By Philip LaneSeptember 18th, 2014
The quarterly changes will attract plenty of attention but little can be judged from them given the volatility of the series, the possibility of revisions and the impact of the MNC and IFSC sectors.
Quarterly Changes: GDP +1.5%; GNP +0.6%
More significantly perhaps are the year-on-year changes for the first six months of the year.
That is an annual increase of 5.8%. For GNP the equivalent change is +6.0%. Wow!
Value added increased in all sectors when compared with H1 2013: (% = real annual growth, € = amount in 2012 prices)
For fiscal rules junkies, nominal GDP for H1 2014 is €90.2 billion. Last April’s Stability Programme Update had a forecast of nominal GDP in 2014 of €168.4 billion. The methodological revisions completed by the CSO over the summer and the recent growth mean that a nominal GDP of around €180 billion is now likely this year. Sticking with the Department’s 3.6% nominal growth projection for next year gives a 2015 figure of €186.5 billion. These increases in the denominator will significantly improve the appearance of fiscal ratios.
Although net exports increased and contributed around 40% of the increase in GDP the remainder is due to domestic demand. Real total domestic demand in H1 2014 is 4.0% up on the equivalent period in 2013. Although all components are up (consumption +1.2%, government expenditure +5.2%) much of the increase is driven by investment which is up 11.3% year-on-year. In recent years much of the volatility in this component has been the result of aircraft purchases by leasing companies based in Ireland.
The current account of the Balance of Payments shows a surplus of 4.3% of GDP for H1 2014 compared to one of 2.5% of GDP for H1 2013.
By Philip LaneSeptember 16th, 2014
Paper by David Purdue and Rossa White here.
By Alan AhearneSeptember 16th, 2014
John O’Hagan cautions against irrational exuberance in the lead up to Budget 2015 in today’s Irish Times. Link is here.
The programme for the third European Aviation Conference, on the general theme of aviation infrastructure, is now available. One topic will be the forthcoming report of the Davies Commission, on expanding airport capacity in the South-East of the UK, though many other issues relating to airport and ATC infrastructure will also be covered. The conference takes place at Schiphol airport on 6th and 7th November. There is a substantial conference fee discount for students.
As usual the EAC is preceded by a more academic meeting of the German Aviation Research Society (GARS), which attracts aviation researches from across the globe; more information will be available at www.garsonline.de nearer the date.
By Philip LaneSeptember 14th, 2014
New book out:
The Political Economy and Media Coverage of the European Economic Crisis: The Case of Ireland (Routledge), by Julien Mercille, University College Dublin.
The media have played an important role in presenting government policies enacted in response to the economic crisis since 2008. This book shows that the media have largely conveyed government views uncritically, with only a few exceptions (some of which are contributors to irisheconomy!). Throughout, Ireland is compared with contemporary and historical examples to contextualise the arguments made. The book covers the housing bubble that led to the crash, the rescue of financial institutions by the state, the role of the European institutions and the International Monetary Fund, austerity, and the possibility of leaving the eurozone for Europe’s peripheral countries. The Irish Times, Indo, Sindo, Sunday Business Post, Sunday Times and RTE are all covered.
“A book of record… An exceptionally rare example of an academically rigorous analysis forcing the powerful light of transparency and exposure into the murky world of Irish policy advocacy and punditry… A captivating account.”
Constantin Gurdgiev, Trinity College Dublin
“One of the most important political economy books of the year… Set to become the definitive account of the media’s role in Ireland’s boom and bust.”
Dr. Tom McDonnell, Macroeconomist at the Nevin Economic Research Institute (NERI)
“Tells the story of the economic crisis well and explains the media’s role in convincing the public that it was all very complicated and that government policy can do little to improve the situation.”
Dean Baker, Center for Economic and Policy Research
“Anyone who cares about democracy and economic policy should read this book and be deeply worried by it.”
Mark Blyth, Professor of International Political Economy, Brown University and author of Austerity: The History of a Dangerous Idea
“A stinging critique of how Irish media narrowed the debate on crisis and austerity.”
Seán Ó Riain, Author of The Rise and Fall of Ireland’s Celtic Tiger
“Outstanding research… Meticulous, balanced and clear.”
Costas Lapavitsas, Professor of Economics, School of Oriental and African Studies, University of London
“Engaging, lively, critical… A must read.”
Professor Rob Kitchin, National University of Ireland Maynooth
“An invaluable concise history of Ireland’s public discussion of economic issues.”
