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.
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.