2/9/2013: Irish Manufacturing PMI: August 2013

Markit/Investec Irish Manufacturing PMI out for August today. As usual - no data on sub-indices, no statistical analysis released.

Headline reading improved to 52.0 in August, up on 51.0 in July, marking the highest reading since November 2012 when it stood at 52.4 and the third highest reading in 12 months. Release from Markit is here. My analysis as follows:

• 1.0 points gain on July is a decent number. We are now into third consecutive month of nominal seasonally-adjusted readings above 50.0. All of these are good signs.
• Another good sign: 12mo MA is now at 50.8 and 3mo MA is at 51.1. This implies that 3mo MA is ahead significantly over 48.8 reading for 3mo through May 2013. However, on a negative side, 3mo MA through August 2013 is down on 52.6 recorded for the 3mo through August 2012, although it is ahead of 3mo MA for the same period in 2011, and down on same period average for 2010.
• Cautionary signs: current reading is still below statistically significant levels (ca 52.2), although we are in a Laplace distribution (as I noted earlier, based on higher moments). Last time the index was reading statistically above 50.0 was in November 2012.
• Another note of caution: Q3 2013 to-date averages at 51.5 - nice number, but recall that in a contractionary Q1 2013, PMIs averaged above 50.1. Nonetheless, good news - the index for Q3 2013 to-date is above both Q1 and Q2 readings. 

Trends illustrated:

Note strong departure from 6mo MA in the chart above, which is encouraging; and in the chart below, note that we have finally reached above the crisis-period average for the index.

Another good news bit is that we have moved closer to confirming the index breakout from the downward trend that run from July 2012 through June 2013. One-two months more of this performance and we can be moving onto a new trend:

Summary: overall, decent performance by manufacturing PMI in August. 

I cannot confirm any of the statements made by Markit/Investec, and note: I have not seen Investec usual longer release so far. However, per Markit, all three main sub-sectors have posted increases in output in August, and "new orders rose for the second successive month, and at a solid pace that was the strongest since July 2012". No idea where actual indices readings are at. "Meanwhile, employment continued to rise, extending the current sequence of job creation to three months. However, the pace of increase slowed over the month." Again, no idea as per actual readings.

2/8/2013: Irish Manufacturing PMI: July 2013

Manufacturing PMI for Ireland was out yesterday. And as usual, it was worth waiting and giving the Irish media time to get through their circus of 'analysis'. The excitement of 'growth' predictions aside, here's the raw truth about the numbers (please, keep in mind that shambolic data coverage by Markit press-release is no longer conducive to any serious analysis of the underlying components of the PMIs). Note: PMI for Ireland are released by Investec and Markit.

All we have is the headline number. On the surface, headline Manufacturing PMI moved from 50.3 in June to 51.0 in July. Both numbers are above 50.0 and thus suggest expansion. This marks two consecutive months of growth.

However, there are some serious problems with the above. Read on:
-- At 51.0, July PMI is barely above 12 mo average of 50.7.
-- 3mo average through July is at 50.3, ahead of 49.4 3mo average through April 2013 - which is good news.
-- In July 2012, PMI was at 53.9 which was statistically significantly above 50.0 (in other words, statistically we did have growth in July 2012, which turned out to be pretty disastrous year for manufacturing and industry as we know). And in July 2013 at 51.0 there is no statistically significant difference in current PMI reading from 50.0, which means - statistically-speaking - we do not have growth.
-- Current 3mo MA at 50.3 is not different from 50.0 statistically
-- Current 3mo MA is below that in 2012 (52.7), ahead of that in 2011 (49.9) and below that for 2010 (52.4) - which is not exactly confidence-inspiring, right?
-- M/m (recall, these are seasonally-adjusted numbers) there was a rise in PMI of 0.7 (slightly better than m/m rise of 0.6 in June 2013). Alas, this monthly rise was also statistically indifferent from zero.

Here are two charts that illustrate the above points.

In short - good news is that PMI is reading above 50 and strengthened in July compared to June. Bad news is that statistically-speaking, neither the reading levels (in both June and July), nor increases m/m (in both June or July) are significant. Which means that we simply cannot will away the caution in reading the PMI numbers this time around.

7/72013: Irish Manufacturing & Services PMI: June 2013

In the previous post I covered in detail the dynamics of the Services PMI (here) and few posts back, I covered Manufacturing PMIs (here). Now, lets take a look at both together.

Chart above shows the deviations of both PMIs from 50.0, with pre-crisis and post-crisis averages.
The relative weakness in Manufacturing performance, from the end of Q2 2011 through current is pretty much apparent. Both, manufacturing and services PMIs signaled much stronger growth conditions prior to the crisis, than since the beginning of 2010.

