Showing posts with label Irish economic recovery. Show all posts
Showing posts with label Irish economic recovery. Show all posts

Thursday, March 13, 2014

13/3/2014: Domestic Demand 2013 - A Black Hole of Booming Confidence...


This is a third post on the 2013 national accounts.

Remember that boisterous claim by the Irish Government that our economy is growing at rates faster than the euro area average? Eurozone GDP down 0.4% y/y in 2013. It is down 0.65% in Ireland.

That was covered in previous posts here: http://trueeconomics.blogspot.ie/2014/03/1332014-gdp-down-gnp-up-as-2013.html and here: http://trueeconomics.blogspot.ie/2014/03/1332014-what-was-tanking-what-was.html

But aside from that, QNA also provides a look into the dynamics of domestic demand, which gives a much more accurate picture than GDP and GNP as to what is happening on the ground in the real economy.



Chart above shows y/y changes in domestic demand and its components.

Good news: Gross Fixed Capital Formation was up in 2013, rising EUR710 million y/y.

Bad news: everything else is down:

  • Personal Consumption down EUR941 million y/y in 2013 - a massive acceleration in decline compared to the drop of 'only' EUR229mln in 2011-2012.
  • Net local and central Government spending on current goods and services (so excluding capital investment) is down EUR135 million. I guess one might be tempted to say that is good, because it is an 'improvement' of sorts on a drop of EUR963 million in 2011-2012, but getting worse slower ain't exactly getting better…
  • Final domestic demand posted another year of contraction. In 2012 it was down EUR1.361 billion on 2011. Last year it shrunk EUR366 million on 2012.


In simple terms, domestic demand is now down every year since 2008 and 2013 levels of real domestic demand are down 18.4 percent on their 2008 levels. In 2013, final domestic demand was down 0.3%.


Personal consumption was down 1.15% y/y, net spending by Government on current goods and services was down 0.55% y/y, gorse fixed capital formation was up 4.15%. Something must have happened to all the confidence consumers were having throughout the year… or at lest conveying to the ESRI researchers...

In summary: there is no recovery in domestic economy. None. Which begs a question: what were all those jobs that we have 'created' in 2013 producing? We know that the 'farming jobs' added were generating output equivalent (on average) to EUR 9,900 per person. The rest? Maybe they were measuring confidence?

Chart below shows 2013 demand compared to 2010, 2011 and 2013 levels.


Good thing foreign investors and cash buyers are snapping those D4-D6 houses, because without them, the rest of the domestic economy is still shrinking…

13/3/2014: What was tanking, what was growing in Ireland in 2013?


Numbers may speak volumes, but a picture of two can really make the difference in understanding why the latest GDP and GNP figures for Ireland are so poor. So on foot of my more numbers-focused post (http://trueeconomics.blogspot.ie/2014/03/1332014-gdp-down-gnp-up-as-2013.html) here are two charts showing sources of changes in GDP and GNP.

Positive numbers imply positive contribution to GDP or GNP from the change in the specific sector/line output.

GDP first:


So largest increases in GDP are down to ICT services MNCs and taxes. Largest declines in GDP down to Industry (ex-construction) and Distribution Transport, Software and Communications.

GNP next:


So all of growth in GNP is down to lower expatriation of profits by MNCs and possible increases of inflows of income from abroad.

13/3/2014: GDP down, GNP up... as 2013 economic recovery goes up in a puff of statistical smoke


CSO released QNA for Q4 2013 and I will be blogging at length on the core results, so stay tuned.

Here is the release link: http://cso.ie/en/releasesandpublications/er/na/quarterlynationalaccountsquarter42013/#.UyGWmfTV9bs

And the key highlights:

Q4 2013: GDP down 2.3% q/q on seasonally-adjusted basis, in constant prices terms. This fully erased a 2.1% rise q/q recorded in Q3 2013, while 1.1% rise q/q in Q2 2013 was not enough to cover a decline of 1.4% in Q1 2013… Overall, annual figure fell (more on that below).

Since the official end of the Great Recession in Q1 2010, we had 9 quarters of rising GDP and 7 quarters of falling GDP.

As a result, constant market prices terms (2011 prices), GDP in Ireland now stands at EUR 162.303 billion, which is below 2011 and 2012 levels. Officially, there is no recession. Practically, GDP is shrinking.

The good news is that GNP is growing as MNCs are not expatriating profits from the land of transparent corporate taxation, so 2013 real GNP sits at EUR 137.476 billion, up strongly on EUR132.984 billion in 2012 and above the levels recorded in 2009-2011.

Decomposing the above aggregate changes:

Taxes less subsidies rose to EUR15.223 billion in 2013 from EUR14.811 billion, contributing EUR412 million to 'growth'. Taxes are snow back to levels just below 2010 which should make our trade unionists rejoice, somewhat.

Stripping out state capture of the economy, GDP at constant factor cost fell EUR965 million in 2013 compared to 2012 and is down on 2011 levels too (-EUR472 million). So much for the 'recovery', then…

Looking at sectors of economy:

  • Other Services, including rents (and including our hard working services MNCs) are up EUR1.958 billion in 2013 compared to 2012. This line of national income is now up to the levels just below those last seen in 2008. Much of this recovery, of course, is down to sales of ICT services around the world being booked into Dublin, but we shall deal with that aspect of our accounts separately.
  • Public Administration and defence is down EUR278 million y/y in 2013, and is now at the lowest level since 2008.
  • Distribution, Transport, Software and Communications sector is down EUR888 million to its lowest contribution level in any year of the crisis.
  • Building and construction sub-sector posted a rose in its contribution to GDP +EUR243 million in 2013 compared to 2012, and sector activity is up EUR52 million on 2011 levels, although it is still down EUR381 million on activity in 2011.
  • Industry, inclusive of building and construction is shrinking - presumably on foot of pharma sector woes. The sector in 2013 posted income of EUR39.341 billion, down EUR1.339 billion on 2012, down EUR1.664 billion on 2011 and down EUR724 million on 2010. In 2013, we have hit an absolute low in Industry sector despite some pick up in construction for any year of the crisis.
  • Remember 25,000 new farmers added in 2013 to our 'employment' figures? Well, they are working hard. Or rather prices inflation is working very hard in the sector. Agriculture, Forestry and Fishing sector generated increase in activity in 2013 of EUR237 million, which partially offset the decline in the sector fortunes in 2012. Still, 2013 levels of activity are EUR258 million behind 2011 levels and EUR316 million behind 2010 levels. The sector contribution to GDP in 2013 was the second lowest for the entire crisis period.


