24/9/2012: Euro peripherals Building & Construction activity

Here's a chart updating to latest data index of Building & Construction sector activity in the peripheral euro area states:

As inspired by @StephenKinsella: "Ouch!"

24/9/2012: Italy's debt overhang effect

Via @FGoria on twitter, this chart on Italy's potential GDP and output gap:

Shows brilliantly the cost of Italy's public debt overhang as a steadily falling potential GDP growth and sustained structural recession since ca 1990-1992. Better yet, shows that even cheap liquidity in the naughties failed to produce any real effect on the economy.

Now, keep in mind, Italy is suffering solely from the Government debt overhang, with relatively benign debt levels on household and corporate balancesheets, and with relatively functioning banking system.

23/9/2012: Euro area bonds supply Sept-October 2012

5 weeks from September 14th - cumulated gross supply of sovereign bonds of €70.5bn and €57.3bn of redemptions and coupons:

And supply calendar

All courtesy of Morgan Stanley

20/9/2012: Russian stock market performance for September

Danske analysis of emerging markets performance for September - a nice chart:

Spot RUB - Russian markets.

20/9/2012: Is 'Johnny the Foreigner' at fault? Q2 Irish trade results

In the real world, confronted with the unpleasant truth, we usually react with a denial of the facts and a desperate search for someone else, other than ourselves, to blame for the misfortune. Today's QNA data release triggered exactly this basic psychological reaction. With no reason for it, other than 'let's get Johnny the Foreigner out to blame', some of the favorite economists of our Minister for Finance decided that 'Irish economic growth is suffering from the slowdown impacting our main trading partners'.

Right... and Lehmans caused Irish banks collapse and bungalows prices deflation... that sort of malarky.

Now, that is either an uninformed error of judgement, or an outright lie, folks. In reality, exactly the opposite is happening - our external trade is still booming, while our internal, home-made depression is still raging.

I wrote about the domestic activity collapse already earlier (here's the link). Now, let's take a look at the activity arising from the allegedly falling demand from our trade partners.

First in current prices terms:

• Exports of goods & services from Ireland to the rest of the world hit €45.01 bn in Q2 2012, up 6.21% y/y. This marks a slowdown in growth from 7.4% y/y growth in Q1 2012, but nonetheless, in Q1 2012, Irish exports of goods and services hit an absolute record since Q1 2006. I wouldn't be going around saying that a historic record is... err... a drag on our growth.
• Exports of goods alone rose 1.26% y/y in Q2 2012, down on the 4.02% rate of annual growth in Q1 2012, but still posting an absolute record for any quarter since Q1 2006.
• Exports of services rose 11.46% y/y in Q2 2012, faster than already blistering growth of 11.11% y/y in Q1 2012. Again, volume of exports of services hit an absolute record level for any quarter since Q1 2006.

But maybe the 'Johnny the Foreigner' baddy is pushing down Ireland's growth in real terms? Ok, in constant terms:

• Exports of goods & services from ireland rose 2.06% y/y in Q2 2012, posting, yep, you know this much already, an absolute record in level terms for any quarter since Q1 2006.
• Exports of goods did fall off y/y - declining 4.42%. Which amounts to a drop of €973 million which is less than €3bn plus lost to patent cliff. So, err... the demand from US, UK and EA has nothing to do with this, but rather patents expiration in pharma sector drives the decline.
• Meanwhile exports of services grew, in constant prices terms, by a massive 9.05% in Q2 2012 compared to the same period of 2011.

As the result of these gains and also as a function of our own (not US, UK, EA, etc) demand collapse (marked by the decline in imports), our trade balance (the net positive contributor to our GDP and GNP) has actually expanded. 

Irish trade surplus has grown by a massive 18.98% in Q2 2012 in current prices terms and by impressive 14.47% in constant prices terms. Things are actually so good when it comes to 'Johnny the Foreigner Demanding Irish Exports' that our services sector posted an absolute historical record surplus in Q2 2012 of €1,387mln - for only the third time in the series history since Q1 2006. Our total trade balance surplus reached €11.391bn in Q2 2012 - by far the largest surplus reading in any quarter since Q1 2006. This is 14.1% higher than the previous quarterly record attained in Q3 2011.

Here are two charts to summarize trade balance changes:

The problem, of course, that our Green Jersey folks are not too keen on acknowledging is that overall, Johnny The Foreigner thirst for Irish goods and services has preciously little connection to our GDP activity. But that, illustrated below, is a different story.

