My article for Canada's Globe & Mail in the Global Exchange section: here.
Monday, December 19, 2011
Sunday, December 18, 2011
18/12/2011: Ballyhea & Charleville Protest Against the Bailouts
This weekend I was honored to be a guest of a group of real patriots of our country - a group of extraordinary people who over 40 weeks, one Sunday after another, take their families and friends into the streets of Ballyhea and Charleville to protest against the injustice of the banks bondholders bailouts.
It is a remarkable group of people - coming from all walks of life, united not by an ideology or by a vested interest, but by the knowledge that what is being done to our country behind the veil of the banking crisis is simply wrong. It is wrong on a multitude of levels - ranging from ethics to politics to economics to social justice. The people behind this protest are also united by their concerns for the future of Ireland, for the rising wave of emigration, for the simple fact that our country capacity to recover from this crisis is being destroyed for the sake of rescuing a handful of institutional bondholders.
I felt truly honored - and there can be no other word to describe it - to have been asked to speak to these courageous people last night, to share a delightful pint and a long conversation with them, and to march alongside them today.
Here are a couple of pictures from the march.
The group run a website listing all bonds coming due for repayment, called bondwatchireland.blogspot.com and a Facebook page for their events (link here). These are, in my view, a must to follow for anyone concerned with what has been happening in Ireland over the last 3 years.
It is a remarkable group of people - coming from all walks of life, united not by an ideology or by a vested interest, but by the knowledge that what is being done to our country behind the veil of the banking crisis is simply wrong. It is wrong on a multitude of levels - ranging from ethics to politics to economics to social justice. The people behind this protest are also united by their concerns for the future of Ireland, for the rising wave of emigration, for the simple fact that our country capacity to recover from this crisis is being destroyed for the sake of rescuing a handful of institutional bondholders.
I felt truly honored - and there can be no other word to describe it - to have been asked to speak to these courageous people last night, to share a delightful pint and a long conversation with them, and to march alongside them today.
Here are a couple of pictures from the march.
The group run a website listing all bonds coming due for repayment, called bondwatchireland.blogspot.com and a Facebook page for their events (link here). These are, in my view, a must to follow for anyone concerned with what has been happening in Ireland over the last 3 years.
Saturday, December 17, 2011
17/12/2011: The Plan and a Pie
Yes, yes, folks, I know, we have a plan. It's the plan to pay our debts (well, at least Government debts) from our 'exports-led growth'. We even had foreign experts telling us that we can do it - coming down from the Continent with lectures full of graphs and sums.
In reality, of course, the plan is a porky. We have booming trade in goods which is slowing down on growth rates, but remains pretty healthy. We have trade in services - that is not reported by the CSO in monthly series. That is in a deficit. Then there are other so-called 'invisibles' that are negative as well (see below). On the net, in 2010, our 'external surplus' measured by trade alone, including the invisibles (current account) was just €761mln. But then we have to add capital account - the inflows and outflows of capital - and that gives us the full external surplus - the Balance of payments bit - of a whooping debt-busting... €88 million.
Let's run through those figures... shall we?
Merchandise trade balance in Q3 2011 stood at €9,862mln or 6.9% ahead of Q2. Year on year, however, trade in goods shrunk 1.02% and for the first 9 months of 2011, trade balance in goods was 2.78% behind the same period of 2010. In other words, not a spectacular development so far in our strongest exporting sector. Certainly not what we would expect if we were to reach that 4.3-5.8 targets various Government documents set out for exports growth in 2011.
Services trade balance shows a deficit as of Q3 2011 at €379mln. The encouraging thing is that this is falling, and falling rapidly. But income flows abroad and current transfers abroad are running high at €8,170mln and €463mln respectively. This means total invisibles balance is in a deep deficit of €9,012mln in Q3 2011, improved by €700 mln on Q2 2011, but worse than same period 2010 by €227mln.
Adding up trade balance in goods and invisibles yields current account surplus of €850mln in Q3 2011. But for the 9 months of 2011, cumulated current account stands in a deficit of €669mln, not a surplus. And compared to same period 2010 this deficit in an improvement of €125mln.
Capital account for Ireland is in a small deficit in Q3 2011 of €12mln, slightly deeper than €8mln in Q2 2011, but worse for 9 months through September 2011 (at €6mln deficit) than for the same period a year ago (surplus of €23mln).
Adding current and capital accounts yields balance of payments for Ireland - the full external balance - which in Q3 2011 stood at €838mln surplus. In 9 months through September 2011, the balance of payments was in cumulative deficit of €675mln - an improvement on the same period of 2010 when the balance of payments was in a deficit of €771mln.
