Ireland is a test case for what happens if you subvert an entire economy to the needs of its banking sector

It has been a few months since I looked across the Irish Sea to consider the economic situation in Ireland. Back on June 21st I concluded that whilst her economic performance had been superior to that of her Euro area bailout peers there was still a danger of a second bailout being required. Also comparing oneself to the economic catastrophies which have been inflicted on Portugal and Greece is not much of a test! However on a more hopeful tack, Ireland’s biggest trading partner the UK has an economy which has picked up quite markedly through the summer which should provide some benefit for Ireland too.

Economic growth

Ireland is somewhat tardy in relative terms in its production of its economic growth figures and when we got them they were look a game of two halves. Let us start with the better half.

Preliminary estimates for the second quarter of 2013 indicate that GDP (Gross Domestic Product) increased by 0.4 per cent in volume terms on a seasonally adjusted basis compared with the first quarter of 2013.

But if we stick to the sporting metaphor this was followed by a poor second half.

GNP (Gross National Product), on the other hand, declined by 0.4 per cent in real terms over this period.

For readers who have not followed my updates the reason for differentiating between the two numbers and indeed for mentioning GNP at all is the fact that Ireland has many companies there which are in effect non-domiciled like Google for example. GNP attempts to measure the numbers without them. If you are wondering why, think what might happen if you try to tax companies who have come to your shores because you offer low tax rates (Corporation Tax is levied at 12.5%). Not all would leave immediately but you would expect a flow outwards or what might be called an anti-Celtic Tiger effect.

The underlying gap is large as the figures for the second quarter of 2013 were GDP 40.48 billion and GNP 34.02 billion or 16% lower.

If we look back for some perspective then the Irish economy had shrunk by 1.2% over the previous year (GDP) or by 0.1% (GNP).

Central Bank of Ireland

Rather against the recent trend it forecast this only last week.

Taking all of these considerations into account, the Bank’s latest forecasts for GDP growth for 2013 and 2014 are marginally lower than those published in the last Bulletin. GDP growth of 0.5 per cent is now projected for this year, with growth of 2.0 per cent forecast for 2014, representing a downward revision of 0.2 and 0.1 per cent, respectively, to the previous forecasts for 2013 and 2014. The forecast for GNP has also been revised down in a similar fashion and is now projected to grow by 0.1 per cent this year, and by 1.2 per cent next year.

I will leave it to them to explain how better prospects for the Euro area and particularly the UK lead to a cut in future forecasts! But underlying it remains hope for a pick-up.

What about industrial production?

The Central Bank of Ireland may have been looking at these numbers which were also released on Friday.

On an annual basis production for August 2013 decreased by 6.7% when compared with August 2012…….Production for Manufacturing Industries for August 2013 was 1.0% lower than in July 2013.

The rationale for these numbers is the “patent cliff” where a success for the Irish economy (production of on patent drugs) comes to an end as the patents expire and generic competition is legal and increases. If we look at underlying production, we see that this strategy has been a success as it is still 106.4 compared to the 100 average for 2005 when time after time I find myself reviewing countries with number below 100 and sometimes substantially so on such a comparison. However the success is waning and weakening unless new drug production opportunities can be found.

Hopium abounds nonetheless

The latest business survey for Ireland from Investec told us this.

Output growth highest in 11 months

But I cannot record the next bit without putting an, ahem, first.

The Irish manufacturing sector maintained its forward momentum in September as growth of production was recorded for a fourth successive month.

Is contraction the new growth? The actual production numbers for August showed a contraction which in year-on-year terms is substantial. Actually the same was true of July so unless Investec use a different calendar to the rest of us today’s musical metaphor comes from PM Dawn.

Take your mind off reality and leave her alone
Reality used to be a friend of mine
Reality used to be a friend of mine

This issue came to its most extreme manifestation last year and the basic reason for it is that each producer is regarded as one input regardless of their production size. So a reduction by a large pharmaceutical company as a drug sees more generic competition is only one down  mark out of say 100….

I discussed this issue in more detail last December here.

The prospects for services

These numbers should be a lot more realistic as there is no patent cliff here although it is hard to shake-off the effect of what has happened in her production sector.

Signs of improvement in economic conditions both at home and abroad supported optimism among service providers that activity will rise over the coming year. Moreover, sentiment picked up to the highest since October 2007.

Property prices are rising at last or are they?

The latest Daft report (yes that is its name…) told us this.

Asking prices across Dublin rose in year-on-year terms during the third quarter….Prices in Dublin for the 3rd quarter of the year were up 7.7% compared to the same period in 2012,

Property price rises in a nation’s capital may be beginning to seem normal in UK terms but of course Dublin property prices did have quite substantial falls unlike those in London. However one similarity is that the rises do not seem to be occurring elsewhere in Ireland.

