Category Archives: Irish recovery

10/8/19: Irish Debt Sustainability Miracle(s): ECB and MNCs

As a part of yesterday's discussion about the successes of Irish economic policies since the end of the Eurozone crisis, I posted on Twitter a chart showing two pivotal years in the context of changing fortunes of Irish Government debt sustainability. Here is the chart:

The blue line is the difference between the general Government deficit and the primary Government deficit, which captures net cost of carrying Government debt, in percentages of GDP. In simple terms, ECB QE that started in 2015 has triggered a massive repricing of Eurozone and Irish government bond yields. In 2012-2014 debt costs remained the same through 2015-2019 period, Irish Government spending on debt servicing would have been in the region of EUR 49.98 billion in constant euros over that period. As it stands, thanks to the ECB, this figure is down to EUR 27.94 billion, a saving of some EUR 4.41 billion annually.

Prior to 2015, another key moment in the Irish fiscal sustainability recovery history has been 2014 massive jump in real GDP growth. Over 2010-2013, the economic recovery in Ireland was generating GDP growth of (on average) just 1.772 percent per annum. In 2014, Irish real GDP growth shot up to 8.75 percent and since the start of 2014, growth averaged 6.364 percent per annum even if we are to exclude from the average calculation the bizarre 25 percent growth recorded in 2015. Of course, as I wrote on numerous occasions before, the vast majority of this growth between 2014 and 2019 is accounted for by the tax-optimisation transfer pricing and assets redomiciling by the multinational corporations - activities that have little to do with the real Irish economy.

30/7/18: Ireland’s employment data: Official Stats vs Full Time equivalents

Based on the most current data for Irish employment and working hours, I have calculated the difference between the two key time series, the Full Time Equivalent employment (FTE employment) and the officially reported employment.

Let’s take some definitions on board first:
  • Defining those in official employment: I used CSO data for “Persons aged 15 years and over in Employment (Thousand) by Quarter, Sex, and Usual Hours Worked”
  • Defining FTE employment, is used data on hours per week worked, using 40-44 hours category as the defining point for FTE. 
  • A note of caution, FTE is an estimated figures, based on mid-points of working time intervals reported by the CSO.

Based on these definitions, in 1Q 2018, there were 2.2205 million people in official employment in Ireland. However, 51,800 of these worked on average between 1 and 9 hours per week, and another 147,300 worked between 10 and 19 hours per week. And so on. Adjusting for working hours differences, my estimated Full Time Equivalent number of employees in Ireland in 1Q 2018 stood at 1.94223 million, or 278,271 FTE employees less than the official employment statistics suggested. The gap between the FTE employment and officially reported number of employees was 12.53%.

I defined the above gap as “Employment Hours Gap” (EHG): a percentage difference between those in FTE and those in official employment. A negative gap close to zero implies FTE employment is close to the official employment, which indicates that only a small proportion of those in employment are working less then full-time hours.

All the data is plotted in the chart below

Per chart above, the following facts are worth noting:
  1. In terms of official employment numbers, Ireland’s economy has not fully recovered from the crisis. The pre-Crisis peak official employment stands at 2.2522 million in 3Q 2007. The bad news is: as of 1Q 2018, the same measure stands at 2.2205 million.
  2. In terms of FTE employment, the peak pre-Crisis levels of employment stood at 1.9261 million in 3Q 2017. This was regained in 3Q 2017 at 1.9444 million. So the good news is that the current recovery is at least complete now, after a full decade of misery, when it comes to estimated FTE employment.

The improved quality of employment as reflected in better mix of FT and  >FT employees in the total numbers employed, generated in the recent recovery, is highlighted in the chart as well, as the gap has been drawing closer to zero.

One more thing worth noting here. The above data is based on inclusion of the category of employees with “Variable Hours”, which per CSO include “persons for whom no usual hours of work are available”. In other words, zero-hours contract workers who effective do not work at all are included with those workers who might work one week 45 hours and another week 25 hours. So I adjust my FTE estimated employment to exclude from both official and FTE employment figures workers on Variable Hours. The resulting change in the EHG gap is striking:

Per above, while the recovery has been associated with a modestly improving working hours conditions, it is now clear that excluding workers on Variable Hours’ put the current level of EHG still below the conditions prevailing in the early 2000s. More interestingly, we can see a persistent trend in terms of rising / worsening gap from the end of the 1990s through to the end of the pre-Crisis boom at the end of 2007, and into the collapse of the Irish economy through 2012. The post-Crisis improvement in Employment Hours Gap has been driven by the outflows of workers from the Variable Hours’ to other categories, but when one controls for this category of workers (a category that is effectively ‘catch-all-others’ for CSO) the improvements become less dramatic.