Charts below illustrate the trends on the annual basis, providing forecast for 2011 based on data through September.
So let's ask that uncomfortable question: Can external surpluses get us out of the debt jail? table below sums up cumulated external accounts balances for 1998-2011(forecast).
Yep, that's right. Suppose we want to pay down original €100bn of government debt out of the external surpluses consistent with the booming exports trade of 2009-2011 and we take the best quarterly performance for each metric of the external balance. Suppose we assume that debt is financed at 3.5% perpetually. How long will it take Ireland to half its current debt exposure? Roughly speaking - 64 years based on trade balance (current account surpluses) and 85 years based on full balance of payments.
And the above does not factor in any current or future slowdowns in trade etc. Just based on our best performance, with exports at boom levels and imports permanently shrunk, we still cannot count on that magic bullet of 'external trade will save us' from the debt overhang.
So that Plan for External Surpluses as a vehicle out of our debt jail... well it's sort of:
In reality, of course, the plan is a porky. We have booming trade in goods which is slowing down on growth rates, but remains pretty healthy. We have trade in services - that is not reported by the CSO in monthly series. That is in a deficit. Then there are other so-called 'invisibles' that are negative as well (see below). On the net, in 2010, our 'external surplus' measured by trade alone, including the invisibles (current account) was just €761mln. But then we have to add capital account - the inflows and outflows of capital - and that gives us the full external surplus - the Balance of payments bit - of a whooping debt-busting... €88 million.
Let's run through those figures... shall we?
Merchandise trade balance in Q3 2011 stood at €9,862mln or 6.9% ahead of Q2. Year on year, however, trade in goods shrunk 1.02% and for the first 9 months of 2011, trade balance in goods was 2.78% behind the same period of 2010. In other words, not a spectacular development so far in our strongest exporting sector. Certainly not what we would expect if we were to reach that 4.3-5.8 targets various Government documents set out for exports growth in 2011.
Services trade balance shows a deficit as of Q3 2011 at €379mln. The encouraging thing is that this is falling, and falling rapidly. But income flows abroad and current transfers abroad are running high at €8,170mln and €463mln respectively. This means total invisibles balance is in a deep deficit of €9,012mln in Q3 2011, improved by €700 mln on Q2 2011, but worse than same period 2010 by €227mln.
Adding up trade balance in goods and invisibles yields current account surplus of €850mln in Q3 2011. But for the 9 months of 2011, cumulated current account stands in a deficit of €669mln, not a surplus. And compared to same period 2010 this deficit in an improvement of €125mln.
Capital account for Ireland is in a small deficit in Q3 2011 of €12mln, slightly deeper than €8mln in Q2 2011, but worse for 9 months through September 2011 (at €6mln deficit) than for the same period a year ago (surplus of €23mln).
Adding current and capital accounts yields balance of payments for Ireland - the full external balance - which in Q3 2011 stood at €838mln surplus. In 9 months through September 2011, the balance of payments was in cumulative deficit of €675mln - an improvement on the same period of 2010 when the balance of payments was in a deficit of €771mln.
Charts below illustrate the trends on the annual basis, providing forecast for 2011 based on data through September.
So let's ask that uncomfortable question: Can external surpluses get us out of the debt jail? table below sums up cumulated external accounts balances for 1998-2011(forecast).
Yep, that's right. Suppose we want to pay down original €100bn of government debt out of the external surpluses consistent with the booming exports trade of 2009-2011 and we take the best quarterly performance for each metric of the external balance. Suppose we assume that debt is financed at 3.5% perpetually. How long will it take Ireland to half its current debt exposure? Roughly speaking - 64 years based on trade balance (current account surpluses) and 85 years based on full balance of payments.
And the above does not factor in any current or future slowdowns in trade etc. Just based on our best performance, with exports at boom levels and imports permanently shrunk, we still cannot count on that magic bullet of 'external trade will save us' from the debt overhang.
So that Plan for External Surpluses as a vehicle out of our debt jail... well it's sort of:
Friday, December 16, 2011
16/12/2011: Agricultural Output in Ireland 2011
Advanced estimates for production and value added in Agriculture for Ireland is out for 2011 and it makes for some interesting reading. The headline numbers are pretty exciting:
- Goods output rose from €4,7524mln in 2009 to €5,329mln (+12.8% yoy) in 2010. And it is now expected to increase to €6,190mln (+16.2%) yoy in 2011.
- Net subsidies (net of all taxes collected) fell from €1,849mln in 2009 to €1,688mln in 2010, and now expected to rise again to €1,942mln in 2011.