20/9/2012: 'Flat growth' and the shrinking Irish economy

Ok, folks... the latest batch of news from CSO and the official 'Green Jerseys' reaction to same would have made a fine candiate for a Nobel literature prize, were they published in a single tome with a heading Literature of Absurd on it...

We have our routine 'Housing market has bottomed out' shrills from the property pushers in the media - despite the fact that property prices continue to fall. We also have the metronome-like 'Unemployment has stabilized' tale, a chapter of gargantuan efforts to avoid mentioning the fact that fewer and fewer people actually work in Ireland, earning living and paying taxes.

Today we have a new pearl: 'Irish economy is growing once again, albeit slowly'.

Complete porkies, if you ask me. Here's the plain and simple reality of what's going on:

In constant market prices terms, Irish GDP based on constant factor cost (in other words, the real activity in the economy carried out by MNCs and domestic enterprises, net of taxes, gross of subsidies) grew 2.3% (+€819 mln) q/q in Q2 2012. Alas, as usual, q/q growth is... err... mostly meaningless. Instead, y/y comparative shows this metric shrinking €300mln (-0.8%).

What's the dynamic here? Oh, not good, either. In Q2 2011, y/y real GDP (constant factor basis) grew 3.21% y/y. In this quarter it shrunk 0.8% y/y... a negative growth swing of 4 percentage points!

Now, adding taxes (net of subsidies) to the above figure produces official real GDP (GDP expressed in constant prices terms). This stood at €40.327 billion in Q2 2012 up €744 mln on Q1 2012 (+1.9% q/q) but down 1.1% (-€442mln) y/y. Now, wait, folks... so official GDP is down y/y. Not up.

What's the dynamics of this change? Oh, well, in Q2 2011 official real GDP was up 2.86% on same period in 2010, so Irish economic growth has overall deteriorated in Q2 2012 compared to same period a year ago by a whooping 3.9 percentage points.

Next step is for us to subtract from our real GDP outflows of payments abroad (net of inflows of income from abroad) - the so-called Net Factor Income From the Rest of the World adjustment. Bear with me here. It is important.

In Q2 2012 we, as economy, have managed to send out €7.219 billion in factor payments abroad, net of what we received from abroad. Sounds a lot? Not really - this is down on €8.397bn in Q1 2012 (which added €1,178mln to our GNP) and it is down €1,385 mln on Q2 2011 (which adds same amount to our GNP compared to Q2 2011 levels).

What the above means? Here's the punchline to reality: as the result of €744mln increase in our GDP and a €1,178mln decrease in our payments abroad, our GNP officially expanded by €1.922bn in Q2 2012 q/q. Meanwhile, due to a contraction in real GDP of €442mln offset by reduction in outflows of income abroad of €1,385mln, our GNP rose €943mln (+2.9%) y/y in Q2 2012.

Thus, real economic activity in Ireland fell, y/y in Q2 2012, but because the MNCs have decided to expatriate less income out of Ireland in Q2 2012, our GNP actually rose.

Why would MNCs decide not to expatriate much of profits? For a number of reasons:

1. Lack of capital investment around the world means corporates have no incentive to move profits out of Ireland outside the immediate objective of boosting reported profits at home;
2. Booming equity markets in the US mean that there is no immediate pressure for US MNCs operating here to ship retained profits out of Ireland's tax heaven;
3. Fall-off in pharma exports from Ireland also took a bite out of the retained profits here.

Any of these have any tangible effect on our real economy? Not really. Actually - none whatsoever. 

In real economic terms, Irish economy shrunk in Q2 2012 by 1.1% (real GDP terms) y/y and that is it, folks. 

One more note. In seasonally adjusted, constant prices terms:

• Personal Consumption of Goods & Services has hit absolute record low in Q2 2012 of €19,598mln for any quarter since Q1 2007.
• Net Expenditure by Central and Local Government on Current Goods and Services has hit an absolute low of €5,934mln in Q2 2012 for the entire period since Q1 2007.
• Gross Domestic Fixed Capital Formation has hit a record low of €3,427mln
• Exports of Goods and Services have posted a contraction on Q1 2012 but are up €1 billion on Q2 2011
• Imports of Goods and Services have posted a q/q contraction of €1.7bn and are now at a historical low for any Q2 period of 2007-present period
• Total domestic demand is now at the absolute lowest point for any quarter since Q1 2007 and is down €1.6bn on Q1 2012 and €1.9 billion on Q2 2011.

This is not flat growth, folks. This is shrinking real economy.

Note: I will post updated charts later tonight. Stay tuned.