Terrence McDonough, Professor of Economics, National University of Ireland Galway
By Philip LaneSeptember 12th, 2014
The list is here. In addition to the obvious candidates, I was pleased to see the inclusion of Anne Wren (affiliated with the IIIS here at TCD), with the citation reading:
Wren’s work on the service economy deserves to be better known. The judges said that reading her work on low wages in the services sector had the effect of ‘turning on a light-bulb’ for them and noted that The Political Economy of the Service Transition was ‘a book for our times’. As a research associate of the Institute for International Integration Studies at Trinity College, Dublin, she combines economic insight with political acuity.
By Colin ScottSeptember 11th, 2014
The nominees for, and configuration of, the portfolios in the European Commission named by Jean-Claude Junckers this week gives some hint of the priorities in European governance over coming years. In this context we might ask how significant is it that Dutch Foreign Minister Frans Timmermans has been nominated as First Vice President with responsibilities to include Better Regulation, Inter-Institutional Relations, the Rule of Law and the Charter of Fundamental Rights? At first glance this portfolio appears to reflect procedural rather than substantive concerns for the new Commission. The mission letter from President-Elect Junckers suggests that the brief is one which crosses the concerns of all the other portfolios indicating a recognition of the link between process and performance on key issues such as regulation.
Maynooth University Department of Economics, Finance and Accounting in association with FMC2 (Financial Mathematics and Computation Research Cluster) are hosting a one-day conference on Financial Crises: Transmission and Consequences on Wednesday, September 24 in Renehan Hall, Maynooth University, Maynooth, Co.Kildare.
The event brings together leading international and domestic experts on financial crises, contagion and banking. The full programme of speakers and presentations is shown below. We invite you to join us in Maynooth. Registration is free, but please confirm your attendance by emailing: firstname.lastname@example.org. The conference programme is shown below the fold. Read the rest of this entry »
By Frank BarrySeptember 10th, 2014
Thanks to readers for the valuable comments on my last post on Scottish independence. I have just received the transcript (here) of some brief remarks I made on the above topic at a recent conference in the UK.
Many readers of Irish Economy are likely to be aware of a project to rethink the teaching of Economics, linked to the Institute for New Economic Thinking, and organised by a committee chaired by Professor Wendy Carlin of UCL. Some people associated with this blog, including Kevin O’Rourke, are also involved in this work.
On my preliminary and (so far) partial reading of ‘The Economy’, it achieves its goal of being strikingly different to the standard first-year textbook. It places at the centre of the story familiar ideas that students and the public expect to feature in Economics and understand better through Economics, including capitalism, technology, living standards, the environment, institutions, and property rights before turning to the more abstract aspects of microeconomics. All the bells and whistles of digital publication are there too including hyperlinks to many of the readings. And of course it’s all freely available. The organisers are seeking user (student and faculty) feedback via a Facebook page and it seems there is supplementary material to follow in due course.
By Philip LaneSeptember 8th, 2014
By Ronan LyonsSeptember 8th, 2014
Later this month sees the launch of “From Prosperity to Austerity: A socio-cultural critique of the Celtic Tiger and its Aftermath”, a book on the Irish economy and society edited by Eamon Maher (IT Tallaght) and Eugene O’Brien and published by Manchester University Press.
The launch take places 6pm, Thursday September 25 in Hodges Figgis on Dawson Street. Brian Lucey (TCD) will giving an address at the launch – and if that weren’t incentive enough to head along, there will also be refreshments!
By Philip LaneSeptember 5th, 2014
Ireland’s two-year yield turns negative: Bloomberg article here.
In his press conference yesterday, Mario Draghi said the following:
Within the Stability and Growth Pact, one could do things that are growth-friendly and also would contribute to budget consolidation, and I gave an example of a balanced budget tax cut. Reducing taxes that are especially distortionary, where the short-term multipliers could be higher, and cutting expenditure in the most unproductive parts, so mostly, actually not mostly, entirely, current government expenditure.
There are at least three possible interpretations of this statement.
1. Draghi genuinely thinks that balanced budget multipliers are negative, which I find hard to believe. A balanced budget tax cut under current circumstances would be contractionary, not expansionary; at least, that is what we teach our students.
2. Draghi genuinely thinks that the Eurozone’s problems right now are on the supply side, and that tax cuts will help address these problems. I also find that hard to believe. The major problems facing the Eurozone right now are pretty clearly on the demand side.
3. Despite its nominal independence, the ECB is in fact the most politically constrained of the major central banks. If Draghi is going to push the ECB towards QE, and question the overall fiscal stance of the Eurozone, he has to come out with this sort of stuff from time to time, to appease the Germans.