The most significant decline took place in Services, with the pre-crisis average deviation from 50.0 at 7.6 falling to 1.9 average deviation in post-January 2010 period. With STDEV at 6.5 since 2008 (7.4 prior historical), and with skew at -0.7 and kurtosis at 0.73, we are nowhere near average deviation being statistically significantly different from zero since the onset of 'recovery'.

Manufacturing decline has been more modest, given weak rates of growth in pre-crisis period. The average rate of pre-crisis deviation from 50 was 2.6 and that well to 1.1. With historical STDEV of 4.2 and STDEV since 2008 at 5.2, skew at -1.6 and kurtosis of 3.24, this is again indistinguishable from zero growth conditions.

On slightly better side of things and along shorter-run dimension, 3mo MAs are both above zero, but, once again, none are statistically significantly different from zero.

There is a strong, but non-linear relationship between Manufacturing and Services PMIs at levels, and it shows that year on year, relative gains in Manufacturing over 2011-2012 got erased over 2012-2013 and were replaced by relative gains in Services.

Irish PMIs have, however, very tenuous link to actual economic growth. Here are two charts showing this week relationship for log-log growth terms, but exactly the same picture is confirmed by taking simple level deviations in PMIs from 50, as well as for linear and cubic relationships (for robustness):

It is quite telling that Services PMIs have much weaker explanatory power for GDP and GNP growth than Manufacturing PMIs, confirming that Irish services, dominated by ICT and IFSC tax-optimising MNCs are not as relevant to Irish economy as manufacturing sectors.

Another telling thing is that both for Services and Manufacturing, the sectors activity as measured by PMIs has stronger relationship with GDP than GNP - which is also predictable, once you consider the PMIs heavy slant toward MNCs.


Note: raw data on PMIs levels is taken from Markit-Investec releases, with all analysis above, as well as deviations from 50 and all other transformations, including quarterly data computations, undertaken by myself. These transformations and analysis are intellectual property of my own and should not be cited without appropriate attribution.

28/6/2013: Expenditure Components of GDP: Q1 2013

Having looked at the recession/expansion dynamics in Irish economy on foot of Q1 2013 figures (here),  the dynamics in GDP and GNP in Ireland at the aggregate levels (here), and the mythology of the 'exports-led recovery' (here), let's round up the Q1 2013 QNA cover with a look at the expenditure-lined components of the GNP and GDP.

Below we look at the Seasonally-adjusted Current Market Prices data.

Personal Expenditure on Consumption Goods and Services fell 2.21% in Q1 2013 q/q and was up 0.01% y/y. This compares against much more benign drop of -0.07% q/q in Q4 2012 and a 1.15% rise y/y. Since Q1 2011, when the Coalition came to power, Personal Expenditure is down 1.55%. In terms of q/q changes, Q1 2013 marked second consecutive quarter of declines.

Net Government Expenditure on Current Goods and Services declined 0.1% q/q in Q1 2013 and was down 2.56% y/y. This marks moderation in declines recorded in Q4 2012 when q/q decline stood at -1.90% and y/y decline was running at -2.88%. Net Government Expenditure decline was the shallowest contributor to voerall economic contraction recorded in Q1 2013. Compared to Q1 2011, Net Government Expenditure on Current Goods & Services was down 3.98% in Q1 2013. In terms of q/q changes, Q1 2013 marked second consecutive quarter of declines.

Gross Fixed Capital Formation - the most devastated expenditure component of GNP to-date has fallen massive 7.32% in Q1 2013 in q/q terms and was down whooping 18.74% in y/y terms. This shows dramatic acceleration in decline from -2.16% drop in q/q terms in Q4 2012 and the reversal of the y/y rise of +4.31% recorded in Q4 2012. Relative to Q1 2011, Gross Fixed Capital Formation was down 14.25% in Q1 2013. In q/q terms, Q1 2013 marked second consecutive quarter of declines.

Exports excluding factor income shrunk 0.79% in Q4 2012 on q/q basis and there was 4.93% growth in y/y terms. This was then. In Q1 2013 exports of goods and services fell 4.59% q/q and were down 3.13% y/y. Relative to Q1 2011 exports of goods and services net of factor income payments were up 2.22% in Q1 2013, but we also marked two consecutive quarters of contraction here.

Imports of goods and services, net of factor income payments were down 2.12% q/q in Q1 2013 and -3.13% y/y. This marks significant shift 'South' in the series compared to Q4 2012 when imports shrunk 1.05% q/q and were up 4.57% in y/y terms. Imports are running -0.05% down on Q1 2011 and Q1 2013 marks the second consecutive quarter of q/q declines.

