearly been met with a complex response that includes strong recognition by Moscow that accelerated development of the quality-of-life infrastructure and structural reforms in the economy cannot be postponed. This too suggests that the Federal authorities will likely accelerate public investment.

As the result, my projections for private investment remain in-line with those by the IMF, but public investment projections are likely to be ahead of those by the IMF by some 1-1.5% per annum in 2013-2014, rising to 2% over IMF forecast post-2015.

7/8/2012: Once forgotten Growth & Jobs Plan

So, by now we all have forgotten that little bit of June-July newsflow that promised a Compact for Growth to help the EU recover from the euro area-induced depression. And for a good reason - whole thing was a complete fudge. The problem is - this was supposed to be the second half of the EU policy equation. If the entire half of that equation is really a pure fake, what confidence can we have in the validity or sustainability of all other euro area commitments delivered at the last summit of June?

Answer - none.

Now, here's the reminder of the June 'growth fudge'. Alongside the euro area council, the European Commission singled out the European Investment Bank as the core instrument for stimulus measures - which in reality, given EU Commission's total lack of economic policy imagination amounts to public works and infrastructure investments. On July 31, the EU Commission issued a paper covering EU construction sector and calling for the sector to become the core driver of its grandiose scheme to kick-start the euro area economies. Let's keep in mind - the construction sector accounts for just about 10% of total GDP in the euro area, while being responsible for the lion's share of total losses in the euro area banking sector and for the majority of debts in the private sector that currently hold the economies of the euro area hostage.

Back on June 30th, the EU agreed a 'new' stimulus package worth €120 billion - the Growth and Jobs Pact. This 'new' measure, of course consisted of €55 billion of already allocated in the budget, but will be diverted from such worth-while activities as building EU's 'social(ist) / green / nano / smart / knowledge-filled economy' to EU's 'bricks-and-mortar economy'. Of the remaining €60 billion, only €10 billion will come from actual funds, which will be 'leveraged' by EIB (read: more debt) to raise up to €60 billion in funding which the EIB can then lend out to the 'struggling' economies for the purpose of building 'stuff'. There's a problem, Roger, as some would say. Last year, EIB has managed to lend out just €61 billion on the foot of raising €76 billion. In other words, apparently, EIB sees not enough worthwhile investment opportunities to allocate funds it already has. Back in 2010, EIB lent out €72 billion. But with the EU Commission plans, the bank should simply double its lending overnight. 

Despite the fact that by EIB's own admission (see annual report) the levels of lending in 2010 were 'exceptional' and the bank would like to return back to 'normal' lending volumes.

Recap the above: EIB is already lending at 'exceptional' levels and would like to scale this lending back, and EIB would have to double its lending capacity to deliver on EU Commission plan.

Now, what can possibly go wrong with this?

7/8/2012: Real-time evidence on Irish lending bubble collapse

A revealing table from the danske Bank H1 2012 results which hardly needs much of a commentary:

Impairments:

• Northern Ireland 3.5% of lending
• Banking Activities Ireland (non-toxic stuff) 4.16%
• Non-core Ireland (toxic stuff) 18.67%
• Total Banking Activities 0.80
• banking activities Denmark, Finland, Sweden, Norway from 0.17% to 0.47%

And that's about all you need to know. 

But in case you want more - the report is available here.

Oh, and few more revealing tables:

Now, in the above, non-core (toxic) stuff from Ireland is accounting for 72.5% of all charges taken. Nicely done!

6/8/2012: Financial Crises, Recessions and Government Debt

Another interesting chart from The Great Leveraging, by Alan M. Taylor, CEPR DP 9082. This one shows “Excess” Credit Growth (in other words the extent of credit contraction during the crisis) and the Paths of Real GDP in Normal (blue line) and Financial Recession (red line) Contingent on Initial Public Debt Levels.

Here's Taylor's own explanation: Figure 12 from work in progress (Jorda, Schularick, and Taylor, forthcoming) studies the impact of a similar "marginal treatment" [shock of 1% per annum extra loan to GDP growth during the expansion prior to the crisis over an above normal long run levels of growth - and recall that in Ireland's case this rate was probably 3-5 times the shock considered by Jorda et al], subject to starting Government debt/GDP ratio condition (taken as 0% of GDP to 100% of GDP). The central forecast lines - solid lines - provide for assumed 50% of GDP starting assumption for public debt to GDP ratio.

"First look at normal recessions (blue dashed line, dark shaded fan). Extra credit growth in the prior expansion is correlated with mild drag in the recession, say 50-75bps in the central case, but the effect is small, and does not vary all that much when we condition on public debt to GDP levels (the dark fan is not that wide). Now look at financial crisis recessions (red solid line, light shaded fan). Extra credit growth in the prior expansion is correlated with much larger drag, almost twice as large at 100-150bps, and the impact is very sensitive to public debt to GDP levels going in (the light fan is very wide). At public debt to GDP levels near 100% a sort of tailspin emerges after a financial crisis, and the rate of growth craters down from the reference levels by 400bps at the end of the window. Recall, effects in this chart are shown as non-cumulative."