I find the last of these three explanations entirely plausible, and it helps explain the ECB’s poor performance in the crisis to date. But why should a nominally independent central bank feel that its hand are tied in this way? Ultimately, perhaps, because the Eurozone is not a political union, and because democratic legitimacy resides at the level of the member states. This means that exit from the Eurozone is always an option, even if it is not openly acknowledged.
Another reason to think that monetary union without political union is a bad idea.
The Dublin Economics Workshop holds its annual Economic Policy conference at the River Lee hotel in Cork on October 17/18 next. Proposals for papers are still being accepted and should be submitted to email@example.com.
The full programme and booking details will be posted here in due course.
By Philip LaneSeptember 3rd, 2014
Helios Herrera, Guillermo Ordonez, Christoph Trebesch
CESifo Working Paper No. 4935 (August 2014)
Download available here.
We show that political booms, measured by the rise in governments’ popularity, predict financial crises above and beyond other better-known early warning indicators, such as credit booms. This predictive power, however, only holds in emerging economies. We show that governments in emerging economies are more concerned about their reputation and tend to ride the short-term popularity benefits of weak credit booms rather than implementing politically costly corrective policies that would help prevent potential crises. We provide evidence of the relevance of this reputation mechanism.
By Philip LaneSeptember 3rd, 2014
Mario Draghi is sure to be quizzed about this Jackson Hole speech at tomorrow’s ECB press conference.
I outline the shifting macro policy debate in Europe (and the implications for the Irish budget) in this Irish Times op-ed.
Also, David McWilliams writes about this optimistic prognosis for the Irish economy here.
By Philip LaneSeptember 2nd, 2014
The new issue of the International Journal of Central Banking includes this article by Robert Kelly and Kieran McQuinn – here.
The media faithfully reported Eurostat’s flash estimate of yoy inflation in the Eurozone at 0.3% for August on Friday last. The yoy rate says merely that prices were 0.3% higher in August than they had been twelve months previously. Just two pieces of information are employed – today’s number and the number twelve months earlier. The intervening eleven pieces of info are ignored.
What do these eleven observations have to say? Well it is not pretty. The index was unchanged over eight months, and actually fell over four months. The country-by-country numbers are only available for July. Here is what happened over the four months from March.
HICP July % Change over March
Belgium -1.5 Germany +0.2
Greece -0.8 Estonia +0.5
Spain -1.0 Ireland +0.1
Italy -1.6 Cyprus +2.2
Luxembourg -0.5 Latvia +0.8
Austria -0.5 Netherlands +0.1
Portugal -0.1 Slovenia +0.2
Finland -0.3 Malta +4.1
France -0.4 Slovakia +0.2
Half of the 18 countries experienced price falls, half saw increases. The weighted average Eurozone inflation rate over these four most recent months was -0.5%. No large country saw a significant increase but two, Spain and Italy, saw prices fall 1% and 1.6%, hence the weighted average decline.
Using twelve-month rates is well-established but it is hardly best practice. Since the Spring it is clear that the Eurozone has been experiencing a widespread and in some cases rapid fall in prices. With nominal interest rates as low as they can go, and zero real growth, the feared deflation has already commenced. It could even be too late to do too little.
By Philip LaneSeptember 1st, 2014
The economic challenges facing Germany are reported in this FT Analysis article.
Micheál Collins of the Nevin Institute is out with a new paper looking at the burden of taxation by income decile by tax-type, and the results are very interesting. From the piece:
Using data from the most recent Household Budget Survey, this paper estimates both the direct and indirect taxation contributions of households. The paper examines, individually and collectively, the direct and indirect tax paid by households across the income deciles, alongside the overall average household contributions. The data is presented at the households and equivalised adult level.
This chart summarises the findings nicely.
Update: Micheál has responded to many of the main points raised in the thread here.
Paul Krugman asks whether anyone thinks that Hollande has the faintest idea about how austerity is going to fix the French economy, in a context where France is clearly facing a huge demand-side problem.
I guess this is the latest statement of what the French are thinking. They recognise that there is a demand side problem in Europe, and hope that someone else (the ECB, and European institutions who might promote European investment) will address this. And they hope that if they do things that the Europeans like, then this will lead not only to saner European macroeconomic policy, but to investment by French companies as well:
“Je souhaite… que chacun prenne ses responsabilités”, poursuit Michel Sapin. “Le gouvernement a pris les siennes, je souhaite que l’Europe le fasse aussi. Mais il faut que les entreprises prennent les leurs.”