GDP at curent prices, seasonally adjusted fell 0.6% q/q in Q4 2012 and there was annual growth of 0.38%. In Q1 2013, GDP fell 2.16% q/q and there was annual decline of 2.09%. This marks third consecutive quarter of decline in GDP and thus officially, return of the recession is dated to Q4 2012. The average rate of recessionary decline in GDP in the current episode is so far -1.06% per quarter. This is shallower than the previous recessionary episode (Q4 2008-Q4 2009) when GDP contractions averaged 2.76% per quarter. Compared to Q1 2011, Q1 2013 GDP at current market prices stood at -1.04%, or put differently, gross domestic product in Ireland in Q1 2013 stood below the levels attained in Q1 2011 when the current Government came to power.

Net factor income from the rest of the world declined in both Q4 and Q1, with decline accelerating in Q1 2013 to 19.21% q/q from 2.92% in Q4 2012. As the result of this, GNP moved up, in the opposite direction of the GDP.

GNP at current market prices grew 0.68% q/q in Q1 2013, down on 1.18% expansion recored in Q4 2012. On y/y basis, GNP grew 4.12% in Q4 2012 and by 4.26% in Q1 2013. Compared to Q1 2011, GNP is now up 2.46%.

Both Final Domestic Demand and Total Domestic Demand posted second consecutive quarter of q/q contraction in Q1 2013.

To summarise, not a single line of expenditure posted an increase in the Q1 2013 in terms of q/q changes once seasonal adjustments are taken into the account. In other words, the sole positive improvement in the numbers - relating to GNP - was driven exclusively by reduced outflow of funds from MNCs.

Worse, not a single line in the determination of the GDP in Ireland was up in q/q terms in any quarter since the end of Q3 2012. We had, put differently, 6 months of across the board contractions in the economy, when we consider expenditure-based definition of GDP.

28/6/2013: Exports-led recovery: Q1 2013

I covered the headline numbers and trends for the GDP and GNP in previous two posts: here and here. Now, onto some more detailed analysis.

Remember, from the very beginning of the crisis, Irish and Troika leaders have been incessantly talking about the 'exports-led recovery'. Position on this blog concerning this thesis consistently remained that:

1. Exports growth is great, but
2. Exports growth is unlikely to be sufficient to lift the entire economy, and
3. Exports growth projections were unrealistic, while
4. Exports re-orientation toward services, away from goods was less conducive to delivering real growth in the economy.

Q1 2013 data continues to confirm my analysis.

In Q1 2013, based on real valuations (expressed in constant market prices),

• Exports of Goods & Services shrunk 6.47% q/q and fell 4.09% y/y. This compares to +1.19% q/q growth in Q4 2012 and +1.28% expansion y/y. Compared to Q1 2011, when the current coalition took over the reigns in the Leinster House, total exports of goods and services are down 0.88% in real, inflation-adjusted terms. Troika sustainability projections envisioned growth of over 6% over the same period of time.
• Imports of Goods and Services showed pretty much the same dynamics as exports in both Q4 2012 and Q1 2013, but owing to sharper contractions in 2011-2012 these are now down 4.34% compared to Q1 2011.
• Exports of Goods fell in Q1 2013 by 3.83% q/q and 9.37% y/y, while there were declines of 2.68% q/q and 2.33% y/y in Q4 2012.
• Exports of Services were down 8.75% q/q but up 1.27% y/y in Q1 2013, and these were up 4.77% q/q and 4.63% y/y in Q4 2012.

• Trade Balance in Goods and Services fell 4.96% q/q and was down 3.63% y/y in Q1 2013, with Q4 2012 respective changes at -15.91% q/q and +0.98% y/y. Compared to Q1 2011, trade balance is up 15.91%
• Trade Balance in Goods was down 6.63% q/q in Q4 2012 and this deteriorated to -10.73% growth in Q1 2013. Y/y, trade balance in goods contracted 0.05% in Q4 2012 and shrunk 10.59% in Q1 2013. On Q1 2011, trade balance in goods is down 14.04%.
• Trade Balance in Services fell from EUR1,130mln in Q3 2012 to EUR132mln in Q4 2012 before improving to EUR601mln in Q1 2013. In Q1 2012 the balance stood at EUR28 million.

28/6/2013: Underlying dynamics in Irish GDP & GNP: Q1 2013

Q1 2013 National Accounts do not make for a pleasant reading. The implications from the business cycle perspective are pretty clear - we are in a continued (3rd quarter in a row) recession, which constitutes the fourth 'dip' since the onset of the Great Recession. The post summarising that evidence is linked here.

In this post, let's take a look at the GDP and GNP in constant prices.