This is serious stuff, folks. In effect the chart above shows that, had Ireland entered the crisis with, say 80% Government debt/GDP ratio, we would have been losing some 2.03% percent on average annually over 6 years. Funny thing - we are, so far on track to exceed this number.

Many say we had a very enviable, low Government debt to GDP ratio at the onset of the crisis - officially - at 44.23% in 2008. Alas, that is platitudinal bull when it comes to hard reality. The problem for the argument involving the 44% figure above is that starting with 2008, Ireland promptly loaded onto the shoulders of the Exchequer massive banks debts, which have pushed Irish Government liabilities up by at least €67 billion, or well above 90% of GDP. Not all of this was taken as debt (NPRF funds) and not all of this was taken as immediate debt (with banks recaps running into 2011), but as far as resources available to combat the crisis go [something that low Government debt at the onset of the crisis should have allowed], banks resolution measures exerted direct drag on Irish Exchequer capacity to use low initial debt levels to fund transition out of the crisis. In other words, as the real data and comparison of it to Taylor's results show, the idea of our low initial starting debt levels being a boom to our situation is bollocks.

Thus, in terms of the chart above, we are closer to 80-90% starting point for debt/GDP ratio for the onset of the crisis period (thanks to Brian Cowen's Government efforts). Which implies that over the 6 years horizon of the crisis, we should expect a cumulative decline in the economy GDP of ca 12%. The fact that over the last 5 years we have seen our GDP declining by 9.52% (using IMF data and 2012 forecast) means only one thing: more pain is yet to come.

6/82012: A Spooky Chart of Decade?

A spooky chart of decade? Why, this one of course:

The chart comes from The Great Leveraging, by Alan M. Taylor, CEPR DP 9082.

Yes, folks, the upward path in the red line - the dependency ratio for more developed regions - is scary enough. Fair play. Although we all knew it. The really monstrous bit is the green line rise from 2030 on and the relative flattening of its decline from 2015 onward. Why is it "monstrous"? Because until recently, immigration into the advanced economies from developing economies was taken as a given. Now, not so much anymore. So, as the dolphins sign in my favorite film: "So long & Thanks for all the fish / So sad that it should come to this / We tried to warn you all but oh dear..." Never say we haven't told you (Europeans) that abandoning family for the sake of social benefits and improved consumption of holidays is not a good idea, but it is even dafter when one thinks that the sources of cheap labour might just run out pretty soon... in and around 2010-2025...

6/8/2012: Russian reforms: Atrophy or Revolution?

Journal of Democracy has 5 articles covering various aspects of the political grass-roots transformations undergoing in Russia (link here):


In "Putinism Under Siege: Implosion, Atrophy, or Revolution?", Lilia Shevtsova argues that the "Putin's regime is clearly now in decline, but it is unclear whether the death knell has sounded for the "Russian System" - a combination of personal rule, the merger of power and assets, and a self-perpetuating stalinist-militarist model. One can conclude, however, that the Russian system cannot be reformed from the top and that real transformation will come only through pressure from citizens."

I am not so sure, this wishful thinking - ranging from rather over-reaching definition of the "Russian System" (which does include the first two of the features outlined in the article, yet hardly resembles a stalinist-militarist model at all) to nostalgia for some sort of a populist, bottom-up transformation (which never happened in the history of Russia before, and given the dire quality of opposition is not about to happen either) - is either a realistic assessment of the near-term (predictable or forecastable) future or a desired path to transformation.

But the article does point to some interesting changes in social dynamics that have led to recent protests and are exposing the dire need for modernization and reforms in the system as well as the fact that since 2006 Russian leadership has had an awfully hard time in attempting to deliver any real change on core political and social changes:


"Discontent with Putin’s regime among educated urbanites has been building for some time as people have witnessed the cynicism, brazen corruption, official high-handedness, and general stasis on display in their government. By the last part of Putin’s second term (between 2006 and 2008), the foundations of his implicit deal with the country were starting to erode. The most active and dynamic sectors of society wanted more than the Kremlin’s offer of stability based on looking to the past and staying within the narrow bounds of old myths about Russia and the world. People began to tire of the notion
that they should be content so long as the authorities let them make a living in return for staying out of politics and recognizing the authorities as having the final say on questions of property ownership, making corruption an essential lubricant when frictions appeared."

"But there inevitably came a moment when Putin’s formula for “social peace” no longer satisfied much of the populace. Too many had come to see that this pact could guarantee them neither opportunity nor prosperity nor even basic security. Moreover, Putin lacked any sense of the kinds of social improvements that might give young people a leg-up in life and a chance to better themselves. The financial and economic crisis of 2008—and the way that Putin and his team reacted to it by guarding their own wealth and that of the oligarchs close to them—cast into especially high relief the flaws in Putin’s model."