So here we go… recovery then… negative GDP growth (due to industry, distribution, transport, software and communications, and government activities shrinking, only partially offset by growth in other services, construction and agriculture, and rising taxes net of subsidies). Oh, and 25,000 new farmers adding on average ca EUR9,500 per person in annual output to the economy (remember - they are all gainfully employed, right?)...

Thursday, January 23, 2014

23/1/2014: A Troubled Recovery: Sunday Times, January 12


This is an unedited version of my Sunday Times column from January 12, 2014.


To some extent, the forward-looking data on the Irish economy coming out in recent months resemble the brilliant compositions of Richard Mosse – Ireland's leading artist at the venerable La Biennale di Venezia, 2013 (http://www.richardmosse.com/works/the-enclave/). Mosse show in Venice comprised sweeping photographic landscapes of war-affected Eastern Kongo rendered in crimson and pink hues of hope.

In our case, the rose-tinted hues of improving recent data are colouring in hope over the adversity of the Great Recession, now 6 years in the running. Beneath it all, however, the debt crisis is still running unabated.


This week, Purchasing Manager Indices (PMIs), published by Markit and Investec, signaled a booming Q4 2013 economy. Services PMIs averaged 59.7 over the last quarter of 2013, well above the zero-growth mark of 50. Alas, the Services PMI readings have been showing expansion in every quarter since Q1 2010, just as economy was going through a recession. The latest Manufacturing PMIs averaged 53.6 over the Q4 2013, implying two consecutive quarters of growth in the sector. Sadly, manufacturing activity, as reported by CSO was down substantially year on year through October. Things might have improved since then, but we will have to wait to see the actual evidence of this. Past history, however, suggests this is unlikely: PMIs posted nine months of growth in the sector over the twelve months through October 2013, CSO's indicator of actual activity in the sector printed seven monthly declines. Rosy forward outlook of PMIs is overlaying a rather bleak reality.

But the story of fabled economic growth is not limited to the PMIs alone. Property markets were up in 2013, boosted, allegedly, by the over-exuberance of international and domestic investors, and by the penned up demand from the cash-rich, jobs-holding homebuyers. No one is quite capable of explaining where these cash riches are coming from. Based on deposits figures, Irish property buyers are not taking much of cash out of the banks to fund purchases of South Dublin homes. They might be digging money out of the fields or chasing the proverbial leprechauns’ riches or doing something else in order to pump billions into the property markets. Still, residential property prices are up year on year. Alas, all of these gains are due to Dublin alone: in the capital, residential real estate prices rose 14.5 percent over the last 12 months. In the rest of the country they fell 0.5 percent.

Fuelled by rising rents (up 7.6 percent year on year) and property prices, the construction sector also swelled with the stories of a rebound. Not a week goes by without a report about some investment fund 'taking a bet on Ireland's recovery' by betting long on real estate loans or buildings, or buying into development land banks. Thus, Building and Construction sector activity in Q3 2013 has reached the levels of output comparable with those last seen in Q4 2010. Not that it was a year marked by robust activity either, but growth is growth, right? Not exactly. Stripping out Civil Engineering, building and construction activity in Ireland is currently lingering at the levels compatible with those seen in H2 2011. Worse, Residential Building activity was down year-on-year in Q3 2013. Meanwhile, in line with other PMI indicators, Construction PMI, published by Markit and Ulster Bank, suggests that the sector has been booming from September 2013 on. Again, more data is required to confirm this, but CSO's records for planning permissions show declines in activity across the sector.

The truth is that no matter how desperately we seek a confirmation of growth, the recovery to-date is removed from the real economy we inhabit. As the Q3 2013 national accounts amply illustrated, the domestic economy is still slipping. In the nine months of 2013, personal consumption of goods and services fell EUR734 million in real (inflation-adjusted) terms, while gross domestic capital formation (a proxy for investment) declined EUR381 million. Thus, final domestic demand - the amount spent in the domestic economy on purchases of current and capital goods and services - fell EUR1.3 billion or 1.4 percent. In Q2 2013 Irish Final Domestic Demand figure dipped below EUR30 billion mark for the first time since the comparable records began back in Q1 2008, while Q3 2013 reading was the third lowest Q3 on record.

Beyond Q3, the latest retail sales data for November 2013, released this week, was also poor. Even stripping out the motor trades, core retail sales were basically flat on 2012 levels in both volume and value.


With domestic economy de facto stagnant and under a constant risk of renewed decline, Ireland remains in the grip of the classic debt deflation crisis or a balancesheet recession.

The usual canary in the mine of such a crisis is credit supply. Per latest data from the Central Bank, volumes of loans outstanding in the private economy continued to fall through November 2013. Average levels of credit extended to households fell almost 4 percent in Q4 2013 compared to 2012 levels. Loans to non-financial corporations fell some 5 percent over the same period.

Total private sector deposits are up marginally y/y for Q4 2013, but household deposits are down. Thus, recent improvements in the health of Irish banks are down to retained profits and tax buffers being retained by the corporates. Put differently, the canary is still down, motionless at the bottom of the cage.