- Overall, operating surplus - goods output value less intermediate inputs consumption and less subsidies - has risen year on year in 2010: from €1,544mln in 2009 to €1,967mln in 2010 (+27.4%) and is expected to rise 33.4% to €2,625mln in 2011.
Strong results, but over relatively tiny numbers. When you hear that the agriculture sector is worth €6.2 billion to the Irish economy, do keep in mind that in reality it is worth just €2.6 billion. The rest of the 'worth' is more like rich uncle buying you a dinner and sending you a subsidy cheque...
And for being the 'agriculture island' - well, our operating surplus in 2010 in agriculture stood as 12th highest in absolute terms in the EU27, same as in 2009. This is against the backdrop of Irish economy being 15th largest in EU27 in the same period. So here's the neighborhood we are in, when it comes to agriculture's contribution to our economy:
Wedged between such 'knowledge" economies with high value added as other agricultural states of Cyprus, Lithuania, Estonia, Hungary... Ireland is the only country of the advanced EU27 states that finds itself in the group of countries with agriculture's share of GDP above 1%. In fact, our share in 2010 was 1.26%. The closest to us advance EU27 member state - Finland, had the same share of 0.88%.
The fact is, you can't build a modern economy on agriculture. A healthy agricultural sector with high value added activities and high levels of specialization is something to be proud of. A generally larger agricultural sector as a share of overall economy, in contrast, is a feature of underdeveloped economies.
16/12/2011: QNA for Q3 2011: 'exports-led recovery' myth
In the first post on Q3 Quarterly National Accounts, we looked at the data on real rates of growth in the Irish economy based on sectoral decomposition (linked here). Now, let's take a look at the expenditure-based data. Please keep in mind - Q3 2011 was the record-busting quarter in terms of exports growth for Ireland, with the latest data pointing to falling growth rates in Irish external trade for Q4 2011 (see here). In addition, keep in mind that unlike the DofF that projects Irish GDP growth to be 1.3-1.6% in 2012, most of the euro zone is factoring in contractions for H1 2012 (see details here).
So down to data now.
In nominal terms,
In current market prices, value of profits expatriated abroad net of profits inflowing from abroad has risen €189mln (+2.4%) qoq and is up €1,076mln (+15.5%) yoy.
As the result, GNP is now down €612mln (-1.9%) qoq and down €2,063mln (-6.3%) yoy. GNP in current market prices is down €9,092mln or 22.8% on Q3 2007.
Personal consumption in nominal terms now stands close to the level of Q3-Q4 2005. Fixed capital formation is at the level roughly 1/3 of the Q1 2005.
Things are pretty dire in constant market prices terms as well:
GDP at constant market prices is now down €836mln qoq in Q3 2011 (-2.0%) and down €57mln (-0.1%) yoy. Compared to Q3 2007, GDP is down €3,318mln (-7.6%) in constant market prices.
Value of profits expatriated abroad net of profits inflowing from abroad has fallen €262mln (-3.1%) qoq but is up €1,347mln (+19.8%) yoy.
As the result, real GNP is now down €574mln (-1.8%) qoq and down €1,404mln (-4.2%) yoy. GNP in current market prices is down €5,398mln or 14.4% on Q3 2007.
So once again, that 'exports-led recovery' is, predictably not enough to keep economy above the waterline. And this is the case for Q3 2011, when "net exports (exports minus imports) grew by
So down to data now.
In nominal terms,
- Personal consumption continued its precipitous fall in Q3 2011, declining €291mln (-1.4%) qoq and €283mln (-1.4%) yoy. Relative to Q3 2007, personal consumption is now down €3,085mln or 13.3%.
- Net expenditure by central and local government, is down €61mln (-1.0%) qoq and €110mln (-1.7%) yoy. Compared to Q3 2007, net government spending is down 12.1% or €869mln.
- Exports of goods and services are up €373mln (+0.9%) qoq and €1,025mln (+2.5%) yoy. Exports are also up on Q3 2007 by some €3,849mln (+10.2%)
- Imports of goods and services are down €192mln (-0.6%) qoq but up €1,033mln (+3.3%) yoy.
In current market prices, value of profits expatriated abroad net of profits inflowing from abroad has risen €189mln (+2.4%) qoq and is up €1,076mln (+15.5%) yoy.
As the result, GNP is now down €612mln (-1.9%) qoq and down €2,063mln (-6.3%) yoy. GNP in current market prices is down €9,092mln or 22.8% on Q3 2007.
Personal consumption in nominal terms now stands close to the level of Q3-Q4 2005. Fixed capital formation is at the level roughly 1/3 of the Q1 2005.