On seasonally-adjusted basis (removing seasonal volatility),

• GDP at constant factor cost (national output ex-taxes and subsidies) fell 0.65% q/q in Q1 2013, having contracted 0.12% q/q in previous quarter. On an annual basis, the GDP at factor cost declined 1.32% in Q1 2013, accelerating annual rate of decline relative to Q4 2012 when it fell 1.04%.
• Compared to Q1 2011, when the current Government came to power, GDP at factor cost was 0.72% higher in Q1 2013.
• Taxes rose 1.04% q/q in Q1 2013, after having posted a decline of 0.64% in Q4 2012. On an annual basis, taxes were down 0.79% in Q4 2012, but they rose 2.32% in Q1 2013.
• Compared to Q1 2011, taxes were up 1.16% in Q1 2013.
• To summarise the above, austerity is clearly biting. Taxes are rising at a 60% faster rate than economic activity.
• Subsidies remained relatively constant in Q1 2013 on an annual basis, implying that net taxes rose strongly.
• GDP at constant prices (accounting for taxes net of subsidies - the headline metric usually referenced as GDP) fell 0.58% q/q in Q1 2013, which follows a shallower contraction of 0.18% recorded in Q4 2012. On an annual basis, GDP contracted by 1.03% in Q1 2013, following a 1.02% contraction in Q4 2012.
• Net factor income for the Rest of World (outflows to the rest of the world from factor payments, net of inflows of Irish incomes earned abroad) fell dramatically in Q1 2013, down 16.96% q/q, following a 3.22% decline q/q in Q4 2012. In year-on-year terms, net outflows fell 16.55% in Q4 2012 and by 27.58% in Q1 2013. 
• It is impossible to tell from QNA the core drivers of the net outflows, however, from the balance of payments data we have reinvested earnings in Q1 2013 by the foreign companies in Ireland at EUR4,753 million, up on EUR4,010 million in Q4 2012 and down on EUR6,768 million in Q1 2012. The gap of Repatriations of earnings from Ireland are not provided for Q1 2013.
• On foot of significantly reduced outflow of funds abroad, GNP at constant market prices rose in Q1 2013 rose 2.85% q/q and 5.46% y/y, beating growth of 0.51% q/q and 3.01% y/y recorded in Q4 2012. 
• However, as analysis in the subsequent posts will show, this growth is entirely dependent on reduced outflows of funds abroad. Q/q, net expatriation of funds slowed down by EUR1,204 million, while earnings outflows abroad shrunk by EUR2,015 million.
• Taking the average net factor payments abroad for Q1 2010-2012 in place of Q1 2013 figure, GNP growth controlling for net factor payments changes would have been around -0.01% y/y and -2.48% q/q.

Charts below summarise seasonally unadjusted series:

The chart below clearly shows that even in y/y terms, we are now in a solid, three-quarters long (so far_ recession.

The GDP/GNP gap has, predictably - given the shrinking of net factor payments abroad - declined from 25-26 percent (seasonally-adjusted and unadjusted) in Q1 2012 to 17.3-17.5 percent in Q1 2013:

It is worth noting in the chart above a significant increase in volatility in the gap, which is reflective of the greater volatility in Ireland's GDP and GNP series as well as destabilisation in growth correlation between GDP and GNP. This new pattern is most pronounced starting with Q1 2008 and is associated with both - the crisis and the underlying re-distribution of growth drivers away from the domestic economy to services exports, especially during the 2010-2011 'recovery'.

27/6/2013: Quadru-Sextu-ple-dip Recession in Ireland: Q1 2013

All you need to know about today's QNA data release (though it won't deter me from more detailed analysis later) is:

• Ireland is in a quadruple-dip recession (chart below)
• You and I are in a sextuple-dip recession (second chart below)

Incidentally, just in case you felt like previous 'expansion' (officially from Q1 2010 through Q2 2012) was not much of an expansion at all, then you live in the world we inhabit, closely related to the Gross Domestic Demand. If you felt things were just fine then, you might live in Australia, or read too much of the Department of Finance presentations on their web site, or... I have no idea...

As I commented on earlier post by Brian Lucey: That light at the end of the tunnel did turn out to be an incoming train...

Update: Meanwhile, Minister Noonan thinks that the above (3 consecutive quarters of contraction in the economy, official fourth dip in the Great Recession and 6th dip in Total Domestic Demand) is "certainly disappointing but it's one set of statistics" (link). How long till Enda pops up to greet us with Dude's famous return: http://www.youtube.com/watch?v=QsogswrH6ck

17/5/2013: Welcome to Surreal Irish National Accounts

A significant, but only because it is now 'official', confirmation that Ireland's GDP and GNP figures are vastly over-exaggerated by the distorting presence of some MNCs in Ireland has finally arrived to the pages of FT: http://www.ft.com/intl/cms/s/0/eb114bda-be3f-11e2-9b27-00144feab7de.html#axzz2TYJudjwo

As one of those who said this time and again, starting with my work in the Open Republic Institute in 2001 and through today, I am grateful to Jamie Smyth for pointing this out.