In this environment, last thing Ireland needs is re-acceleration in business and household costs inflation. Yet this acceleration is now an ongoing threat. Courtesy of the 'hidden' Budget 2014 measures Irish taxpayers and consumers are facing an increases in taxes and state charges of some EUR2,000 per household. Health insurance, water supplies, transport, energy, and a host of other price increases will hit the economy hard.

And after the Minister for Finance takes his share, the banks will be coming for more. The cost of credit in Ireland has been rising even prior to the banks levies passed in Budget 2014. In 3 months through October 2013, interest rates for new and existing loans to households and non-financial corporations were up on average some 19-23 basis points. Deposits rates were down 71 bps. Based on ECB latest statistics, the rate of credit cost inflation in Ireland is now running at up to ten times the euro area average.

In other words, we are bailing in savers and investors, while squeezing consumers and taxpayers.


These trends largely confirm the main argument advanced in the IMF research paper, authored by Karmen Reinhart and Kenneth Rogoff and published last December. The paper argues that in response to the global debt crisis, the massive wave of financial repression is now rising across advanced economies. The authors warn that economic growth alone may not be enough to deflate the debt pile accumulated by the Governments in the advanced economies prior to and during the current crisis. Instead, a number of economies, including are facing higher long-term inflation in the future, and lower savings and investment. The menu of traditional measures associated with dealing with the debt crises in the past, covering both advanced and developing economies experiences, includes also less benign policies, such as capital controls, direct deposits bail-ins, as well as higher taxes and charges.

Ireland is a good example of the above responses. Since 2011 we have witnessed pension funds levies and increases in savings and investment taxes. We also have witnessed state-controlled and taxed sectors pushing prices ever higher to increase the rate of Government revenue extraction. Budget 2014 banks levy is another example. Given the current state of banking services in Ireland, the entire burden of the levy is going to fall onto the shoulders of ordinary borrowers and depositors. Insurance sector was bailed-in, primarily via massive increases in the cost of health cover and reduced tax deductibility of health-related spending.

As Reinhart and Rogoff note, historically, debt crises tend to be associated with a significantly lower growth and are marked by long-run painful adjustments. The average debt crisis in the advanced economies since the WWII lasted 23 years – much longer than the fabled ‘lost decade’ on reads about in the Irish media.

All of which goes to the heart of the today’s growth dilemma in Ireland: while macroeconomic performance is improving, tangible growth anchored in domestic economy is still lacking. The good news i: foreign investors rarely look at the realities on the ground, beyond the macroeconomic headlines. The bad news is: majority us live in these realities.



Box-out: 

This column's mailbox greeted the arrival of 2014 with a litany of sales pitches from various funds managers. All were weighing heavily on ‘hard’ performance metrics, with boastful claims about 1- and 5-year returns. While appearing to be ‘hard’, these quotes present a misleading picture of the actual funds’ performance. The reason for this is simple: end of 2008 – beginning of 2009 represented a bottom of the markets collapse.

Over the last 10 years, annual returns to the S&P500 index averaged roughly 5 percent. This is less than one third of the 15.5 percent annualised returns for the index over the last 5 years. In Irish case, the comparatives are even more striking. Five-year annualised rise in ISEQ runs at around 12 percent. Meanwhile 10-year returns are negative at 1.2 percent.

Since no one likes quoting losses, the industry is only happy to see the dark days of the early 2009 falling into-line with the 5 year metric benchmark: the lower the depth of the depression past, the better the numbers look today.

The problem is that even the ten-year returns figures are often bogus. The quotes, based on index performance, usually ignore the fact that the very composition of the markets has changed significantly during the crisis. This is especially pronounced in the case of ISEQ. In recent years, ISE witnessed massive exits of larger companies from its listings. Destruction of banking and construction sector in Ireland compounded this trend. Put simply, investors should be we weary of the industry penchant for putting forward five-year returns quotes: too often, there's more wishful marketing in these numbers than reality.

Friday, January 10, 2014

10/1/2014: Ambrose Evans-Pritchard on Euro area's miracle of recovery


A very good article by Ambrose Evans-Pritchard on the fallacy of European 'leaders' view of the peripheral countries economic stabilisation: http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100026365/barroso-triumphant-as-jobless-europe-wastes-five-precious-years-of-global-recovery/

Some caveats:

  1. AEP argues that Ireland had the capacity to withstand domestic blowout caused (as he correctly states) by the monetary policy mismatch. His argument for this is that "Ireland is highly competitive (second best in EMU after Finland on the World Bank gauge)." The problem, of course, is that WB competitiveness indicator is superficial - it hardly reflects the reality on the ground when it comes to credit supply (non-existent in the economy, yet highly ranked in WB study), openness of domestic markets (not measured), access to public procurement (not measured), extent of domestic indirect taxes (not measured), security of domestic property rights (pensions or insurance contracts, anyone?), etc etc etc. 
  2. AEP argues correctly that Ireland has high levels of exposure to international trade. And this is sustaining the macro-level recovery in the economic aggregates (GDP etc), but this has virtually no effect on the ground - the domestic economy is stagnant and most of the improvements that do take place are down to Malthusian contraction: emigration, jobs destruction, tax and charges hikes, rip-off via state-controlled prices and other measures that continue to shift private sector resources to fund the Exchequer. Ireland has had virtually no real reforms in the way domestic (public and private) business is conducted.
  3. AEP acknowledges some of the above problems, saying that "But even if Ireland can make it without debt restructuring (and that is not certain), the underlying erosion of the workforce through hysteresis from mass unemployment – and from mass migration to the UK, US, and Australia – has greatly damaged the long-term growth potential of the economy." This is spot on. One qualifier, however - Ireland already had three rounds of debt restructuring: two rounds of restructuring Troika debts (terms extensions and rate reductions) and one round of restructuring banks-linked debt (Promissory Notes). These provided, in some cases real and in some temporary, relief to the fiscal funding side of the equation. It is, however, in no way certain that we will not need more restructuring.