So far - plausible, albeit over-rhetoricized account.

The article real failings are in the projections for the Putin 2.0 and gradualist reforms paths, which, the author feels, cannot deliver significant enough change. At this stage, the arguments are purely speculative, based on "why didn't Putin do so before?" reasoning which ignores both the core objectives of pre-2006 path (consolidation of power and stabilization of fragmented institutions) as well as the need for transition to Putin 2.0 regime.

Again, on has to read the entire article in the context of attempting to remove over-extending rhetoric from the fact.

"The authorities’ tactical maneuvers and the myths spread by Kremlin propagandists can no longer stave off a crisis that has already begun. [In my view, this is correct, albeit the word 'crisis' is hardly properly descriptive of current events - the word 'pressure' comes to mind as more apt]. The alleged adaptability of the “Russian system” has been exposed as an illusion—cosmetic changes can no longer hide a more fundamental rigidity. The system guarantees Russians neither personal security, nor
economic well-being, nor a sense of civic dignity. The system works only to satisfy entrenched interest groups at the expense of society at large; the “golden parachutes” that the elites maintain in the form of
assets stored in the West prove that even they do not believe in the sustainability of the current political order. [Well put, in my view... but not warranting subsequent:] The paradox is that propping
up the status quo is speeding up the system’s decline, but attempts to update this status quo without liquidating its basis (personalized power) threaten to cause system breakdown."

In my opinion, the status quo is degenerative. However, change of the status quo requires a long period of building effective, functional democratic opposition. Not a 'personal cult 2 displacing a personal cult 1' system that is currently the only feasible alternative were another equivalent to Putin found somewhere. This process can only be carried out with simultaneous co-existence of the current consolidated regime and constant pressure on this regime to reform. The recent protests have shown this much: there is no alternative to Putin 2.0 transformation for the embryonic democratic forces - which have offered no real policies alternative or leadership options to the current regime, and for the regime itself - which cannot be assured of normal and functional transition of power. In other words, Russia currently has no alternative to the gradualism in transformation. To the author, this means that neither transformation, nor gradualist approach to it are feasible. To me it means that both are inevitable in the long run.

In other words - it is neither Atrophy, nor Revolution that await Russia in the near term future. It is a gradual re-shaping of the Kremlin rule accompanied by the maturing of the democratic alternatives. We better brace ourselves for a much longer term process than the ones we experienced in Russia since 1988. And that is a good news.

I will be blogging on the remaining articles in the issue in time, so stay tuned.

4/8/2012: IMF Article IV assessment of Russia

Latest IMF Article IV paper for Russia was published this week. The link is here.

A number of points worth highlighting:

1. "The current account has strengthened in 2011 aided by high oil prices, but net capital outflows persist, broadly mirroring the current account surplus." In effect, this is continued worrying trend, although one has to recognize that some of the outflows get recycled back into Russian investment via off-shore companies. Nonetheless, the Government efforts to-date to reduce outflows have been unsuccessful. While no one expects capital controls, it is likely that to lower incentives to ship capital out of Russia, absent deep and effective reforms of the legal protection for investors, Russian authorities will need to raise internal interest rates and strengthen the ruble. These measures will, however, reduce growth capacity in the economy.
2. "Following two years of stagnation, credit growth rebounded strongly in 2011. This partly reflected a switch by the corporate sector from external to domestic funding. Consumer credit also grew strongly. On the credit supply side, improving bank balance sheets (with declining nonperforming loan ratios and improving profitability) and funding conditions (reflecting solid deposit growth and the Central Bank of Russia’s liquidity provision) allowed for the expansion of lending." In other words, there is increased stability within the internal financial system. While the process of weeding-out weaker banks is ongoing, this is now organic, rather than disruptive as in the earlier stages of the global financial crisis. Expect no significant adverse surprises in the sector, as consistent with rating agencies position on Russian banks.
3. "Fiscal policy tightened in 2011, but it remains procyclical. The federal non-oil deficit declined from 12.7 percent of GDP in 2010 to 9.8 percent of GDP in 2011. This improvement was due to both non-oil revenue overperformance and expenditure under-execution. Some of the windfall oil revenues from 2011 were deposited in the Reserve Fund in early 2012. However, the 2012 budget implies an increase in the federal non-oil deficit of about 1 percent of GDP." This is consistent with the policy stance announced during the last Presidential elections and is a short-term positive for the economy that is still recovering from the capex slowdown. We have to keep in mind that Russia will have to undergo twin spikes in demand for capital in the next decade or so. The first one will be driven by rapidly accelerating depreciation of the core capital stock - with replacement rates on capital only starting to catch up with amortization and depreciation since 2003-2004. The second one will be driven by the need to lift up overall productivity in the industrial and manufacturing sectors. Parts of this will have to be financed off the private sector investment pools, but parts will have to come from the state coffers.
4. In line with (3) above and also noting that the Central Bank has put on hold further tightening of the monetary policy during the second half of 2011, IMF advised the CB to continue tightening monetary policy. Again, in my view this puts a clear contradiction into the policy mix. Federal Government objective is to push through aggressive investment and modernization programmes over the next few years. This can be aided on supply of capital side by raising rates of return, including by strengthening the ruble. Alas, the demand side will suffer. As will exports. On the positive side, imports of capital equipment will be cheaper, but in the long run, this will also mean fewer imports substitutes emerging in the process of modernization. In other words, Russian monetary, fiscal and development policies are now somewhat out of synch, but they can become even more so, should Russia listen to the IMF advice. 