Overall, FTE estimates indicate some problems remaining in the Irish economy when it comes to the dependency ratios. Many analysts gauge dependency ratios as a function of total population ratio to those in official employment. The problem, of course, is that the economic capacity of someone working close to 40 hours per week or above is not the same as that of someone working less than 20 hours per week.

Note: More on dependency ratios next. 

8/8/17: Did Irish Household Spending Fully Recover from the Crisis?

I have recently seen several research notes claiming that in 1Q 2017, Ireland has finally fully recovered from the shock of the Great Recession. These claims were based on consumer demand regaining its pre-crisis peak.

What do the facts tell us about this claim? That it is a half-truth.

Consider the following chart plotting consumer demand (consumer expenditure on goods and services) computed on an aggregate 4 quarters running basis. I use official CSO data for both expenditure figures and population figures. And I compute per-capita expenditure on the basis of these statistics.

In 1Q 2017, aggregate household expenditure on goods and services stood at EUR96.16 billion against pre-crisis peak of EUR94.118, using constant prices to account for official inflation. Incidentally, there is nothing new in the claim of recovery on that basis, because Irish households' aggregate spending on goods and services has surpassed pre-crisis peak in 2Q 2016.

The problem with the aggregate expenditure figure is that population changes. So the chart above also shows per-capita real expenditure, expressed in 1,000s of constant euros. Here, the matters are a bit less impressive. Per capita household expenditure on goods and services in Ireland peaked pre-crisis at EUR21,508.75. At the end of 1Q 2017, this figure was EUR 20,574.71.

There is another problem with analysts' celebrations of the 'end of the lost decade'. Aggregate household expenditure peaked (pre-crisis) in 1Q 2008, so it took 32 quarters to recover that peak. Per-capita household expenditure peaked in 2Q 2008, which means we are 35 quarters into the crisis and counting. Neither comes up to a full decade.

Finally, there is a really big problem. This one relates to what a 'recovery from the crisis' really means. In the above, we implicitly assume that a recovery from the crisis is return to pre-crisis peak. But there is a major problem with that, because our current state of life-cycle incomes, savings and debt in part reflect decisions made under the assumptions that operated back in the pre-crisis period. In other words, our income, savings, investment, career choice and debt carry a 'memory' of the times when (pre-crisis) trends did not incorporate any expectation of the crisis.

What does this mean? It means that psychologically, materially and even economically, the end of the crisis is when the economy returns to where it should have been were the pre-crisis trend extended into the present. To make this comparative more robust, we should also recognise that, in part, the pre-crisis trend should have omitted at least some of the most egregious excesses of the bubble years.

Let's do that exercise, then. Let's take pre-crisis trend in household expenditure (aggregate and per-capita) for year 3Q 2000-2004 (eliminating the explosive years of 1997-2000 and 2005-2007) and see where we are today, compared to that trend.

On trend, our aggregate personal expenditure should have been around EUR111.7 billion marker in 1Q 2017. It was EUR96.16 billion. This hardly reflects a recovery to the pre-crisis trend.

Also on trend, our per capita expenditure should have been around EUR24,140 in 1Q 2017. It was EUR20,575. This hardly reflects a recovery to the pre-crisis trend.

As some of my friends in Irish stuffbrokerages have been known to remark in private: "Shit! Damn numbers." Indeed... the recovery will have to wait... but, lads, you know you can do these calculations yourselves, right? You are paid six figure salaries and bonuses to do them. Or may be you are not. May be, you are paid six figure salaries and bonuses not to do these calculations...

10/10/15: IMF’s Macro Data and That “Iceland v Ireland” Question, again

Recently, I posted some data from the IMF Fiscal Monitor for October 2015 comparing fiscal performance of Iceland and Ireland and showing the extent tp which Iceland outperforms Ireland in terms of fiscal deficits and Government debt metrics. You can see the full post here.

Now, consider economic performance, especially of interest given recently strong performance by Ireland in terms of GDP, GNP and even Domestic Demand growth rates.

So let’s take a look at IMF's latest economic data and revisit that "Iceland v Ireland" question.

Let;s first take a look at the real GDP per capita, setting peak pre-crisis levels of 2007 (for both countries) as 100 index reading and tracing evolution of the real GDP per capita. Both countries are expected to regain their pre-crisis GDP per capita levels in 2015, with Iceland reaching 0.17% above the pre-crisis peak and Ireland reaching 0.29% above the same measure.