The ESRI, which - being tasked directly with doing research on Irish economy and being paid for doing such research - has slept through the years of boom as the Government wasted resources in chasing imaginary investment/GDP and spending/GDP targets. After years of the Social partnership bulls**t, we only now, driven into desperation by necessity of the crisis, are beginning to face the reality that we are poorer than our GDP and GNP levels actually imply.

I take heart that all those who never once before voiced their concern about the distorting nature of our MNCs-dependent economic variables are now quoted in the FT voicing that concern. Since the beginning of the crisis I put forward consistently a three-points position countering Ireland's official sustainability analysis when it comes the economy being able to sustain current levels of Government debt:

1. Despite all the focus in Irish and international media and official circles, it is the total economic debt mountain (household, government and non-financial corporate debts) that matters in determining sustainability of our economic development;
2. Irish economy's capacity to carry the above debt burden is determined not by GDP, but by something closer to an average of GNP and Total Domestic Demand which, in 2012, stood at 81.54 and 75.21% of our official GDP.
3. Irish exports growth is now becoming decoupled from the real economy as it is primarily driven by services exports which are dominated by a handful of tax arbitrage plays with little real connection to value added generated in this country.

The ESRI note cited in FT - detailed and well-research as it is - only scratches the surface of tax arbitrage effects on our official statistics. 

The note is available here: http://www.esri.ie/UserFiles/publications/RN20130102.pdf

19/4/2013: Decomposition of Irish GDP & Gross Operating Surplus: 2012

Recent CSO data release shows decomposition of 2012 Irish GDP and Gross Operating Surplus (defined as GDP less taxes and compensation of employees, plus subsidies). Here are annual dynamics:

 Overall,

• Households' contribution in 2012 to the GDP rose 5.66% y/y and is down 21.02% on peak
• Government's contribution in 2012 to the GDP declined -1.76% y/y and is down 12.04% on peak
• Financial Corporations' contribution in 2012 to the GDP rose 2.98% y/y and is down 10.75% on peak
• Non-Financial Corporations' contribution in 2012 to the GDP rose 3.03% y/y and is down 7.27% on peak
• Not-sectorised areas of activity contribution in 2012 to the GDP rose 4.34% y/y and is down 35.70% on peak

 Per chart above,

• Households' contribution in 2012 to the Gross Operating Surplus rose 11.12% y/y primarily due to subsidies increases, and is down 19.86% on peak. Subsidies to households rose 18.30% y/y in 2012.
• Government's contribution in 2012 to the Gross Operating Surplus declined -7.29% y/y and is down 14.89% on peak
• Financial Corporations' contribution in 2012 to the Gross Operating Surplus rose 6.01% y/y and is down 14.68% on peak
• Non-Financial Corporations' contribution in 2012 to the Gross Operating Surplus rose 2.50% y/y and is down -2.1% on peak
• Not-sectorised areas of activity contribution in 2012 to the Gross Operating Surplus rose 2.94% y/y 
• Overall Gross Operating Surplus rose 4.58% y/y and is down 9.75% on peak

Now, on to the relative importance of each broader sector in main areas of determination of the Gross Operating Surplus:

Note that in the above, Government share of any activity defining Gross Operating Surplus ranges from  zero for taxes and subsidies, to 25-27% for compensation of employees, to11.4-13.0% for GDP and overall Government accounts for only 3.18% (2002-2007 average) and 3.31% (2012 average) of the Gross Operating Surplus in the Irish economy. In other words... does it really matter that much?

Consider the disparity:

• In 2002-2007 on average, Households accounted for 17.4% of all GDP generation, a share that declined to 15.87% in 2012. Meanwhile, for the Government, the same figures were 11.41% and 13.04% - significantly less during the boom years and marginally less in 2012.
• In 2000-2007 on average, Households accounted for 26.49% of all Gross Operating Surplus in the economy, with that share sliding to 24.84% in 2012. For the Government, the same figures were 3.18% in 2002-2007 and 3.31% in 2012.
• Notice the gaps?

Consider another interesting thing:

• In 2002-2007 on average, Non-Financial Corporations (NFCs) accounted for 50.4% of all GDP generation, a share that rose to 52.4% in 2012. Meanwhile, for the Government, the same figures were 11.41% and 13.04%. So as GDP share goes, NFCs were much, much more important than the Government, by a factor of 4.
• In 2002-2007 on average, NFCs accounted for 55.6% of all Employees compensation generation, a share that rose to 53.3% in 2012. Meanwhile, for the Government, the same figures were 24.8% and 27.1%. So as Employees compensation share goes, NFCs still more important than the Government, but now only by a factor of less than 2.
• In 2000-2007 on average, NFCs accounted for 56.9% of all Gross Operating Surplus in the economy, with that share rising to 60.6% in 2012. For the Government, the same figures were 3.2% in 2002-2007 and 3.3% in 2012.
• Now, again, consider the above gaps...