Outside of the capital, prices fell between 3% in Kildare and 19% in Laois over the year. In the cities, prices fell by 3% in Galway, 5% in Cork and Waterford and 10% in Limerick.

This means that whilst the overall picture is improved it is by no means fixed.

The average national asking price is 1.5% down from the same time last year, the most stable it has been since 2007, and now stands at €170,400, down 55% from the peak.

You may have noted that the data is for asking or offered prices rather than sales which has an obvious issue. According to the compilers of the data it does not matter much after all what could go wrong?

What about mortgage arrears?

If we consider a housing market which is showing signs of maybe turning after falls of 55% then this from the Central Bank of Ireland is no great surprise.

The most recent trends in the arrears data indicate that the formation of new arrears is declining.

Note the difference between stopped and declining and also reversing. The image of a still troubled situation was reinforced by this.

However, longer-term arrears of over 720 days continue to increase.  This suggests that there is a significant quantity of distressed mortgages that are showing no signs of improvement and are simply transitioning through to the more advanced stages of arrears.


As I review the numbers above a very familiar pattern emerges for Ireland which is that whilst there is indeed some good news from its economy, the price of subverting a nation to the needs of its banking sector is still likely to prove too much. Also it is true that any good news gets repeated whereas the bad gets much less publicity. For example if we now look at the unemployment rate the fall to 13.3% looks welcome but if we look at emigration it looks much more disappointing and may even show a deteriorating situation if unemployed workers are indeed emigrating on the scales feared.

Also the ball and chain tied to Ireland’s feet is the debt which was piled up to bailout its banking sector. At the end of 2012 the national debt was 117% of its GDP and 145% of its GNP and it continues to run a high fiscal deficit. If this does come in at 12.5 billion Euros in 2013 then this is some 7.5% of GDP and the metrics look rather unstable to say the least. The catch is that the supposed cure of Euro area austerity usually collapses the economy and 2014 is expected to see some 3.1 billion Euros of it in Ireland. So there you have it as Ireland finds itself stuck between a rock and a hard place.


This entry was posted in Euro zone Crisis, General Economics, House Prices, Quantitative Easing and Extraordinary Monetary Measures and tagged , , , , . Bookmark the permalink.
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  • GusBmth

    Hi Shaun

    Thanks for the detailed update on the Irish economy.

    I had to do a double-take on that €3.1bn of austerity measures. It’s such a large number relative to GNP or GDP. Are they really expecting to contract the government sector by roughly 1.9% of Gdp, but for GDP to grow by 2.0%? Where does the growth come from (at least in their models)?

    The difference between GNP and GDP raises a question about the UK economy that i’ve had for a while. With so many large corporations, multi-nationals, very wealthy individuals and some charities (who are in many respects like private enterprises providing services to the state); I wonder, how much of the economy is now effectively in the ‘not for tax’ (or ‘not for much tax’) sector? Has anyone done any work on this? It does seem important when people routinely look at government debt relative to GDP.

  • theyenguy

    Under liberalism, when you subvert an entire economy to the needs of its banking sector, then investors profit greatly.

    Liberalism was the era of investment choice based upon credit and carry trade investing.

    Ireland’s Bank, IRE, has been the investor’s carry trade darling, In the last year, Ireland’s Bank, IRE, stock market performance has soared 118%, compared to Lloyds Banking Group performance of 100%. And in the last year Ireland, EIRL, has outperformed its nation investment peers, Finland, EFNL, Netherlands, EWN, and Germany, EWG, EWGS, by a huge margin rising some 43%.

    In contrast, Authoritarianism is the era of diktat based upon debt servitude.

    Please consider that Fiat money died Friday September 20, 2013, with World Stocks, VT, Major World Currencies, DBV, and Emerging Market Currencies, CEW, trading lower, as Jesus Christ is operating in dispensation, as presented by the Apostle Paul in Ephesians 1:10, that is in administrative oversight of all things economic and political, and has pivoted the world out of liberalism and into authoritarianism, and as such the stock market has turned from bull to bear with the Too Big To Fail Banks, RWW, and Regional Banks, KRE, trading lower in value. Those ETF sectors which rallied over the last year and countries which rallied, from late June 2013 to late September, 2013, seen in this Finviz Screener, will be trading lower from the Tuesday October 1, 2013 rally, on competitive currency devaluation and on the exhaustion of the world central banks’ monetary authority, as investors come to greater realization that the US Fed’s monetary policies have crossed the Rubicon of sound monetary policy, and have made “money good” investments bad.