We are not going to dwell on the gargantuan (20%+) GDP/GNP spread or the fact that Irish Domestic Consumption per capita is nowhere near pre-crisis peak (see here). In pure real GDP per capita terms, Iceland is doing as well or as badly as Ireland so far.

The same applies to GDP per capita expressed in current prices and adjusted for differences in exchange rates and price levels (the Purchasing Power Parity adjustment). Iceland is at 112.9 index reading in 2015 forecast, Ireland at 113.1 index reading. For 2016, Iceland is forecast to be around 117.5, Ireland at 117.8. Neck-in-neck.

However, when it comes to the labour market performance, the close proximity between two countries vanishes.

Unemployment rate in Iceland rose from 2.3% in 2007 to a peak of 7.525% in 2010 and is expected to be at 4.3% in 2015, falling to forecast rate of 4.1% by 2016-2017 before rising to 4.4% in 2020. Ireland is faring much worse. Our unemployment rate was double Iceland’s in 2007 - at 4.67% and this peaked in 2012 at 14.67%. Since 2012, the rate fell, with 2015 outlook set at 9.58% - more than double Iceland’s rate, falling gradually to 6.9% in 2020 - more than 50 percent higher than Iceland’s.

Employment rate also tells the story of Iceland’s outperformance. And worse - dynamically, this outperformance is set to continue deteriorating for Ireland. In 2007, Iceland’s total employment ratio to total population was 57.5% against Ireland’s 49% - a gap of 8.5 percentage points. This year, per IMF projections Iceland’s employment ratio will be around 55.8% against Ireland’s 42.2% - a gap of 13.6 percentage points. In 2016 (the furthers forecast by the IMF), Iceland’s employment rate is projected to be 56.5% against Ireland’s 42.7% - a gap of 13.8 percentage points.

Since the beginning of the crisis, Irish policymakers extolled the virtue of our open economy and exports as the drivers for economic recovery. Aptly, we commonly regard ourselves to be a powerhouse of exporting activities. Which means that we should be leading Iceland in terms of our external balances performance. Reality is a bit more mixed. Iceland’s current account deficit stood at a whooping 22.8% of GDP in 2008 on foot of strong ‘imports’ of capital into the banking system. Ireland’s was more benign at 5.73% of GDP. However, since the peak of the crisis, both countries achieved massive improvements in their current account balances, with 2014 ending with Iceland posting a current account surplus of 3.41% of GDP and Ireland posting a current account surplus of 3.62% of GDP. However, in 2015, IMF forecast for current account balance shows Iceland pulling ahead of Ireland, with current account surplus of 4.61% of GDP against Ireland’s 3.2% of GDP. This gap - in favour of Iceland - is expected to persist (per IMF) through 2020.

Table below summarises the sheer magnitude of positive adjustments to pre-crisis and crisis worst points of performance on all metrics above, through 2015 for both countries:

In summary: 

  • In absolute terms, both Ireland and Iceland have made big adjustments on low points of performance pre-crisis and at the peak of the crisis through 2015. 
  • Iceland clearly outperforms Ireland in labour market terms. 
  • Ignoring the caveats on composition of Irish GDP, Ireland and Iceland perform basically in similar terms in terms of economic activity recovery. 
  • In terms of external balances, Iceland currently leads Ireland, after having lagged Ireland through 2012. 
  • Iceland solidly outperforms Ireland in fiscal metrics of Government debt and deficit dynamics.

The evidence above is sufficient to reject the claims that Ireland outperforms Iceland in recovery.

7/6/15: Greece: How Much Pain Compared to Ireland & Italy

Today, I took part in a panel discussion about Greek situation on NewstalkFM radio (here is the podcast link during which I mentioned that Greece has taken unique amount of pain in the euro area in terms of economic costs of the crisis, but also fiscal adjustments undertaken. I also suggested that we, in Ireland, should be a little more humble as to citing our achievements in terms of our own adjustment to the crisis. This, of course, would simply be a matter of good tone. But it is also a matter of some hard numbers.

Here are the details of comparatives between Ireland, Italy and Greece in macroeconomic and fiscal performance over the course of the crises.

Macroeconomic performance:

Fiscal performance:

All data above is based on IMF WEO database parameters and forecasts from April 2015 update.

The above is not to play down our own performance, but to highlight a simple fact that to accuse Greece of not doing the hard lifting on the crisis response is simply false. You can make an argument that the above adjustments are not enough. But you cannot make an argument that the Greeks did not take immense amounts of pain.

Here are the comparatives in various GDP metrics terms: