13/1/2013: Decoupling: US v Euro Area 2011-2060

Another interesting chart that speaks volumes about the topic I have been highlighting now since ca 2002-2003. The topic is the concept of 'decoupling' from growth momentum. Back prior to the crisis, European media loved the theory of China (or Emerging Economies, etc) displacing the US as the core drivers of global growth and, ultimately, as the centre of global economic power. At the same time, Brussels 'leaders' were keen stressing the theory of the European Century - the 21st century as the period of revival of Europe.

My reply to that was, and still is, that while the US share of global output is shrinking against rising EMs and BRICS share (S for South Africa) and while this trend is likely to continue into the future, it is the EU (more significantly, the euro area) that is dropping out of the global story by outpacing the decline of the US relative predominance. Much of this born out in the IMF projections. And here is a nice and concise OECD graphic for that:

So between 2011 and 2060 (yes, I know - time horizon very vast and thus forecasts very tentative), the US share of global GDP is expected to drop significantly: from 23% to 16% - a decline of under 38.5%. In the same period, euro area share is expected to shrink from 17% to 9% - a decline of just under 47.1%. Of course, Japan's importance to the global economy is likely to fall even more - by over 57.1%.

All in, the 'decoupling' (and I don't really like this term, because it implies removal of the OECD economies activity out of global activity, which is not happening) will take US, EA17 and Japan share of global output from 47% in 2011 to 28% in 2060 according to the OECD projections. 42.1% of this decline will be accounted for by the EA17, 36.8% by the US and 21.1% by Japan.

I don't think the 21st Century is shaping up to be the Age of the Euro...

13/1/2013: OECD charts the Great Recession

A nice chart from the OECD's latest Economic Outlook ppt presentation comparing recoveries in previous recessions with the current one:

Notice that the 1970s recession looks more like a U-shaped in terms of recovery trajectory, while the 1980s recession shows long-lasting rotated J-shape. Current one is at L-shape so far. Also, note that the 1980s recession did not recover the pre-recession peak activity levels before the subsequent recession hit.

Now, do give some contemplation to the current recession, together with the OECD forecasts for two scenarios: baseline (main forecast) and the scenario of continued euro area crisis:

This pretty well shows the tear-away speed of the US recovery expected in 2013-2014, compared to the euro area and Japan, as well as to the OECD overall. It also shows the degree of the US economy (forecast) resilience vis the euro area crisis.

12/1/2013: House Prices Valuations via The Economist

An interesting table from The Economist (link) on house prices in select countries (H/T to @greentak ):

Note, obviously, Ireland. Not the bits on changes in prices, but the -1% under-valuation on rents side and -5% under-valuation on disposable income side. This is interesting because, in my opinion, the prices currently are in a 'bounce-along-the-bottom' pattern.

Here are some points of thought:

• Usually, house prices over-correct, overshooting the longer-term equilibrium levels. This implies that if we are currently close to the bottoming-out of prices (I am not saying we are), then there is a fundamentals-driven upside of small proportion. 1-5% might be a reasonable range.
• Another feature is the gap in 'under-valuation' between rents-implied and incomes-implied. We have no idea what disposable income The Economist has in mind (GNI? earnings? etc - and these are non-trivial), but we do know they have 'per person' metric. Per person of working age? or children counted in as well? Setting these and other issues aside, the gap between the two is, roughly, reflected in probably two main factors: supply of rentable accommodation relative to demand (which is keeping rents lower, relative to income) and distribution of income (with more potential renters in lower income brackets, while more existent homeowners in higher, implying that renters can't convert into purchasers, while feasible purchasers have no need to go into the market). In other words, the gap is very wide and is significant, in my view, of the tenuous nature of income-based price assessments.
• The 1-5% undervaluation today, on the slope as steep (-49.4% since 2007) is highly unlikely to be the range of reasonable overshooting of the longer-term prices. In other words, if past experiences are a guide, Irish house prices can easily fall another 10% or more even if we consider the above table-listed drivers alone.

Now, as per arguments that these under-valuations are going to drive the market up, just look at Germany. According to The Economist, German house prices have an upside of 17% both on rental valuations and income valuations bases. Good luck, if you expect that to materialise. 

In short, I am not so sure the above table is meaningful in any sense. Nice to see that someone out there thinks Irish housing markets are undervalued, but I am still to be convinced that this is (a) real, and (b) likely to lead to sustained values increases. 

If you are keen to look at some interactive charts on the above data, go here.

And if you are keen on checking out one crazy property market... look here:

12/1/2013: Banks lending to private sector - Nov 2012

For much of the discussion about "Ireland is not [insert a euro 'peripheral' country name here]", here are comparatives in terms of banks lending to private sector in November. Predictably and as mentioned earlier on the blog, our lending is still contracting. On the 'positive' side, it is contracting less in Greece, Spain and Portugal for non-financial corporates, and less than in Greece, but more than in Spain and Portugal for households.

For the sake of my own physical and mental health, I am not going to give you a judgement of what this means. Draw your own conclusions.

Note: I just realised I forgot to link to the source on this.

11/1/2013: Greek Tax Revenues: Bad to Worse aka 2009-2012

And if scary charts from Ireland are not enough for you when it comes to Friday Horror Pics diet, here's one from Greece, via Fabrizio Goria ( @FGoria ):

So things went from poor in 2009 to bad in 2012... but, hey, the worst is over for the euro...

10/1/2013: Heritage Foundation IEF 2013: Ireland

Heritage Foundation issued their annual Index of Economic Freedom.

Here is summary of results for Ireland and you can explore data and comparatives yourself here.

And some charts for regional peer group leaders (Switzerland and Ireland):

 And overall score comparatives:

As usual, my methodological criticism of this analysis is that it relies on GDP, not GNP, which means we get artificially inflated readings on all variables involving National Income. The analysis also omits consideration of indirect taxation burden.

Much of the weakness in individual methodologies can be glimpsed by using heat maps (here) which throw some bizarre results. But do have fun and explore...