24/3/2013: Irish GDP & GNP Growth 2007-2012

Five charts summarising Irish GDP and GNP dynamics in 2007-2012 period. The first set is of 4 charts plotting various measures of GDP and GNP in constant and current prices in terms of year-on-year changes:

In all of the above, I show two 'trend' figures: the 2% annual real growth trend as a long-term sustainability level of growth and the within-crisis (period of contracting GDP or GNP) and out-of-crisis (period of sustained positive growth) averages. These two sets of lines provide a marker for assessing as to whether or not the economy is currently running at the growth rates above or below trend.

And to summarise the state of play today:

Thus, after almost two years of 'turned corners' and 'recoveries'

• Ireland's GDP and GNP are still massively below the pre-crisis levels of 2007. 
• Ireland's GDP growth in constant and current prices is running below trend levels in Q3 and Q4 2012
• Ireland's GDP growth shorter-term trend (post-crisis) is below the long-term trend levels, which is simply not consistent with normal U-shaped recovery
• Ireland's GNP growth is running at above trend levels for 3 quarters now in constant prices terms, and close to the trend levels for current prices terms
• By all measures (across current and constant prices) both GDP and GNP are posting markedly slower rates of growth in Q4 2012 compared to previous quarters.

22/3/2013: National Accounts 2012: Ireland - Part 4

The first post of the series covering 2012 National Accounts looked at the headline numbers for real GDP growth. The second post covered sectoral weights in GNP and our GDP/GNP gap. In the third post I explored the opportunity cost of the crisis and the effect the realignment of economic activities in Ireland is having on fiscal position.

Now, let's focus on the quarterly series. 

The headline for quarterly national accounts should be reading: Ireland is back in a recession for the fourth dip…

• Q/Q Irish GDP fell, in real terms, 1.5% in Q4 2012, which followed a 1.9% q/q contraction in Q3 2012, marking two consecutive q/q contractions. 
• Y/Y Irish GDP was flat - exactly flat - on Q4 2011 but in Q3 2012 it was up 0.9%.

Meanwhile, 

• GNP was up 0.67% q/q in Q4 2012 after posting a contraction of 1.75% in Q3 2012 in q/q terms.
• Y/Y GNP was up 3.04% in Q4 2012 after posting a y/y gain of 3.9% in Q3 2012
• In H2 2012, GDP rose 0.4 y/y and shrunk 1.4% on H1 2012, while GNP rose 3.5% y/y and was up 1.89% on H1 2012.

Volatility is the name of the game for our national accounts, folks.

You can see components of GDP dynamics here.

Quarterly GDP/GNP gap posted second consecutive easing, moving away from mean reversion, suggesting the MNCs are building up capex reserves - once these are to be deployed, prepare for the gap to shift down to 20-22% territory and GNP shrinking by up to EUR2.6bn in any given quarter of reversion relative to Q4 2012. Were mean reversion to bite in Q4 2012, we would have had GNP down y/y and q/q and ditto for H2 down y/y.

22/3/2013: National Accounts 2012: Ireland - Part 3

The first post of the series covering 2012 National Accounts looked at the headline numbers for real GDP growth. 

The second post covered sectoral weights in GNP and our GDP/GNP gap.

Overall, there are two main themes in rebalancing of the economy that showed up in data so far: 

1) Increasing share of MNCs activity in GDP (and temporarily GNP), which means that the official figures for the National Accounts now even more overestimate the real economic activity in the country; and

2) Long-term falling out of Agriculture, Forestry & Fishing and Construction sectors from the economy, with Public Administration & Defence clearly showing signs of contraction, albeit at the rate that is, so far, trailing contraction in overall economy over the period 2003-2012.

In this post, let's take a look at the opportunity cost of the crisis.

Recall that relative to peak, Irish GDP is down 5.97% as of the end of 2012 and GNP is down 8.08% despite 'two years of consecutive growth' the Government is so keen on emphasising. 

Also recall that 1980-2011 average growth rates in constant prices terms were 3.58% per annum, whilst IMF forecasts consistent structural or potential growth rate is currently around 2%. Using 2% figure we can, therefore, estimate the opportunity cost of the current crisis as losses to GDP and GNP arising from the growth foregone during the crisis. Chart below illustrates:

The grand total in opportunity cost due to the crisis (note, this is not an exercise in 'blaming the Government' or providing any estimate of real or actual losses, but rather an estimate of the opportunity cost of the crisis) is:

-- EUR104.5bn of cumulated foregone GDP for 2008-2012 or per-capita EUR22,823;

-- EUR58.8bn of cumulated foregone GNP for 2008-2012 or EUR12,828 per capita

With taxes net of subsidies at 9.647% of the GDP in 2012, the above implies roughly EUR10.1bn in foregone net tax receipts or ca EUR2bn in annual receipts. Using 2008-2012 average weight of net taxes in GDP implies EUR2.4bn in foregone annual net tax receipts.