4/8/2012: Links to my analysis of ECB's policy shift

My thoughts on Mario Draghi's quiet coup are on FTAlphaville (here) and in The Globe & Mail (here). BusinessInsider also picks on my comments (here).

4/8/2012: Business Confidence in Ireland: KBC/ICA v PMI

As promised in the previous post covering the Services PMIs, I wanted to provide some analysis of confidence survey component of the PMIs. This is in light of this week's absolutely bizarre Business Confidence Survey report from KBC/ICA covered briefly here. The reason for why I am giving this survey so much attention is a simple one: the survey authors, in particular KBC, should have done their basic homework before they released the results. This homework would have entailed linking current activity to future business expectations to find out the size of the bias in the later induced by the former.

Here's the core point: businesses (not only in Ireland) tend to report upbeat expectations compared to current activity. And they tend to do so on average - independent of the current conditions. In addition, their expectations of the future are driven by the present conditions, which also implies systemic biases. To see this, simply link current activity to future expectations:

Not to induce any judgement on causality direction - the above pretty clearly shows that on average, expectations are more upbeat than actual activity: a 1 point change current activity is associated, in Irish services firms case, with 14.6 points higher expectations. In other words, we can have a tanking economic activity consistent with deep recession (as signaled by current activity PMI of, say 40) and yet business expectations on average will be reading 54.9 - a robust expansion.

Run through these numbers:

• Since January 2008, Confidence reading for PMI averaged 60.2 - a massively 'upbeat' indication taken on its own. Meanwhile, actual PMI reading averaged 46.8 - a recessionary level reading for the Services sector.
• In last 6 months, actual PMI averaged 50.8, Confidence for the 6 months period through January 2012 is 60.7.

Funny thing, this Confidence survey data is...  

3/8/2012: Irish Services PMI: Disappointing July

So following cracking Manufacturing PMI performance in July (see posts here , here and here on the subject), it was only predictable (based on all indicators relating to the sector activity) that Services PMI will put a boot into our hopes for growth. In that, the PMIs did not deviate from forecast.

Irish Services activity continued to decline in July, with headline PMI for Business Activity falling to 49.1 from 49.4 in June. This marks third consecutive month of sector activity below 50 reading. 12mo MA is now at 50.7, well ahead of the current reading. 3mo average through July is at 49.2 - signaling mild contraction, previous 3mo average through April is at 52.5. In 2011 3mo average for the same period was 51.5 and in 2010 it was 54.5. Not good dynamics for 2012 since May.

New Business activity also slowed down to 49.5 from barely expansionary 50.3 in June. 12mo MA is at 50.2 - effectively showing zero growth, while 3mo average through July is at 49.8 (ditto, but to the downside risk) and this contrasts with relatively robust 52.8 3mo average through April 2012.

Looking at the snapshot of the recent activity clearly shows lack of any breakout momentum in the series from the flat growth trend established around Q4 2010.

Other sub-series were all over the place.

• Employment tanked to 48.3 from already abysmal 49.2 in June. This is not surprising, as the sector has been signaling employment losses pretty much uninterrupted since the beginning of the crisis. 12mo MA is now at 48.1.
• Output prices continued to contract at 44.2 from 44.6 in June, while input costs rose at 52.3 on foot of 52.7 in June. Which means profitability tanked.
• New export business indicator jumped to 55.7 in July from 54.2 in June, but this is hardly surprising, since the index has been showing robust expansion for 12 months now, following a surprise drop to 49.6 in July 2011. 12mo MA is at 53.2, 3mo average through July is at 54.2. These are really hardly credible numbers, or rather, these are the numbers showing that our Services sector exports have very little to do with employment or overall business activity in the sector itself. In other words, this shows that our services exports are as captive to MNCs as our manufacturing exports.
• Profitability - as measured by PMI (note, I produce my own metric, which will be reported later) - tanked again to 43.8 in July against 43.0 in June.