    Friday, September 20, 2013, was liberalism’s day of investment instability that marked an inflection point that pivoted the world from the paradigm of liberalism into the paradigm of authoritarianism, and from a moral hazard based prosperity into a debt servitude based austerity. With the financial markets turning from risk-on to risk-off, as indicated by the Market Off ETN, OFF, trading higher, and the stock market turned from bull to bear.

    The Yahoo Finance chart of the EUR/JPY, and the Google Finance Chart of the EUR/JPY, and the Forex Trading chart of the EUR/JPY, and FXStreet chart of the EUR/JPY, show a close at 132.45 on October 3, 2013; from which a trade lower, will soon propel Eurozone Stocks, EZU, and European Financials, EUFN, as well as World Stocks, VT, lower, as The Great Bear Market of all time commenced Friday, September 20, 2013, and envigorated Thursday, October 3, 2013.

    On Friday, October 4, 2013, currency traders took the Japanese Yen, FXY, slightly lower to a new weekly rally high, at 100.30, its dark filled candlestick suggests that the rally in the Yen, is at its zenith. And the Euro, FXE, even more slightly lower, to a new weekly rally high of 134.12, forcing the EUR/JPY, to lower to close the week lower at 132.04, yet Eurozone Stocks, EZU, rose to close near their all time high. When the Euro Yen currency trade unwinds, Ireland, EIRL, and Ireland’s Bank, IRE, will be leading Nation Investment, EFA, and Global Financials, IXG, lower.

    The modern money system is broken and bust; the age of speculative leveraged investment, is done, over, and finished. Liberalism’s democratic fiat money and banking system is being replaced by Authoritarianism’s diktat money and regional governance and totalitarian collectivism system.

  • forbin

    not sure what all that was about but the modern money system went bust in 2008

    some one may have noticed…. ;-)


    PS: some would argue that Nixon broke it by dropping the Gold Standard and we’ve been downhill since

    Maybe true , but we have GB that saved the world ! ( gah! the audacity of the man ! ) in 2008 since then money and capitalism have been on State support ever since ( ZIRP and QE as examples )

    The King is Dead ! , Long Live the King!

  • Anonymous

    I started my career in the Canadian System of National Accounts in 1974, when GNP was still the headline measure of national income. The switch to GDP in Canada and everywhere else was a good thing, but the GNP estimates are still useful, as you point out.

    I notice the Irish seem to have some a number of real income estimates annually but not quarterly, unless I just couldn’t find them. The most comprehensive would be the index of real gross national disposable income, which would adjust real GDP for gains from terms of trade and net transfers from abroad. This is more comprehensive than the most comprehensive definition of real income calculated by Statistics Canada or the US Bureau of Labor Statistics, which do not adjust for net transfers from abroad. However, to my mind there is something lacking in the Irish choice of deflators. They use export or import deflators for net exports, net investment income [what the Irish CSO calls "net factor income"] from abroad and net transfers from abroad. In all cases, it would seem better to use the deflator of domestic final expenditures (i.e. GDP less net exports less the statistical discrepancy). The StatCan estimates for real gross national income use the DFE deflator for both net exports and net investment income, although for no good reason whatsoever, they define the deflator for DFE based on GDP less net exports, i.e. inclusive of the statistical discrepancy. Calculating real income properly is not rocket science, but for some reason, no national statistical institute seems to get it exactly right.

  • Jim M.

    Now, now Forbin!

    Such bitter cynicism is surely unwarranted on the day that Deputy Finance Minister Christos Staikouras, confirmed by none other than Paulson & Co (who know a thing or two about Greek debt, I believe), has announced that Greece has turned the corner!

    Double up on the popcorn, comfy slippers on and watch as the sun goes down over Europe!

  • Max

    I have a feeling that the greed and incompetence of our modern ‘leaders’ will lead to a very different world in around 10-20 years time and maybe sooner.

  • JW

    Hi Forbin
    Yes the Nixon ‘event’ does seem pivotol in retrospect.
    It certainly allowed the ‘matrix world’ of make believe numbers to exist. Now its almost impossible to detect ‘fact’ from ‘fiction’, or even to really know what those terms relate to.

  • Patrick, London

    Are democracy and fiat monetary systems linked in any way?

  • forbin

    “… Greece’s recapitalised banking sector an attractive investment play…….”

    Hmm, me thinks this man has a dog in that race

    anyway by next year everyone will have forgotten what he said ….;-)


    PS: was that just the 2 “official” bail outs…..

  • Rods

    I think even more pivotal was Clinton’s repeal of the Glass-Steagall act and also forcing the banks to give mortgages to people with low credit ratings, both of which were the trigger for the current recession / depression.