Things are pretty dire in constant market prices terms as well:
- Personal consumption fell €182mln (-0.9%) qoq and €822mln (-3.9%) yoy. Relative to Q3 2007, personal consumption is now down €2,744mln or 12.1%.
- Net expenditure by central and local government, is down €88mln (-1.4%) qoq and €259mln (-3.9%) yoy. Compared to Q3 2007, net government spending is down 13.9% or €1,035mln.
- Gross domestic capital formation also continued falling in Q3 2011, with qoq decline of €1,234mln (-27.1%) and yoy fall of €955mln (-22.2%). Relative to pre-crisis level in Q3 2007, Q3 2011 investment in this economy came in at €5,754mln less (a decline of 63.2%).
- Value of stocks of goods and services has contracted €173mln in Q3 2011 qoq (-26.7%).
- Exports of goods and services are up €786mln (-1.9%) qoq and €947mln (+2.4%) yoy. Exports are also up on Q3 2007 by some €2,650mln (+7.0%)
- Imports of goods and services are down €1,865mln (+5.9%) qoq but up €997mln (+3.3%) yoy.
GDP at constant market prices is now down €836mln qoq in Q3 2011 (-2.0%) and down €57mln (-0.1%) yoy. Compared to Q3 2007, GDP is down €3,318mln (-7.6%) in constant market prices.
Value of profits expatriated abroad net of profits inflowing from abroad has fallen €262mln (-3.1%) qoq but is up €1,347mln (+19.8%) yoy.
As the result, real GNP is now down €574mln (-1.8%) qoq and down €1,404mln (-4.2%) yoy. GNP in current market prices is down €5,398mln or 14.4% on Q3 2007.
So once again, that 'exports-led recovery' is, predictably not enough to keep economy above the waterline. And this is the case for Q3 2011, when "net exports (exports minus imports) grew by
21.8% at constant 2009 prices compared with the same quarter of last year." Record growth in exports before the slowdown hit in Q4 2011, and still recession in the overall economy.
16/12/2011: QNA for Q3 2011 - that R-thing again
Initial estimates for Q3 2011 released by CSO today show that seasonally adjusted, GDP fell 1.9% qoq and GNP declined 2.2% qoq. Year on year, GDP is down 0.1% and GNP is down a whopping 4.2%.
In constant prices terms, real GDP fell €836mln qoq in Q3 2011 (-2.0%) and €57mln yoy (-0.1%). Relative to the peak in 2007, real GDP is now down €3,318mln or -7.6%. In constant prices terms, real GNP is now down €574mln (-1.8%) qoq and €1,404mln (-4.2%) yoy. Compared to peak 2007, GNP is down €5,398mln (-14.4%).
Output in Agriculture, Forestry and Fishing has fallen (in constant market prices and seasonally adjusted) €348mln (-30.2%) qoq, but is up 15% or €105mln in yoy terms. Relative to pre-crisis 2007 levels, sector output is up €104mln (+14.8%).
Industrial production declined €1,036mln (-8.7%) qoq and is up €419mln (+4%) yoy, while registering an increase of €227mln (+2.1%) on Q3 2007. These figures combine booming exporting sectors and collapsing building and construction sector. In building & construction, output grew €16mln (+1.9%) qoq, but is down €224mln (-20.4%) yoy and is down €1,423mln (-62%) on Q3 2007.
Distribution, transport & communications sector - a brighter spot last quarter, shrunk €129mln (-2.4%) qoq and is down €¡37mln (-2.6%) yoy. Compared to Q3 2007, the sector is down €1,064mln (-17.1%).
Other services, including rent are up €225mln (+1.3%) qoq, but down €531mln (-3.0%) yoy. The sector is down €1,889mln (-10%) on Q3 2007.
Chart below shows annualized returns by sector using data for the 11 months through November 2011 annualized using historical trends:
And the chart below shows in more detail the plight of Building & Construction sector:
Overall forecast for real GDP and GNP for 2011 based on data through November 2011 is not encouraging:
In the chart above, analysis of the latests data and historical trends suggests that 2011 GDP can come in at 0.7% growth rate, with GNP declining by -0.7% at the same time.
Net factor income from abroad - aka MNCs profits expatriations - declined in Q3 2011 to €8,136mln - or €262mln less than in Q2 2011. MNC's profits expatriation is now running €1,347mln ahead of Q3 2010 and €2,197mln ahead of Q3 2007 as record exports are fueling transfer pricing. So that 'exports-led recovery' thing... oh, it's dead in the water, folks. As predicted, record exports are not enough to sustain the entire economy. But more on this in a follow up post with detailed analysis of expenditure-based QNA.
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