In the next couple of posts I will be covering combined results for Manufacturing and Services PMIs and a special note on Confidence metric - in honor of the KBC/ICA 'survey' results released yesterday.

3/8/2012: Did Draghi quietly score a policy coup d'etat?

Let me revisit yesterday's assessment of Mario Draghi's statements. With time passing, it is becoming clear that the key (only) tangible positive is Draghi's comment that he will focus on the shorter end of maturity curve and that this will be consistent with two things:

1. No commitment to sterilization, and
2. Commitment to targeting 'traditional monetary policy' objectives.

Let me explain why I now think these are significant game changers for ECB, and potentially, for euro area.

For some years, even before the financial crisis hit, the ECB (including Trichet before Draghi) have been focusing or attempting to focus policymakers' attention on the need for structural reforms. In the past this was accompanied with threats of tightening monetary policy. But now, such threats are clearly not credible. Hence, the ECB, to stay on the message that long-term structural reforms must be pursued needed to achieve the following objectives simultaneously:

• Reduce immediate pressure on funding indebted and deficit-laden peripherals (so reduce short-term borrowing rates)
• Increase long-term pressure on the peripherals to incentivise them pursue longer term reforms (so increase slope of the yield curve)
• Potentially support enhanced transmission of lower short-term rates into real economy (so alleviate pressure from sterilization of SMP), and lastly
• Reduce future problem of unwinding SMP-accumulated 'assets' off the ECB balancesheet

Now, what Draghi set out yesterday as a potential plan does appear to do all of the four things above. By focusing SMP on shorter term end of the yield curve, ECB will indeed lower shorter-term borrowing costs for Italy and Spain (3-5 year max maturity), while steepening 10 year instruments costs to discourage, relatively, longer term borrowings. This means Italy and Spain should get an added incentive - growing over time as overall maturity profile of their debt starts to shorten as well - to enact long-term reforms. At the same time, ECB will be buying (assuming it does go through with the threat) shorter-term instruments, implying that unwinding these assets will be a natural process of maturity. ECB will not commit to sacrificing long-term flexibility of its policy tools by expanding SMP on the longer end of the yield curve, thus reducing overall risks to the monetary policy in the future.

Some thoughts for the weekend, folks...

2/8/2012: Irish Exchequer Fog: Reality Isolated?

Let’s take a look at the Exchequer numbers for January-July period out today.

Tax revenue shows an increase from €18,633 mln in January-July 2011 to €20,313mln in same period 2012. 

This is primarily accounted for by increases in Income Tax (which are running pretty much in line almost exactly with what the USC reclassification would have yielded). The Department states that "Income tax is €159 million (2.0%) ahead cumulatively and is over 11% up on the same period last year on an adjusted basis. This is a strong performance." However, as far as I can understand the numbers, the adjustment only includes PRSI and does not cover reclassification of the entire USC (Health Levy). Which suggests that even 2% might be questionable. Per April note (link here) PRSI reclassification was 'estimated' by the department to run €300 million in 2012. It could be, in the end, 280mln or 330mln - take our guess, but it is significant.

Another 'major' factor is a rise in corporation tax of some €400 million of which more than half is accounted for by carry-over of tax from 2011 into 2012, not new tax receipts. Here's the Department note from April (linked above): "The Department is also taking this opportunity to adjust the corporation tax profile for the €251 million in receipts which were  expected in December 2011 but were  only received into the Exchequer account in January 2012". So setting aside timings of the corporation tax and netting out €251 million of carry-over, how much is corporate tax really up? The answer is - we do not know. But not by much enough to be excited about this.

There was a €200 mln odd rise in VAT - the real impact of the Budget 2012. Which means that on the net, there are very few real increases in revenues. Total taxes went up by €1,680mln odd, but on a real comparable basis, they went up less than €1,254mln over seven months! Again, this is before we clarify what exactly happened with the Health Levy. With Health Levy effects, the impact would have been probably closer to €250mln (I am using here 2009 figures for Health Levy and PRSI to estimate).

Non-tax income rose from €1,545mln to €2,355mln – of which almost €300mln is accounted for by increased revenues by the Central Bank and another €200mln odd is from the stronger receipts on the Banks Guarantee. There was €300mln interest on Contingent Capital Notes - also from banks. Sort-of the zombie giving back odd €800mln to the town it is killing. This is the 'reforms' the Government instituted to correct for the fiscal imbalances? Not quite: earlier this year the EU warned Ireland to not consider these 'revenues' as a part of long-term adjustment as they are bound to disappear in time.

Voted Current Expenditure – the stuff that this Government is supposedly cutting back – has actually increased – from €24.008bn in 2011 to €24.563bn in 2012.

Non-voted current expenditure is up more than €2 billion: from €3.556bn in 2011 to €5.573bn in 2012 – primarily driven by increases in the cost of servicing Ireland’s debt from €2.426bn in 2011 to €3.801bn in 2012. Timing effect on sinking fund contribution of €646mln also put a dent.