I sort of understand what is going on politically. One thing that strikes you about France is how partisan the politics there are. There are some — typically on the left — who think that demand is all that ever matters, and others — by no means all on the right, since VSP’s are to be found right across the spectrum — who think that supply is all that matters. So the government is trying to say that both demand and supply matter, and is describing this in terms of a bargain: if we are tough on spending and all the rest, then the French private sector and “Europe” should do their part, and invest.
But what if, as appears to be the case, the big reason that French companies are not investing is a lack of demand? And what if the Germans simply refuse to budge on macroeconomic policy, as seems likely? Is French policy simply going to consist of saying “pretty please”, or do they have a credible threat to move things along?
Threatening to leave the euro if things keep going the way they are might just do it (what would be the political point of the euro without France?), but does anyone see Hollande credibly threatening that? Does anyone see him credibly threatening anything? And what is his Plan B if Eurozone macroeconomic policy remains essentially unchanged? Does he even have one?
In the mean time, austerity in France will continue to hurt the French economy. How high in the polls does the FN have to rise before Hollande realises that what he is doing is neither prudent nor responsible, but incredibly dangerous?
And how long before the French political system is willing to acknowledge, publicly, that Montebourg’s warnings do not reflect a particularly “left wing” view of economics, but would be regarded as plain common sense by most macroeconomists?
Nick Crafts provides the latest instalment in the VoxEU series on the economics of World War 1, here.
By Philip LaneAugust 27th, 2014
The new issue of F&D is here : it features an array of articles to mark the 50th anniversary of F&D (and 70th anniversary of the Bretton Woods institutions).
By Frank BarryAugust 27th, 2014
This paper of mine just came out in a special issue of Oxford Review of Economic Policy on the question of Scottish independence. I had been asked to reflect on Irish economic performance since independence, on the exercise of fiscal and monetary sovereignty, and on migration policy, without saying anything about Scotland.
From an earlier draft I attach a comparison of population growth in Ireland and Scotland and their respective peripheries.
By Philip LaneAugust 24th, 2014
Martin Sandbu writes on the tension between “greater integration” and “less integration” among member countries here.
By Philip LaneAugust 23rd, 2014
This book by Liaquat Ahamed (with photos by Eli Reed) provides a “behind the scenes” narrative of how the IMF operates, including a substantial section on its role in the Irish crisis. It is an unusual book, with lots of photos (it is not possible to buy an e-book version) and is collaboration between Writers in Residence, Visual Editions and Magnum Photos.
One interesting passage on page 111 (as part of the book’s coverage of the role of Ashoka Mody):
“During the annual review in 2009, and again in early 2010, Mody urged Lenihan to take advantage of the IMF’s credit facilities and borrow pre-emptively. Mody saw this both as a way of shoring up Ireland’s finances and using the IMF imprimatur to bolster foreign confidence in Ireland. But both times, either Lenihan was not himself persuaded, or he was unable to convince his cabinet colleagues.”
IMF Economists Bas B. Bakker and Leslie Lipschitz propose a taxonomy of balance-sheet crises in a new IMF working paper (.pdf). The basic distinction is between ‘Conventional’ and ‘Insidious’ balance sheet crises.
A conventional balance sheet crisis happens because of external imbalances, typically large gross flows into or out of the country, causing balance sheet vulnerabilities, typically in non financial corporate sectors, which then blow up the economy. The insidious balance sheet crises have the conventional crisis features plus way off-balance expectations and really off portfolio effects.
The authors find Ireland and Japan insidious. Fair play to them.
From the paper:
Conventional and Insidious Macroeconomic Balance-Sheet Crises; by Bas B. Bakker and Leslie Lipschitz; IMF Working Paper No. 14/160; August 1, 2014
This sort of crisis would usually be preceded by a long period of excellent economic results—rapid growth led by exports, sound policies, and strong external accounts—that gives rise to an enduring positive perception of the economic prospects. The difficulties arise when a normal, equilibrating shift in relative prices—an increase in the prices of nontraded goods and assets relative to those of traded goods—gets built into investor expectations and elicits a rapid, and eventually excessive, reallocation of credit and domestic real resources.
The paper is excellent and worth reading as a narrative of a series of crises, but it’s not clear what Bertie et al would have done in 2004 in Ireland, had we had this paper to guide them, because the conventional vs. insidious distinction isn’t clean-cut. The discussion on pages 29-31 of the paper on China are fascinating. A deeper dig into financial history might help get more salient case studies to iron out the distinctions.