What does this mean? Aside from the massive opportunity cost of the crisis, we have a rather revealing figure on foregone tax receipts. The figure clearly suggests that even were economic activity running at the 2% growth rate since 2007 without the crisis, re-alignment of economic activity away from domestic sectors toward MNCs-dominated activities and toward MNCs-dominated services activities in particular would still result in unsustainable deficits and would still required some sort of a fiscal adjustment, thanks to our taxation system that is extremely unbalanced when it comes to supporting MNCs-focused activities.

22/3/2013: National Accounts 2012: Ireland - Part 2

The first post of the series covering 2012 National Accounts looked at the headline numbers for real GDP growth (link here).

This post covers sectoral weights in GNP and our GDP/GNP gap.

In terms of the latter, GDP/GNP gap in 2012 stood at 22.02% in favour of GDP, down from the record 25.0% in 2011, but still the third highest in 2003-2012 period. The trend remains up and latest decline in the gap clearly appears to be mean-reverting adjustment similar to the pattern established since 2005-2006.

The above suggests that over time we can expect upward movement in the gap, leading to the contraction in GNP (either in growth terms or even in levels). For example, adjusting 2012 GNP for 3-year average gap implies lower GNP by some 0.3% or EUR378mln, adjusting the same for 3-year average annual growth rates in the gap implies GNP lower by EUR3.0bn or 2%.

While the above exercises are highly stylised and should not be taken as rigorous assessments, they show clearly that volatility in our GNP induced by the MNCs transfers of profits abroad is significant and renders some of the y/y comparatives highly suspect.

Now on to sectoral contributions to the economy:

• Agriculture, Forestry & Fishing share of GNP declined from 2.4% in 2011 to 2.1% in 2012, thus falling back to where it was at the peak of the property and construction boom in 2006. This is the joint-lowest sector weight in GNP in 2003-2012 series with 2006 being another year of lowest contribution. Put simply, we have a Department out there in the Civil Service that is overseeing something that amounts to only 2.1% of the economy and not once in 2003-2012 period amounted anything more than 2.9%. In fact, 2003-2012 average contribution for the sector is just 2.53% with subsidies from EU accounting for much of that. You don't have to be a genius to see that the 'Food Island' ideal is just a pipe dream when it comes to our own production levels. We might have a larger food sector, but it is not dependent critically on our agricultural sector.
• Industry accounted for 28.4% of GNP, down from 29.3% in 2011. 2003-2012 average contribution is 30.24% which shows overall the secular decline in the sector importance. Most of this decline was driven by the collapse of Building & Construction sector which went from 9.9% share in 2004 to 1.4% share in 2012 - massive 8 years of consecutive declines. Ex-Construction, Irish industry (well, mostly MNCs) have grown in their share of GNP contribution from 24.6% in 2003 to 27% in 2012.
• Distribution, Transport & Comms sector share remained relatively static at 27.5% of GDP in 2012 compared to 27.6% in 2011 when it heir the record levels for 2003-2012 period.
• In line with the declines in overall activity, Public Administration and Defence sector posted a decrease in its share of GNP from 5.9% in 2011 to 5.5% in 2012. Still: back in 2003-2006 the sector was running at 3.9% to 4.1% and 2003-2012 average is still 5.2% - below the current running levels. 
• Other Services sector importance in GNP contribution fell back from 46.7% in 2011 to 45.2% in 2012 and the sector is now slightly behind the 46% average for 2003-2012.
• Taxes Net of Subsidies slipped further from 12.4% in 2011 to 11.8% in 2012. The 2003-2012 peak was in 2007 at 16.1%.

Thus, overall, there are two main themes in rebalancing of the economy: 

1. Increasing share of MNCs activity in GDP (and temporarily GNP), which means that the official figures for the National Accounts now even more overestimate the real economic activity in the country; and
2. Long-term falling out of Agriculture, Forestry & Fishing and Construction sectors from the economy, with Public Administration & Defence clearly showing signs of contraction, albeit at the rate that is, so far, trailing contraction in overall economy over the period 2003-2012.

21/3/2013: National Accounts 2012: Ireland - Part 1

This is the first post on the QNA data for National Accounts for 2012 released today.

In this post, let's take a look at the National Accounts in Constant Market Prices Terms for GDP disaggregation by Sector of Origin.