This means total current expenditure rose (not fell) from €27,564mln in 2011 to €30,136mln in 2012. This is very poor performance, folks.

Thus, current account deficit also increased in January-July 2012 from €7,386mln to €7,468mln.

Sinking fund transfer debit above was offset by credit to the capital receipts, which has meant that capital-related exchequer receipts rose to €1.454bn in 2012 compared to €789.9mln in 2011. Again, there is nothing miraculous here – the state simply transferred funds from one pocket to the other.

On the capital expenditure side, however, there are – on the surface – huge ‘savings’ year on year. Total capital spending amounted to €12,298mln in January-July 2011, but that was ‘cut’ to €3,112mln in same period 2012.

How were such miraculous savings achieved? Well, simple, really. In 2011 the state spent €10,655mln on “Non-Voted (Expenditure charged under particular legislation)” items and in 2012 this line of spending was only €1,775mln. 99% of these expenditures in both 2011 and 2012 relate to banks recapitalizations (and in 2012 added insurance fund support loan of €449.75mln). So the entire savings delivered by the Government amount to putting less money into Irish banks recapitalizations.

Here’s the summary of these ‘savings’.

TABLE

But wait, things are even worse! In 2011 Irish Government paid down the promissory note to the Anglo-Irish Bank in the amount of €3.085bn. This increased Government spending in that year. This year, the Government had converted the note into Government debt, and thus got to claim that there was no payment made, so instead of €3.085bn in spending, the State registered just the cost of conversion €25mln this time around.

All in, of the entire deficit reduction claimed by the media, full €8.9 billion of the ‘savings’ are simply what the Irish Government (rightly) claimed a year ago to be ‘temporary’ one-off measures. In other words, there is no reduction in deficit via expenditure side.

Let's do one final exercise: if we subtract one-off measures from the capital side, total - current and capital accounts exchequer deficit in the first seven months of 2011 was €8.24bn, in the same period of 2012 it is €7.35bn adding to it the reclassification measures and corporate tax carry over implies like-for-like deficit in 2012 of €7.78bn. Which means 'savings' of ca €426mln. 

Of these €306mln is accounted for by timing differences and cuts to voted capital spending which the Government is going to more than undo using the latest 'off-balancesheet' stimulus. And an unknown amount is due to Health Levy reclassification, let's say ca €250mln so far (an under-estimate for 2009 figures, but...) for which the Department does not appear to adjust the numbers. All in, Irish Exchequer finances have most likely deteriorated on comparable terms by around €80million in 7 months through July 2012 compared to 2011.

These are then the colossal savings that the headlines like "Ireland Cuts Deficit in Half" simply mis-represent.


Update: Someone highlighted that the Health Levy was incorporated into the PRSI receipts. My view of the Health Levy is based on this document.

2/8/2012: Inverting reality?

I have to share with you this:

The link to the RTE piece on this research is here. 


The link to my analysis of Irish Manufacturing PMIs which, according to the KBC Bank Ireland/Chartered Accountants Ireland Business Sentiment survey, is the sector constrains growth as opposed to domestic services that allegedly support growth is here.


Updated: Today's Services Sector PMI release for Ireland confirms my criticism of the Confidence Survey with Service sector posting a third consecutive month of decline in activity 49.1 in July from 49.7 in June. Thus, we now have: 3 consecutive months of expanding PMI on Manufacturing side, 3 consecutive months of contracting PMI on Services side. Largest decline in Services (44.5) was in domestically-focused Business Services segment.

2/8/2012: Latest Euromoney Country Risk Survey results

Recent Country Risk survey by Euromoney shows some interesting trends relating to the Russian economy. Here are the headlines:

"The five economies of the Brics have seen an aggregate ECR score loss of 6.4 points this year, lowering the average score by 3.1 points to 56.8. South Africa (-2 points), Brazil (-1.9) and India (-1.6) have endured the worst declines in sentiment, resulting from concerns about export market conditions, amid waning demand for commodities and increased domestic security risks. However, all five have seen large declines in their economic assessment scores, as contributors have reassessed their expectations for global growth and have acknowledged the slowdown in China’s breakneck pace of expansion."

Moreover: "Four of the five Brics (Russia the exception) have also endured lower political risk scores – led by India (down 0.9 points) and China (-0.8)."

Summary of scores changes:

Specifically on Russia:

"ECR economists still regard Russia as the weakest of the Brics, ranking 60 in the world, despite the three main ratings agencies placing India below Russia. India might have a lower economic assessment than Russia, but its political and structural risk assessments are more favourable, according to ECR contributors, with particularly large gulfs in the scores for government non-payments/non-repatriation, information access/transparency, institutional risk, the regulatory and policy environment, and demographics – factors seemingly not being reflected in the various credit ratings. This might be due to the comparative security provided by Russia’s status as one of the world’s largest energy producers."