Key is that AEP 100% correct in saying that:
"At the end of the day, Ireland was forced by the EU authorities to take on the vast liabilities of Anglo-Irish to save the European banking system in the white heat of the Lehman crisis, and the EU has since walked away from its pledge to help make this good. The Irish people have been stoic, disciplined, even heroic. They have survived this mistreatment. To cite it as a vindication of EU strategy sticks in the craw."

And per future, I couldn't have said it better myself:
"Europe is one external shock away from a full-blown deflation trap, and one recession away from an underlying public and private debt crisis. Nothing has been resolved. Aggregate debt ratios are higher than they were before the austerity experiment. In the end there will still have to be a "Brady Plan" like the Latin American debt write-offs at the end of the 1980s, but on a far larger scale and with far more traumatic effects on the European body politic. So celebrate today while the sun is still out, and dream on."

Let me add that Europe is one internal shock away from the above too. All that is needed is a massive wave of financial repression to derail the common currency's faltering monetary structure and push the banking sector back into contraction. The debt levels - private and public - are dramatic enough for the economy to succumb to either external or internal shocks. And one certainty we have is that shocks do happen.

Thursday, January 2, 2014

2/1/2014: Manufacturing PMI for Ireland: December 2013

Manufacturing PMI is out for Ireland today, per Markit/Investec release: "The Irish manufacturing sector ended 2013 on a positive note as growth of output and new orders gained momentum in December. Meanwhile, the current sequence of job creation was extended to seven months. On the price front, input cost inflation picked up slightly while firms raised their output prices for the fourth month running."

Please note: since Markit/Investec no longer release actual numbers for subindices (e.g. employment or orders or export orders, etc), we have to take these claims on faith. For example, the release claims increased export orders from China as one of the drivers of the new business improvement. Yet Irish exports to China are low and it is hard to see how this source of uplift can register as a driver in the overall data, unless the survey participation is severely skewed toward some specific MNCs with remaining significant exposure to exports to China.

Note: Good exports to China from Ireland in January-October 2013 stood at a miserly EUR1.642 billion, down from EUR1.885 billion recorded in the same period of 2012 and representing just 2.26% of our total goods exports in January-October 2013.

Further per release: "The seasonally adjusted Investec Purchasing Managers‟ Index® (PMI®) – an indicator designed to provide a single-figure measure of the health of the manufacturing industry – rose to 53.5 in December from 52.4 in November. This signalled a solid improvement in business conditions, and the seventh in as many months."

The last claim is a matter of interpretation. 1.1 points gain in the PMI reading is the 4th largest in 12 months of 2013 and 7th largest in the last 24 months. However, the index reading in December is the 2nd highest in 2013 and the 3rd highest over the last 2 years, which is, undoubtedly, a good thing.

Two charts and dynamic trends to illustrate headline index changes:



In terms of overall PMI, Manufacturing activity averaged at 51.1 over the last 12 months, so the current reading is above that. However, December reading is below the 3mo average for November-December 2013 which stands at 53.6.

Q1 2013 average PMI for Manufacturing was 50.13, and this fell to 49.33 in Q2 2013, before rising to 51.9 in Q3 2013 and to a healthy 53.6 in Q4 2013.

Overall, we are now into third consecutive month with the PMI for Manufacturing index statistically above 50.0. Another good thing.


Full Markit/Investec release is here: http://www.markiteconomics.com/Survey/PressRelease.mvc/119915a961bd40caa4218d77234245e2

Thursday, December 26, 2013

26/12/2013: Ireland's Technical Recovery: Sunday Times, December 08


This is an unedited version of my Sunday Times column from December 08, 2013



In his address to the Rogers Commission investigating the explosion of the Space Shuttle Challenger, Nobel Prize-winning physicist, Richard Feynmann outlined the birds-eye view of the causal relationship between the man-made disasters and the politicised decision-making. Per Feynmann, "For a successful technology, reality must take precedence over public relations, for nature cannot be fooled".

The laws of reality apply to social sciences as well, independent of PR.  Recent events offer a good example. While lacking longer-term catalysts for growth, Irish economy did officially exit the recession in Q2 2013. Yet, the real GDP remained 1.2 percent below the levels attained in Q2 2012. Glass is half-full, says an optimist. Glass is half-empty, per pessimist. In reality, final domestic demand, representing a sum total of personal consumption of goods and services, net government expenditure on current goods and services, and gross fixed capital formation, fell in the first half of 2013 compared to the same period of 2012. This marked the fifth consecutive year of declines in domestic demand. Recession might have ended, but we were not getting any better. The only consolation to this was that the rate of half-annual declines in demand has been slowing down over the last four years.

Data since the beginning of the fourth quarter, however, has been more encouraging and, at the same time, even more confusing. However, as in physics, in economics every action generates an opposite and equal reaction: an economy battered by a recession sooner or later posts a technical recovery.

Thus, the reality of Irish economy today suggests two key trends. One: a build up of demand on consumer side has now reached critical mass. Two: jobs destruction has now run out of steam. Some real jobs creation has started to show through the fog of official statistics. With this in mind, let me make a short-term prediction. While in the long run we are still stuck in the age of Great Stagnation, over the next year we are likely to witness some robust spike in our domestic economic growth.

Consider the data. Based on National Accounts, during the period from January 2008 through June 2013, and adjusting for inflation, Irish households cumulated shortfall in consumption spending compared to pre-crisis trends from 2000 stood at around EUR1,600 per every person residing in Ireland. Over the same period of time, shortfall on fixed capital investment by Irish firms, households and the State amounted to EUR16,400 per capita. In other words, some EUR83 billion of domestic economic activity has been suppressed over the duration of the current crisis. Even if one tenth of this were to come back, Irish GDP will post a 6.75 percent expansion on 2012 levels.

And, at some point, come back it must. Durable goods consumption has been cut back down to the bone over the last five years, as were purchases of household equipment, furnishings and cars. Depreciation and amortisation of these items are cyclical processes and we can expect a significant uptick in demand some time soon. That said, volume of retail sales was still down 1.4 percent year on year in October, once we exclude motor trades, automotive fuel and bars sales.

At the same time, purchasing power of consumers is not increasing, despite some positive news on the labour market front. Deposits held by Irish households were down at the end of September some EUR1.22 billion compared to the same period a year ago. And they were down again in October. Credit to households is continuing to shrink: in 12 months through October 2013, total credit for house purchases was down 3.1 percent, while credit for consumption purposes fell 9.3 percent.

The good news is that we are now seeing some increases in total employment in the economy. As of Q3 2013, some 58,000 more people held a job in Ireland than a year ago. Excluding agricultural employment, jobs growth was more moderate 33,000. These are the signs of significant improvements in the jobs market. However, three quarters of new jobs created were in average-to-low earnings occupations.

On another positive, however, jobs are being created in the sectors that previously suffered significant declines in employment. Key examples here are: accommodation and food services and construction.

In contrast to the employment news, earnings data offers little to cheer about. Average weekly paid hours across the economy have stuck at the crisis low in Q2 and Q3 2013. Average weekly earnings are down 2.4 percent on last year. These pressures on households’ incomes are exacerbated by hikes in taxes and charges imposed in Budget 2014.

Overall, consumption reboot is still being held up by continuous decline in after-tax incomes.

However, pockets of growth in our polarised and paralysed economy are feeding through to the aggregate statistics. This process is aided by the fact that as the rest of the economy has flat-lined, isolated growth in specific sectors and geographical areas became the main driver for national aggregate statistics.

One example of this process is visible in the property markets, where a mini-boom in residential and commercial properties in parts of Dublin is driving restart of the markets in a handful of other cities, namely Cork and Galway. Dublin residential property prices are up 18 percent on crisis period trough. In commercial markets, 2013 is shaping up to be the best year for transactional activity since 2007. On foot of this, construction sector Purchasing Manager Index, published by the Ulster Bank, stayed above the expansion line in September and October.

Another example is continued expansion of ICT services and MNCs-dominated manufacturing sectors. This week's release by the Investec of the Purchasing Managers Indices for manufacturing and services showed that in November, both sectors continued to grow. The series are volatile, but the shorter-term trend since Q2 2013 is now clearly to the upside.

All of which begs a question: Are we about to witness a Celtic Tiger rebirth from the ashes of the Great Recession, or is this a recovery that simply compensates for a huge loss in economic activity sustained to-date?
My feeling is that we are entering the second scenario.

Firstly, Irish economy is not unique in showing the signs of recovery. Other peripheral euro area economies, such as Spain, Portugal and even Greece, are also starting to stir. And all of them follow the pattern of recovery similar to that which took place in Ireland: foreign investors are followed by domestic cash-rich buyers of assets; exports uplifts are slowly building up to support domestic activity.

Secondly, given the extent of economic losses during the Great Recession, we can expect a bounce and this bounce is likely to last us some time. As argued above, over the years of the crisis we have built up a massive backlog of consumer and investor demand for everything – from durable consumption goods to assets, including property. This build up can lead to a rush-into-the-market of consumers and investors in H1 2014.

However, beyond this bounce-back period, serious headwinds loom.
In particular, latest mortgages arrears figures suggest that banks are predominantly focusing on forced sales as the main tool for dealing with the problem. These forced sales are yet to hit the markets. The same data also shows that non-foreclosure solutions are far from being sustainable even in the short-term. Over the last 12 months, the percentage of mortgages that have been restructured and not in arrears remained basically unchanged.

Further into 2014, if wages and earnings continue to decline or stagnate, the next Budget will become an even harder pill to swallow than Budget 2014. This can translate into the renewed decline in investment and consumption in the economy.  Latest exchequer figures through November this year are encouraging on the receipts side, although the safety cushion relative to both 2012 and Budget profile is thin. Tax revenues for eleven months were only EUR214 million (or 0.6 percent) ahead of profile. One third of this ‘over-delivery’ is accounted for by November payments of 2014 property taxes. Meanwhile the expenditure side is also saddled with risks. According to the latest projections from the Department of Public Expenditure and Reform, Government’s total current spending in 2013 will stand at EUR 51.15 billion or EUR2.54 billion higher than in 2007.

In addition to addressing the above spending risks, budgets for 2015-2017 will also have to deal with squaring the circle on temporary public sector pay moderation savings. As these come to an end and as demands from the public sector trade unions rise once again, economy can find itself once again at a threat of renewed tax hikes.

On a greater scale, monetary policies around the world remain a major problem. In the euro area, money supply remains tight despite record low interest rates and unprecedented funding measures that injected over EUR1 trillion worth of funds into euro area banks in 2011-2012.  Irish banks might have received a clean bill of health this week, but they are not in the position to restart lending any time soon. In the US, Federal Reserve's tapering is on the agenda for 2014. If pursued aggressively, it can lead to a rise in the cost of borrowing world wide, potentially inducing a fall-off in the capital markets. For Ireland, this can spell a further reduction in investment as foreign investors continue exiting Irish Government bonds and shying away from Irish private sector assets.

For now, however, the above risks are still to materialise. Before they do, enjoy our technical recovery.


Note: the above article was publish well before the now-infamous The Economist piece calling Irish economic recovery 'a dead cat bounce'. My view, as expressed above is not that this is a 'dead cat bounce' but rather that it is a technical correction up, toward longer-term equilibrium trend. It is quite possible that the recovery will gain momentum and will turn out to be a full recovery, but it is not, in my view, a 'dead cat bounce' (or a recovery that is likely to turn to a renewed downside).



Box-out:

A recent research paper published by the Centre for Economic Policy Research studied interactions between large firms and SMEs in driving regional-level innovation in the US. As is well known, large firms generate spin-out ventures whenever innovations developed at the larger firm level are deemed unrelated to the firm's core activities. Thus, a concentration of larger firms activities in a region can be expected to increase the potential for small spin-outs formation. On the other hand, small firms generate demand for innovation, increasing spin-outs profitability and survival potential. The study finds that differences in innovation output across metropolitan regions of the US over 1975-2000 can be largely attributed to the co-existence of these effects. These findings offer us significant insights into the potential role for business partnerships between Irish SMEs and MNCs in driving innovation-focused growth. For one, the study shows that optimal innovation policies are dependent on the specific stage of innovation culture development in the economy. For example, an economy with a significant presence of larger firms, such as Ireland, should focus on policies designed to stimulate formation of new ventures and spin-outs instead of spending resources on attracting even more large firms. Last week, this column suggested using tax incentives for SMEs and MNCs to stimulate equity investment in entrepreneurial ventures and spin-out. The above evidence from the US suggests that we might want to give this a try.

Saturday, December 7, 2013

7/12/2013: Global Manufacturing PMIs: Summary for October-November


In previous posts I covered PMIs for Ireland for both services and manufacturing: http://trueeconomics.blogspot.ie/2013/12/5122013-services-and-manufacturing-pmis.html Also, detailed PMIs coverage is linked in the above.

Here is a neat summary of global Manufacturing PMIs via Markit:



Thursday, December 5, 2013

5/12/2013: Services and Manufacturing PMIs for Ireland: November 2013


Yesterday, Markit and Investec released the second set of Purchasing Managers' Indices (PMIs) for Ireland covering Services sector. As usual, here is the analysis of combined Manufacturing and Services PMIs.

Detailed analysis of Manufacturing PMIs was covered here: http://trueeconomics.blogspot.ie/2013/12/2122013-manufacturing-pmi-for-ireland.html. Also, note, I covered actual services activity index (latest data through October) here: http://trueeconomics.blogspot.ie/2013/12/5122013-irish-services-index-october.html

Manufacturing PMIs in November 2013:
- Slipped to 52.4 (still in expansionary territory) from 54.9 in September.
- 3mo Average through August 2013 was 52.1 against 3mo average through November 2013 at 53.3.
- 6mo average through November 2013 is up 4.6% on previous.

Services PMIs in November 2013:
- Slipped to 57.1 from 60.1 in October.
- 3mo average for the period through August 2013 was at 55.4 and 3mo average through November is at 58.0
- 6mo average is up 6.6% on previous.

Both, Manufacturing and Services PMIs are now above 50 for 6 consecutive months. In statical terms, the two PMIs are above 50.0 for 6 months for Services and 3 months for Manufacturing.



Overall, the picture is consistent with upward sub-trend over 3 months for both series.

However, changes in 3mo averages warrant caution on sustainability:



Joint evolution of the series y/y is still encouraging:


And 24-months rolling correlation between series is rising once again - currently at 0.340, the highest since December 2011 when both series were in sub-50 territory.

So net is that the PMIs are still strong, trend is still upward and the short-run uplift continues. Big question is whether this is going to translate into real activity on the ground or mark another period of booming PMIs and stagnant economy. Time will tell...


Monday, December 2, 2013

2/12/2013: Manufacturing PMI for Ireland: November 2013


Manufacturing PMI for November released by market and Investec today shows slight slowdown in the rate of manufacturing sector expansion in Ireland.

Overall PMI declined from blistering 54.9 in October to more moderate and sustainable 52.4 in November. October reading was remarkable as it was the highest PMI reading posted since 56.0 was recorded in April 2011. Thus, some moderation was expected.

November reading pushed 12mo MA to 51.1, implying that on average Irish manufacturing was expanding over the last 12 months. 6mo MA is at 52.2 and 3mo MA is 53.3 through November, up on 51.1 3mo average through August 2013. Current 3mo average is ahead of that for 2010, 2011 and 2012. even setting October reading at 3mo MA level through September still leaves the average ahead of 2010-2012.

Current reading remains in statistically significant territory - another added positive.

Aside from that, no comment is possible, since Investec and Markit are continuing not to release underlying sub-indices.



With the above we can now confirm a new upward sub-trend from May 2013. Let's hope it will continue.


Monday, November 11, 2013

11/11/2013: Services and Manufacturing PMIs for Ireland: October 2013


With some delay, let's update the data on Irish PMIs.

Before we do, quick explanation for a delay - I used to be on the mailing list for Investec releases to PMIs for years (way before the organisation became a part of Investec). This all ended some months back when I was struck off the mailing list. Presumably, being a columnist with 2 publications & blogger, who always and regularly cites PMIs and Investec as their publisher, is just not enough to earn one the privilege of being sent the release. Oh, well…

Now to numbers… 

Services PMI hit 60.1 in October, up on 56.8 in September, marking the second highest reading since January 2007 (the highest was recorded in August this year at 61.6). This is a strong return. 3mo average for the period August - October 2012 was 53.9, current run is 59.5, so the distance y/y is 10.4% - statistically significant. 

Notably, from January 2010 through current, the average deviation of PMI from 50.0 is 2.5, so we are solidly above the average.