Top-line results:

• Agriculture, forestry and fishing sector (the 'Food Island' thingy) posted a big decline y/y in 2012 in overall activity, down from EUR3,049bn to EUR2,744bn between 2011 and 2012. The sector is now down 30.6% on peak (2005) activity and 20.4% below the 2003-2012 average level of annual activity. Sector activity is down 27.1% on 2003. In brief, this is the sector is in the fifth consecutive year of contractions. 
• Industry activity rose marginally in 2012 to EUR37.269bn from EUR 37.168bn in 2011 (up 0.27% y/y). The pace of annual increases slipped from 1.88% in 2010 to 1.76% in 2011 and to 0.27% in 2012. The sector activity is down 20.53% on peak (2004) and down 9.43% on 2003-2012 average, with sector activity now running at 17.03% below 2003 levels.
• As the sub sector of Industry, Building & Construction activity continued to decline in 2012, marking 8th consecutive year of decline since the peak in 2004. The sub-sector activity dropped to EUR1.857bn in 2012 down 7.38% on 2011 level with 2012 being the first year since 2008 when activity y/y declines were in single digits percentage terms. Needless to say, the sub-sector activity is now running 86.4% below peak levels, 72.3% below 2003-2012 average and 85.1% below 2003 levels.
• Distribution, Transport and Communications sector activity rose 3.09% y/y in 2012 to mark another year of record activity at EUR36.125bn. The rate of growth y/y was robust, but behind 3.88% recorded in 2011 and 4.7% in 2010. The sector activity is now running at 25.8% ahead of 2003-2012 average and 66.71% up on 2003 level. Good performance.
• Public Administration & Defence sector didn't do a hell of a lot over the year, posting EUR7.236bn contribution to GDP in 2012, down 4.17% y/y. This was a deeper contraction than 3.58% decline in 2011, but shallower than 5.6% drop in 2010 and 4.5% in 2009. The sector activity overall is now down 16.7% on peak (2008) and is 2.93% ahead of the 2003-2012 average, while overall activity level is up massive 34.4% on 2003 level. All in, the sector is the only other sector (in addition to Distribution, Transport & Communications) that sees its activity running ahead of 2003 levels.
• Other services (including rents) sector activity rose from EUR59.252bn in 2011 to EUR59.372bn in 2012 in constant prices terms, up 0.2%, marking the first year of growth since the peak in 2006. The sector overall performance is now 5.03% below 2003-2012 average and is 0.7% behind 2003 levels.

All in, as mentioned above, only two sectors of economy are currently (end of 2012) up on 2003 levels of activity once we control for inflation: Distribution, Transport & Communications and Public Administration & Defence.

Taxes net of Subsidies fell marginally from EUR15.769bn in 2011 to EUR15.456bn in 2012, down 1.98% y/y. The rate of decline has now accelerated once again from 1.13% in 2011, but is behind 2.65% drop in 2010. Compared to peak (2006), Taxes Net of Subsidies are down 32.9% and down 17.6% on 2003-2012 average. This category contribution to GDP is now down 15% on 2003 levels once we adjust for inflation.

Overall GDP at constant market prices rose to EUR160.214bn from EUR158.725bn in 2011 up 0.94% y/y, posting slower rate of growth than 1.43% in 2011. The GDP, adjusted for inflation now stands at 5.97% below the peak at 2007 and 1.11% below 2003-2012 average. Compared to 2003 GDP is up 4.74%.

Net Factor Income from the Rest of the World recorded another outflow from Ireland of EUR28.908bn in 2012, down on outflow of EUR31.742 bn in 2011, marking the second highest rate of annual outflows during 2003-2012 period.

Lower outflows and higher GDP helped push GNP up to EUR131.306bn in 2012 from EUR126.983bn in 2011, a rise of 3.4% y/y, reversing 2.47% decline in 2011 and up on 0.94% increase in 2010. Relative to peak (2007) GNP is now down 9.61% and GNP is down 3.41% on 2003-2012 average. Compared to 2003 the GNP stands at -0.45%.

So overall, 2012 did post growth of 0.94% on GDP side in real terms and a more robust gain of 3.4% on GNP side. However, both expanded on foot of external sectors and factors, namely marginal growth in Industry (+0.27% y/y marking big slowdown on 2011 growth), Distribution, Transport & Communications (+3.09% y/y in 2012 marking another slowdown on 2011 growth rates) and Other Services (+0.2% y/y - an improvement on contraction of -0.93% in 2011). GNP growth was also underpinned by reduced outflow of funds from multinationals abroad, which is a temporary factor, likely to be reversed once MNCs begin new investment outside Ireland.

In the next post I will cover sectoral weights and GDP/GNP gap.