Despite this, current survey shows little deterioration in Russia's risk score with June 2012 risk assessment on par with China:

See more on the survey results here.

Disclosure: I will be joining Euromoney survey panel starting with the next survey.

2/8/2012: A hell of a non-event

After all the hype and the pomp of recent weeks, today's ECB council and Mario Draghi's subsequent pressie were anti-climatic. Nay, they were outright bizarre, given the 'priming' achieved over the last week. The timeline of the whole fiasco is below - for the fun of it taken off twitter (please note: no tweets affiliations provided due to the way the data was extracted, so apologies to all).

The headline conclusion is as follows:

Sig Draghi's 'Big Bang':

1. ECB 'may' address the seniority issue of ECB over private holders of PSI bonds - an issue that should've addressed more than 3 months ago, 
2. ECB 'might' buy some Spanish/Italian bonds but ECB won't tell how much or when, 
3. It is up to 'Governments' to do something about all of this and apply to EFSF, but
4. ECB will now 'plan modalities' like the rest of the EU has been planning over the last 3 years.

Outcomes:

1. Draghi has managed to bid down Italian and Spanish bonds
2. Draghi manages to further undermine his & ECB's credibility
3. The idiots who bought into peripherals on foot of expectation Draghi was about to start buying them based on his July 26th speech should have seen it coming: Draghi: In the speech on July 26th in London, I made no reference to a bond-buying programme