    Most western Governments and central banks stoked the fires by allowing loose money policies and too low interest rates from 2003-2007, thereby allowing a massive credit bubble to develop. In the UK there we many people economists warning during this period that the economy was overheating on house price inflation and debt. Gordon’s Browns answer to not balancing government spending over an economic cycle was to move the goal posts, by extending the length of the economic cycle, while telling us he had abolished boom and bust!

    Where the central banks didn’t remove the punch just as the party got going, boy are we all still suffering from the mother of all hangovers.

  • Anonymous

    Absolutely…they both look like very good ideas in principle (but only on paper).

  • Patrick, London


    There’s a joke in there about fiat money not even needing paper…

  • Anonymous

    Actually Greece has made an important step in the right direction this week. Akis Tsochadzopoulos has been convicted, jailed and had some of his ill gotten assets confiscated.

  • Noo 2 Economics

    Actually I expect Greece to stop deteriorating but not yet – more like at year end or early next year. Unfortunately, the reason why is nothing to do with structural change but one thing and one thing only – money supply and after every money supply induced GDP increase (or in this case cessation of shrinkage) comes inflation when GDP increases are not accompanied with structural improvement and there’s no chance of that with the current Government and EZ politicos etc.

    Without strutural reform the technical development of increased money supply will fade in it’s impact and Greece will return to more of the same over the next 2 years, unless money supply keeps increasing and then they can have lots and lots of inflation.

  • Noo 2 Economics

    “I think even more pivotal was Clinton’s repeal of the Glass-Steagall act
    and also forcing the banks to give mortgages to people with low credit
    ratings, both of which were the trigger for the current recession /
    depression.” Absoloutely spot on!

  • Anonymous

    Hi GusBmth

    The answer to the question posed in your first paragraph is simply yes. Of course reality been the opposite for Euro area austerity so far and the fundamental issue is that Ireland in essence backloaded and we are approaching that phase right now.

    The GDP/GNP is a very good nuance and yes there are issues in that for the UK as well as many others. In the modern era where companies seem to be domiciled on say Mars for tax purposes it poses real questions. I have written before about the issues with national accounts and the problems are increasing not reducing.

  • Anonymous

    Hi WhiteP and welcome to my part of the blogosphere.

  • Anonymous

    Hi Forbin

    You make a good point back as in the day when I was an undergraduate at the LSE it was as if UK monetary policy history started in the early 1970s with the Competition and Credit Control Act.I do not recall anytime at all being spent on the consequences of the further abandonment of the Gold Standard. How intellectually barren that now looks! How so much now seems to flow from it

    On a musical theme I have just been watching Only Connect on BBC4 and one of the answers was

    “The day the music died”

    from the song American Pie….

  • Anonymous

    Hi Jim

    I covered this issue on Q Finance on Friday.

    You may be interested to know that Japonica who have been large buyers of Greek government debt have been predicting that it will surge in price! Who da thunk it?

  • Anonymous

    Hi Noo2

    The route you have outlined does have a catch. The most recent GDP figures for Greece had a negative GDP deflator and so the first impact of any inflationary push will be to reduce real GDP again. Indeed much of the current improvement is down to this route and makes the debt look ever less affordable…

    The GDP deflator fell by 2% between Q1 2012 and Q1 2013….. or by more of less then apparent improvement in real GDP.

  • Anonymous

    Hi ExpatInBG

    Let us hope a few more places follow that example…

  • Anonymous

    Hi Andrew

    It is not the easiest site to pick up data from but as the UK ONS has its own problems it is better than say that many official stats bodies could do better.

    As to deflators the general concept has been one of the changes over the time of this blog. I remember replying to Drf in the early days that they were the most comprehensive of the inflation measures, now I am not always sure when I examine the details that what I thought was a strength actually is! I am still mulling imputed inflation on imputed rent… Although of course most inflation numbers have been found wanting…

  • Anonymous

    Cheers Shaun… I have been lurking for years :-)

  • Jim M.

    A most welcome step in the right direction.

    Small, but welcome.

  • Jim M.

    Hi Shaun

    I’m not the best- informed about these matters, but I note this from ftAlphaville:

    Japonica believes that the market for Greece government bonds is volatile, highly illiquid, and at any time not necessarily reflective of their intrinsic value.

    What could possibly go wrong?

  • Anonymous

    Hi Shaun,

    Let’s hope the Greeks do convict more politicians. He could be a scape goat to appease Brussels or maybe someone wants to settle a grudge or nobble a rival.

    Justice seems to be catching up with Berlusconi and The Spaniards did jail some corrupt officials in Marbella.

  • col

    What is meant by ‘Structural Change’ and why is it considered a ‘panacea’?