It has been a while since I ventured across the Irish Sea to take a look at the economy of the Emerald Isle so let me put that right today. After all they can be considered part of an economic tour of the Rugby World Cup after looking at the UK,France and New Zealand earlier this week! Also Irish rugby fans may be wondering exactly what zero inflation means as they try to book accommodation? From the Irish Independent.
“The hotel price increases in Cardiff are the most extreme we have ever reported for an event in the UK,” said Denise Bartlett from Trivago. “The average in Cardiff for all match nights is £574/€789, which is 140pc more expensive than a night in London during the Rugby World Cup.”..Rates in Cardiff have been similarly expensive for October 11, when France clash with Ireland in the city (£927/€1,275 on average)
Strangely enough there still seems to be plenty of rooms available…
Economic growth surges
This was so strong that we need to remind ourselves that the numbers below are not annualised and are for just one-quarter. From the Central Statistics Office.
On a seasonally adjusted basis, initial estimates indicate that GDP in volume terms increased by 1.9 per cent for the second quarter of 2015. Growth in GNP also increased by 1.9 per cent in this quarter.
If we look for a driver of these numbers it was a surge in investment.
Capital formation increased by 19.2 per cent compared to the previous quarter.
Also it showed that austerity and economic growth can be bedfellows.
while government expenditure decreased by 0.7 per cent over the same period.
The annual figures were also extraordinary although they also highlighted one of the key issues in the Irish economy.
The factor income outflows recorded in Q2 2015 were €1,026m higher compared with Q2 2014 resulting in the 6.7 per cent increase in GDP becoming a 5.3 per cent increase in GNP over the same period.
Again investment was to the fore and unlike quite a few countries production was strong..
On the expenditure side, Capital investment rose by 34.2 per cent…..The Industry sector (including building and construction) and other services both increased by 4.4 per cent.
Oh and perhaps an old stereotype has seen its day.
Agriculture, forestry and fishing decreased by 1.2 per cent compared with the same quarter of 2014,
So overall the picture for GDP was rather aptly described by U2.
It was a beautiful day
Don’t let it get away
The outlook is good too
The services sector remains very strong as readings in the 60s for a Purchasing Managers Index are relatively rare beasts.
The headline PMI was little changed at 62.1 (versus 63.4 in July) while across the individual components of the survey we see clear indications that Irish services firms remain upbeat on the prospects for the sector.
The picture for manufacturing has slowed but we are not a lot wiser as it has been proved spectacularly wrong in the credit crunch era.
The headline PMI slowed to 53.6 from July’s 56.7, although the sequence of growth now extends to 27 months.
What about unemployment?
Like quite a few Euro area countries Ireland saw its unemployment rate elevate well into double-figures so let us see how this has been influenced by the growth spurt.
The seasonally adjusted unemployment rate for August 2015 was 9.5%, unchanged from the July 2015 rate and down from 11.1% in August 2014. The seasonally adjusted number of persons unemployed was 206,500 in August 2015, an increase of 400 when compared to the July 2015 figure or a decrease of 32,200 when compared to August 2014.
The picture here is not one which will set Irish eyes smiling as on the surface it looks okay.
Preliminary estimates show that average weekly earnings were €697.52 in Q2 2015, a rise of 1.8% from €684.97 a year earlier.
But now take a look at this.
In the five years to Q2 2015 overall average hourly earnings decreased by 0.5% (€0.10) from €21.95 to €21.85.
This hides quite a shift as the IT sector saw a 15.9% rise but health and social work saw a 7% fall.
So a recovery but one that so far has lacked any wage growth for the employed group as a whole. Not quite a wage less recovery but one without wage growth.
On the headline measure there isn’t any to be found.
Prices on average, as measured by the CPI, remained unchanged in August compared with August 2014.
Actually Ireland was way ahead of the disinflation theme that has been hitting the rest of the world as in essence there has been no inflation there for some time. I am exaggerating a little but it has totalled some 2.3% since 2011 and 6.8% since 2006 so below 1% per annum.
Thus real wages have fallen by a lower amount than in the UK where the Bank of England recklessly “looked through” inflation pushing above 5% per annum in 2011 leading to sharp falls in real wages. Most commentators lauded this and are consequently silent about the consequences.
House Price Inflation
The picture here could have been included in my house price bubble analysis of yesterday.
In the month of July, residential property prices rose by 0.9% nationwide. Residential property prices remained up 9.4% on an annual basis……In Dublin residential property prices rose by 0.7% in July. Dublin residential property prices were 9.0% higher than in July 2014.
Before we start mimicking a Eurovision entry and singing “Boom,bang a boom” we need to remind ourselves of this.
At national level residential property prices were 36.9% lower than their peak level in 2007. Dublin house prices were 36.3% lower than their peak, Dublin apartment prices were 40.6% lower than their peak and Dublin residential property prices overall were 37.9% lower than their highest level.
Now here’s a thing as we need an expert on relativity like Albert Einstein to tell us where we are! Let me illustrate from the house price series for Dublin which was set at 100 in January 2005 boomed to 133 as soon as 2007 and busted to 57.3 in July 2012 and as of July this year was 83.5.
Oh and the turnaround coincided exactly with the Bank of England’s Funding for (Mortgage) Lending Scheme. Did it? Could it? Maybe to some extent although of course there was also the trillion Euros of the ECB LTROs applied in early 2012.
What about the public finances?
The situation here saw perhaps the most extreme of all as the national debt to GDP ratio of less than 25% saw around 100% added to it as private banking debt was socialised and the Irish economy struggled. Now we see the benefit of economic growth coming through.
Ireland’s General Government Gross Debt (GG Debt) at face value stood at €203,624 million or 104.7% of annualised GDP at the end of Q1 2015,
However some care is needed as the deficit goes on.
Ireland’s General Government Deficit (GG Deficit) amounted to -€2,687 million in the first quarter of 2015 representing -5.4% of quarterly GDP.
So a different aspect of austerity to that noted earlier. If I was involved in setting examination questions for Masters degree economic I would ask if this is austerity or Keynesianism?
This is of course buying Irish government bonds right now as part of its QE (Quantitative Easing) program. Some 4.4 billion Euros worth so far in an economy growing at over 6%. In examination terms I would simply say discuss?
It also means that Ireland can borrow extremely cheaply. From the NTMA yesterday.
10 September 2015 – The National Treasury Management Agency (NTMA) has today completed an auction of €1,000 million of the benchmark 15-year Irish Government bond, 2.4% Treasury Bond 2030, at a yield of 1.8157%.
Firstly let me welcome the advent of the Celtic Tiger 2.0 and the economic growth it has brought. The growth is so fast that I am reminded of another U2 song.
I’m at a place called Vertigo (dónde estás?)
I note another potential exam question posed yesterday by Roel_D
So is anyone going to revisit the Iceland vs Ireland discussion?
However we also need to note the fact that the housing market and the economy seem to be in tune again which if history is any guide would have the Starship Enterprise on yellow alert. Also the gap between GDP and GNP was 14.5% in the second quarter of this year which relates to the company equivalent of “residential non-doms” (Google for example) where there is some genuine economic activity but much larger transfers of money which leave Ireland as soon as they arrive. It affects the trade figures too.
Oh and whilst Ireland is in the Euro area and it threw off the shackles of UK rule a long tome ago now its economic pattern is very similar to ours.