*DJ Draghi: Govt Council May Consider Undertaking Further Non Standard Measures #wsjeuro
*DRAGHI SAYS INVESTOR CONCERNS ON SENIORITY WILL BE ADDRESSED
*DJ Draghi: Will Design Appropriate Modalities for Such Measures Over Coming Weeks #wsjeuro
*DRAGHI SAYS ECB MAY TAKE MEASURES TO ENSURE POLICY TRANSMISSION
*DRAGHI SAYS TENSIONS IN FINANCIAL MARKETS AMONG RISKS
*Markets rally Mario Draghi on comments about eurozone. IBEX and MIB up by around 2%
*Draghi: Governing council may undertake outright open market operations of a size adequate to reach its objective. But no firm commitments
*DJ Stoxx 600 Index Up 1% As Draghi Speaks #wsjeuro
*DJ Draghi: Inflation Likely to Decline Further in 2012, be Below 2% in 2013 #wsjeuro
*So is Draghi strategy to bid down IT+ESP bonds to buy them cheaper?
*Oh, the Italian 10-year yield just tightened several bps
*Draghi talked markets by 5%. Delivered a delay. Huge blow to credibility
*IBEX and MIB rally losing steam as ECB chief Mario Draghi statement continues
*FTSE goes from up 50 to Negative on Draghi NON comments
*DJ Draghi: Sees Significant Progress on Fiscal Consolidation in Recent Yrs #wsjeuro
*DRAGHI SAYS IMPORTANT FOR BANKS TO BOOST THEIR RESILIENCE. Yes. with all those epic earnings
*RT @EKourtali: aaand : Italian, Spanish 10-year yield spreads over German bunds reverse earlier tightening (tradeweb)
*WAAAAAAR RT @djfxtrader: #Germany's Bundesbank to DJ-WSJ: No comment on #ECB Council Decision
*DJ Stoxx 600 Index Slides Into The Red on Draghi Comments; Down 0.2% #wsjeuro
*The Market Rally Has Now Completely Vanished Amid Mario Draghi's Press Conference read.bi/N0Vn3x
*FTSE, DAX, CAC, MIB, IBEX now in negative territory as ECB boss Mario Draghi fails to deliver on eurozone action pledge
*Draghi: we have discussed possible reductions in interest rates, unanimous decision this wasn't the time #wsjeuro
*Press conference Mario Draghi: Introductory statement to the press conference via ECB PR bit.ly/Qzrdon
*Draghi: first thing is that govts have to go to the EFSF. As I've said several times the ECB cannot replace govts #wsjeuro
*LIVE: Draghi implies that seniority and EFSF/ESM measures have to happen before the ECB takes action. read.bi/Ncwtuj
*Draghi: ECB may undertake outright open market intervention of a size adequate to reach its objectives #wsjeuro
*"Many of the details [of seniority and EFSF use] will be worked out by the [ECB]" in the coming weeks. read.bi/NLo06l
*ITA +20bps SPA +10bps since Draghi started
*Draghi: the effort will be focused on the shorter part of the yield curve #wsjeuro
*"This effort is going to be focused on the shorter part of the yield curve...which will introduce discipline on the longer part." -Draghi
*DJ Draghi: This Effort is Very Different from Previous Bond-Buying Program #wsjeuro
*Markets not happy. CAC-40 turned negative having been up 1.2% earlier in #Draghi's press conference. #wsjeuro
*"I'm a little surprised by the amount of attention this received in recent press." -Draghi on saying no to ESM bank license. "Not up to us."
*The current design of the ESM does not allow to be recognized as a suitable counterparty. (for ECB repo) -Draghi
*Oh man the Spanish 10-year did not like that ESM remark. Nor Italy.
*Euro sinking like a stone. Down 200 pips since peak at start of press conference.
*SPANISH TWO-YEAR NOTE YIELD 14 BPS LOWER AT 4.80%
*Euro /Dollar breaks 1.2200
*Meanwhile... Italy Govt Bonds 10 Year Gross Yield 5.934%
*EURO EXTENDS DECLINE AGAINST YEN; WEAKENS 0.5% TO 95.42
*Markit iTraxx Europe already widened 5bps since start of Draghi speech - now at 159.5bps
*Draghi: You shouldn't assume we will or will not sterilize SMP purchases. The committees will have to tell us what is right.
*Draghi: Endorsement to do whatever it takes to preserve euro has been unanimous, but clear Mr Weidmann, BuBa have reservations #wsjeuro
*Spain CDS already 22bps wider at 560bps
*Spain's IBEX35 share index now down by almost 5% after ECB chief Mario Draghi failed to deliver on his eurozone action pledge.
*Italy Govt Bonds 10 Year Gross Yield 6.00%
*FTSE MIB -2.44%
*FTSE MIB -3.00% -- Italy Govt Bonds 10 Year Gross Yield 6.055% -- ITALY 10 - GERMANY 10 SPREAD 473bps
*IT GETS WORSE: US Futures sliding harder after Mario Draghi flop read.bi/NLpsFS
*Draghi: Even if we were ready to act now, there are not grounds to do so bit.ly/QzAPzq
*Italy Govt Bonds 10 Year Gross Yield 6.129%
*Spanish stock market has plunged 600 points in last few minutes, now down 5% pic.twitter.com/JHQZDAtl
*Draghi on whether ECB willing 2 buy private sector assets - "no reason to be specific on what other options are" - eh, left it open?
*DJ Draghi: Statement on Bond Buys Wasn't a Decision, it was Guidance #wsjeuro
*Draghi stresses bond-buying language: "MAY DECIDE" if conditions are met #wsjeuro
*Italy 10-Yr Erases Gains, Yield Rises 23bps to 6.16%
*EMU epitaph: "I want to stress the ECB remains the guardian of price stability and that remains its mandate." - Draghi.
*Bond market to Draghi: If you'd like to buy bonds, we'll make them cheaper for you... bit.ly/QzLfPG
*RT @edwardnh: Draghi has lost all credibility now. The ECB is going to do nothing. Watch yields rise.
*Draghi: it is pointless to go short the Euro. Well, if you went short the euro when Draghi started speaking you are up 200 pips
*Draghi: "It's pointless to go short on the euro because the euro will stay." The first point hardly implies the second.
*Trichet: "Speculating on Greece defaulting is a certain way of losing out" July 27, 2011. And then... bit.ly/NVWP6b
*FTSE MIB -3.17%
... and some more
*Spanish 10s hit 7% bit.ly/QA24Ks
*Priceless! RT @FGoria: S&P: Portugal 'BB/B' Ratings Affirmed; Outlook Remains Negative On Exposure To Spain

2/8/2012: A bit of an Olympic bubble?

Hosting Olympics is considered to be a great boost to the economy and yield long term benefits from infrastructure investments, branding of the host city etc. Right?

Here's a study (link):

"Summer Olympics bring hundreds of thousands of visitors and generate upward of $10 billion in spending for the host city. This large influx of tourism dollars is only part of the overall impact of hosting the Olympic Games. In order to host the visitors and sporting events, cities must make sizable investments in infrastructure such as airports, arenas, and highways. 


Additionally, the publicity and international exposure of a host city may benefit international trade and capital flows. 


Proponents argue that this investment will pay off through increased economic growth, but research confirming these claims is lacking. 


This paper examines whether hosting an Olympiad improves a city's long‐term growth. 


In order to control for the self‐selection of cities that host Olympic Games, this paper matches Olympic host cities with cities that were finalists for the Olympic Games, but were not selected by the International Olympic Committee. A difference‐in‐difference estimator examines post‐Olympic impacts for host cities between 1950 and 2005. 


Regression results provide no long‐term impacts of hosting an Olympics on two measures of population, real Gross Domestic Product per capita and trade openness."

2/8/2012: One hell of a chart!

One hell of an awesome chart, folks:

Clearly shows the strong, sustained break-out in Irish manufacturing PMI which started around April 2012, ending the period of sub-50 average readings between June 2011 and March 2012. And this amidst a massive slowdown in global trade and euro area economies.