Quarterly averages are also strong. Q1 2013 posted 54.23 and Q2 2013 was at 54.27, but Q3 2013 came in at 58.67. And we are now running well ahead of that.

With full-sample standard deviation of the PMI reading distance to 50.0 at 7.3  (same for the period from January 2008 through current being 6.84), we are now solidly in statistically significant territory for expansion since July 2013.

Manufacturing PMI also strengthened, although by much less than Services. Manufacturing PMI hit 54.9 in October, up on 52.7 in September and 3mo average through October 2013 is at 53.2, which is 3.% ahead of the 3mo MA through October 2012.

Quarterly averages are signalling weaker growth, however. Q1 2013 was at 50.1 (basically, zero growth in statistical terms), while Q2 2013 stood at 49.3 (same - zero growth in statistical terms). Q3 2013 came in at 51.3 and the October reading is ahead of this. In fact, October 2013 reading is the highest since April 2011. October reading is statistically significant, based on historical data, but it is not statistically significantly different from 50 on the basis of data from January 2008.


The above shows one thing: we are above historical and 2008-present averages for both Manufacturing and Services PMIs (good news). Below chart confirms relatively strong performance for the series on 3mo MA basis (good news):


As chart below shows, there is a third good news bit: both series have now broken away from their asymptotic trend, with Manufacturing at last showing some life.



Note to caveat the above. As I showed before, both manufacturing and services PMIs have relatively weak relation to actual GDP and GNP growth, with Manufacturing PMI being, predictably, better anchored to real growth here. Details here: http://trueeconomics.blogspot.ie/2013/10/3102013-irish-pmis-are-they-meaningful.html

Thursday, October 3, 2013

3/10/2013: Irish PMIs - are they meaningful?


Having covered Services and Manufacturing PMIs (see links here: http://trueeconomics.blogspot.ie/2013/10/3102013-services-and-manufacturing-pmis.html) in terms of Q3 2013 averages, let's have a reminder as to the links to actual growth in Irish GDP and GNP these series have.

Two charts covering through Q2 2013:



Thus, overall:

  • Changes q/q in Manufacturing PMIs have only a weak correlation with actual real (constant prices) GDP and GNP changes q/q: R-squares of just 35.6% and 29.4% respectively when we remove the constant factor (which is not significant by itself at any rate). This is weak to say the least.
  • Changes q/q in Services PMIs have only a very weak correlation with actual real (constant prices) GDP and GNP changes q/q: R-squares of just 16.4% and 17.6% respectively when we remove the constant factor (which is significant). This is very poor.
  • With positive intercepts of 0.0023 for GDP and 0.0024 for GNP, the Services PMI R-square rises to 23.7% for GDP and 22.7% for GNP. Once again, no change to the above conclusion.
The above suggests that a significant component of both PMIs come from transfer pricing and not real economic activity on the ground. Or put differently, the PMIs are not that exceptionally meaningful indicators of actual levels of activity in the economy and are only weakly-significant in indicating the direction of that activity. 

Note: this is quarterly averages data, not much more volatile data based on monthly series. Which puts to question monthly movements in PMIs even more...

3/10/2013: Services and Manufacturing PMIs for Ireland: September 2013


In the previous posts I covered separately both Service PMI for Ireland and Manufacturing PMI (released by Markit & Investec). As noted, both series show strong performance in September. Here is the combined analysis:

Both Services and Manufacturing PMIs are now above their historical crisis-period averages. Manufacturing PMI is slightly ahead (0.1 points) of its historical pre-crisis average since May 2000 when both series start running coincidently. Services PMI is now slightly below its historical pre-crisis average.

Services PMI have broken out of the flat trend and are now trending up for the last 12 months. However, Manufacturing PMI continues to move side-ways, although on average remaining positive.


Two major points: September 2013 reading puts both indices at statistically significant levels above 50.0, which is the first such occurrence since February 2011:


In addition, we are seeing stronger positive correlation between the two indices (the 12mo rolling correlation below is only indicative) established since February 2013 low:


In other words, both sides of the economy are now performing better, but we need this momentum to be sustained over 2-3 months to see serious feed-through into actual economic activity figures.

Tuesday, October 1, 2013

1/10/2013: Irish Manufacturing PMI: September 2013


Some good readings from Irish Manufacturing PMI (Investec-sponsored Markit data) for September:

  • Headline PMI is at 52.7 up on 52.0 in August and the highest reading since 53.9 in July 2012.
  • Critically, this appears to be the first statistically significant reading above 50.0 since November 2012.
  • I use 'appears' above since we have no formal analysis from Markit on this (Investec don't do analysis). The distribution is Laplace. August reading was close to being statistically significant.
  • In terms of trend, Q1 2013 average reading was 50.13, Q2 2013 at 49.33, Q3 now reads 51.9. 
  • 12mo MA is at 50.8.
  • 3mo MA through September 2013 is at 51.9, which is below the same period 2012 (52.2), but ahead of 2011 (49.2) and slightly ahead of 2010 (50.4).

Now, it appears we have broken the downward trend at last. Index volatility (36mo rolling) has fallen slightly to around 2.3 in terms of 3mo average through September, which is close to historical average of 2.4 and is well below the crisis-period average of 3.4. Positive skew on change is at 3mo average of +0.75 (for deviations from 50.0) and this contrasts with a negative -0.34 skew for historical data and -0.25 skew for crisis period data. So let's call it a trend reversal for the short term:


Sadly, nothing else to report, since Investec/Markit continue to push out data-less releases. Wish I could tell you about employment, exports orders, total orders... but there is not a single number in the press release, only comments.

Monday, September 2, 2013

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.

Friday, August 2, 2013

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.

Sunday, July 7, 2013

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.

