Last week the President Barroso of the European Commission met the Irish Taoiseach in Dublin. Nothing that unusual in that as there is enormous meetings inflation in Europe! But President Barroso is prone to let his windy rhetoric run away with him and so my attention alighted on this bit from his statement.
I think we can say that the Irish economy is now turning the corner. The latest positive figures on employment confirm that when there is determination, the programmes can work and indeed Ireland is already on positive territory when it comes to growth.
Now if we consider his track record I am already wondering if Ireland should remember the phrase “Be afraid, be very afraid!” Remember last spring when he promised that his agenda would be “growth,growth,growth”? Since then the Euro area economy has gone downhill as in the third quarter of 2012 it was 0.6% smaller than a year before and in the fourth quarter the gap had stretched to -0.9%. Even worse it has opened 2013 by continuing to shrink according to the data received so far!
Whilst I am on this theme let me add something else he said.
As you may know, I take a special interest in education and in young people
I am sure that the 59.4% of Greece’s youth ,55.5% of Spain’s youth, 38.7% of Italy’s youth and 38.6% of Portugal’s youth who are unemployed are very grateful for this special interest! They may well be wondering if it is a euphemism or simply somewhat deluded ramblings.
What caused this rhetoric?
The Live Register in Ireland recorded this in February
On a seasonally adjusted basis the Live Register total recorded a monthly decrease of 1,400 in February 2013, bringing the seasonally adjusted total to 428,800
So a fall in unemployment which totals 10,546 over the past year on this measure. This is good although there are concerns that emigration is a factor in this and I also note that long-term unemployment is rising.
Also the survey for the last quarter of 2012 showed a continued pick-up in employment which these days can be a leading indicator.
On a seasonally adjusted basis, employment increased by 6,500 (+0.4%) in the quarter. This follows on from a seasonally adjusted increase in employment of 2,200 (+0.1%) in Q3 2012.
But whilst this is good there are three issues which mimic the debate in the UK. The rise in self-employment (13,000) and the much more poorly measured rise in part-time employment pose questions as to what is actually happening. Also we wonder how accurate the collection of the numbers is as the change is relatively small and is calculated from a sample not asking everyone.
Industrial Production
The figures for December showed an improvement on the dark days of late autumn.
Production for Manufacturing Industries for December 2012 was 11.0% higher than in November 2012 . On an annual basis production for December 2012 increased by 2.8% when compared with December 2011.
Care is needed here as these are a response to falls in the autumn so for example the surge to 112 on the underlying index still leaves it below the 112.6 of December 2010. There are dangers ahead for Ireland as other drugs and pharmaceuticals lose their patents.
So the nuance here is that Ireland’s industrial production performance was good several years back as some states have an underlying index at or below 2005 levels but going forwards there are more dangers than hopes I think. So this is something to watch closely.
However domestic demand is weak
Car registrations
This is an issue in many parts of Europe and as you can see it is true in Ireland.
There were 10,735 new private cars licensed in January 2013, compared with 14,507 in January 2012, a decrease of 26%.
The number of new goods vehicles licensed in January 2013 fell by 19.3% compared with January 2012.
This series had already dropped substantially as 2007 recorded 333,996 registrations but 2012 recorded only 145,033 and if January is any guide 2013′s numbers are under further pressure.
Retail Sales
Whilst not as grim as vehicle production these numbers remain weak.
The volume of retail sales (i.e. excluding price effects) decreased by 1.7% in January 2013 when compared with December 2012 while there was an annual decrease of 1.2%.
If we look deeper we see that there is a familiar Euro area problem with the underlying index which is based at 100 in 2005 now being 90.7 in volume terms. The bounceback in 2010 from the heavy fall in 2009 has now been followed by dips in the two subsequent years and more recently is slipping again.
What about house prices?
If we look near to the heart of Ireland’s economic malaise we see that things are not yet getting any better. From her Central Statistics Office.
Residential property prices fell by 0.6% in the month of January…..In the year to January, residential property prices at a national level, fell by 3.3%.
So still falling and here is a sense of perspective on the decline.
Overall, the national index is 50% lower than its highest level in 2007.
More recently we have seen two months of falls after six months of relative stability so there are fears house prices have turned down again.
This index does not capture cash purchases so is likely to over estimate the prices at this time so the total fall is larger. I am sure there are a few cash buyers about at these levels.
Ireland’s bad bank or NAMA
There is little news on it these days but as its purchases were benchmarked at November 2009 it is clear that the value of its assets (houses and commercial property) get even further away from what it paid. There is a clear and growing exposure here for the Irish taxpayer.
Mortgage Arrears are an issue
From the Central Bank of Ireland.
At end-September 2012, there were 761,954 private residential mortgage accounts for principal dwellings held in the Republic of Ireland, to a value of €111.2 billion. Of this total stock of accounts, 86,146, or 11.3 per cent, were in arrears of more than 90 days
The number of accounts that were in arrears of more than 180 days was 67,401 at end- September 2012, reflecting a quarter-on-quarter increase of 8.2 per cent
However very little is being done about this or as the Central Bank of Ireland puts it.
Forbearance techniques include a switch to an interest only mortgage; a reduction in the payment amount; a temporary deferral of payment; extending the term of the mortgage; and capitalising arrears amounts and related interest
In the third quarter only 47 properties were repossessed (foreclosed on) which compares to the 107 where they got the keys back in the post so to speak! Oh and that does not seem much of a percentage of the 19,741 which were in arrears by 2 years or more.
Can kicking does not seem to be the half of it!
Bank Deposits
I am grateful to the Irish blogger Jagdip Singh who has looked at the statistics from the Central Bank of Ireland. Cunningly he used the numbers on which Ireland’s bank insurance scheme is based and they showed a fall of 13% in receipts and therefore deposits at Irish banks in 2012.
Comment
As you can see there are grounds to challenge the poster boy (girl,child) view of Irish austerity being pushed by European Commission President Barosso and added to this morning by Taoiseach Noonan. She has a better production performance than her peers in the Euro periphery and a better unemployment performance but domestic demand remains weak. As we look forwards into 2013 it is not going to be easy to export into weak neighbouring markets and of course there is the question of how much that activity benefits Ireland anyway as the old debate over the benefits of attracting overseas multinationals goes on. For non Euro countries which includes the UK there will be the issue of exporting at a higher exchange rate to contend with.
On the other side of the coin it is plain that her housing and banking markets remain in trouble and the danger of the hear no evil,see no evil, speak no evil strategy being employed here is that yet another bailout is needed in a “surprise” move. We do know that the austerity noose will be tightened and that it will hit hard in 2014 and 15 as the majority of the changes equivalent to 5.5% of economic output will bite then. We also know what this has done elsewhere. So President Barosso is being very premature as there are plenty of risks ahead for Ireland.
For those who wish to take the option of the blue pill offered by Morbius in the Matrix then focus on the fall in the Irish five year government bond yield which has pretty much halved to 2.75% over the past year. After all financial markets are never wrong are they? Ooops! There is a severe danger that we are seeing a divorce between financial markets and the real economy one more time.