Sunday, July 4, 2010

Economics 4/7/10: Global PMIs signal some pressures ahead

Based on WSJ blogs info, I pooled together a comparative table for the last three months OECD Purchasing Managers Indices. An interesting dynamics for Ireland, compared to peers and some other countries (24 in total):
Note: relevant competitors are in bold.

An interesting observation on PMI levels:
  • In April Ireland ranked 18th in terms of its PMI reading (remember, PMI above 50 signals expansion);
  • In May, this rank improved to 15th;
  • But in June we slipped to 20th place of 24 countries.
In terms of changes mom in PMI readings, we fared much better, registering:
  • 3rd highest gain in mom between April and May;
  • falling to 19th rate of change between May and June;
  • between April and June we recorded 12th ranked result in terms of changes in PMI
Overall, within the sample of 24 countries, it is clear that April to June changes showed 17 countries of 24 posting declines in PMIs, with only Greece, Hungary and South Africa continuing to post contractions in activity (below 50).

Most notable is stellar performance of Switzerland.

Average PMI has declined from 56.1 in April to 53.9 in June, while standard deviation has fallen slightly from 4.4 in April to 4.3 in June. This means Irish PMI drop was broadly in line with the average.

Friday, September 25, 2009

Economics 25/09/2009: Don't believe 'our recovery plan' drivel

I like some of our brokers guys and gals, I really do – they are intelligent, ambitious, outwardly mobile in their outlook and hard working. They often spot the rat, although usually warn of its existence only privately. But the current Nama and Lisbon ‘debates’ are just too much for them to bear without assuming the usual 'hand in the sand' positions.


First Davy strategist was telling us all that everyone criticizing Nama is a ranting lunatic (at the very best) or a deceitful manipulator (at its worst). I obliged to reply here.


Now, Bloxham folks lined up to spout nonsense as well. Here is an example from today’s morning note: “A Yes vote [in Lisbon Referendum] would be seen as positive [one assumes by the markets] and would keep recovery plans on track ahead of the critical NAMA vote…”


I don’t give a damn how Bloxham modeled their assertion on the markets' assessment of an outcome of the Lisbon vote. The Wall Street Journal disagreed with them. Studies performed on sovereign default spreads in the Eurozone and bond spreads are inconclusive one way or the other. But one thing is certain when it comes to spotting a lie in their statement: an assertion that either Lisbon or Nama or both can ‘keep [Irish] recovery plans on track’.


This is a first class bullshit.


One minor point why this statement makes absolutely no sense is that the 'distance' between the Lisbon vote and Nama vote is going to take place within a couple of weeks there after, around October 14-16. If Irish economy is so critically sick that a difference of two weeks can push it off the track, I wonder if Lisbon vote would be of any priority for our stock brokers at all.


Now to a bigger lie in the above statement:


In order to keep plans on track, one must first have a plan. Or at least and inkling of one. A handful of morsels of thought saying: we want to do A to achieve B… and a short list of actions to be taken to get there. This is a starting point for any logical ‘keeping on track’. And, guess what, unless you are smoking the same stuff folks at Bloxham are, there are no plans. Let me repeat: there is no plan for an Irish economic recovery.


Fiscal crisis: this is Government’s own backyard, so we should expect that at the very least here the Cabinet has done some homework on getting a plan for recovery started. Nope. McCarthy Report and Taxation Commission Report – two key pieces of policy strategy are now largely binned by the Government. It is clear that there is no will in our Triumvirate to do anything serious about the expenditure side of the fiscal crisis. Even Bloxham guys would probably agree that in the current conditions there isn't anything new they can do on tax side of things either - short of turning us all into serfs. The fiscal stabilization ‘plan’ presented officially by DofF following the Supplementary Budget 2009 was a re-hashing of the exactly identical ‘plan’ from January 2009 which was rehashing the ‘plan’ from October 2008 Budget. All three were not realistic in their assumptions and expectations and all three had not a single year of declining nominal current public expenditure between 2008 and 2013.


Economic crisis (domestic economy): this Government produced only one strategy document on domestic economy. Don’t call it a policy document, for it is too vague and lofty to be a policy. Their vision of the future of Ireland Inc was, and remains, in a nutshell, a combination of lab coats with Petri dishes in hands growing thoughts and knowledge in the foreground and windmills spinning out green energy in the background. The ESB is in existence too, with new sparkling headquarters and, one assumes, smokestacks belching CO2 to offset green energy from the windmills. If Bloxham folks think this drivel passes for a plan, good luck to them. Domestic consumption is being killed off by reckless tax increases. Domestic investment is being kept below the water line by absurd taxes on capital, charges on capital-intensive activities and depressed savings of the households. Households are prevented by the Government from de-leveraging and will be facing increasing costs of mortgages and credit post-Nama due to banks hiking up charges and margins.


Economic crisis (external economy): apart from IDA’s advertising campaign launched last week by our unfortunate choice of a Tanaiste, there is no plan for improving competitiveness of Ireland Inc vis-à-vis foreign investors and domestic exporters. There are no reforms in the pipeline to help improve their operating costs, capital costs, costs of electricity, gas, water supply, costs of currency risks on sterling and dollar side, costs of labour, health & safety, costs of buying out trade unions into agreement not to derail investment and production, costs of state-controlled and regulated transportation, energy, communications, etc services.


Financial crisis: half-thought through idea of Nama is unlikely to do anything significant to improve flow of credit in this economy – I wrote on many occasions about the risk of capital being transferred out of the country and about banks’ incentives to pay down inter-bank lenders, plus about potentially zombie banks and development markets, dormant / dead property market and other potential downsides to Nama, so no need to repeat this here.

So, my dear friends at Bloxham, what is the exact ‘plan for recovery’ that we will 'keep on track' if we vote Yes to Lisbon and/or Yes to Nama? Name one, please…