New Central Bank Bulletin

The October bulletin is out.   The comment article provides an interesting and wide-ranging assessment of the current state of the Irish economy and the set of policy challenges.

22 replies on “New Central Bank Bulletin”

This appears to be a watered down description of the stated purpose of the Act- “This should help”?-

Government has indicated that the purpose of
NAMA is to ensure that bank balance sheets
are strengthened and uncertainty over bad debts is reduced.
This should help ensure a
revived flow of credit on a commercial basis to
individuals, households and businesses.”

Bloomberg carries an article today on the Japanese approach-
“As long as I’m financial services minister, I’m not going to leave small companies in the lurch unable to get loans,” Kamei said. “If a bank takes that approach, I’ll hit them with a business improvement order.”

Publicly-traded companies probably won’t be encompassed by the program, Kamei said. Japanese “salarymen” struggling to pay mortgages after bonus cuts may be eligible, he said. “We’re going to make it extremely easy for very small companies to get money,” Kamei said.

Could we include a provision for a “business improvement order” in the proposed legislation and make a provision for troubled mortgage holders.

I’m encouraged by

“A strategy to restore competitiveness must encompass action on a number of fronts including pay and non-pay costs, infrastructure improvements which support productivity growth, the enhancement of competition in sheltered sectors, continuing to encourage innovation and R&D activity and enhancing the skill levels of the labour force.”


“More generally, the recent ‘Annual Competitiveness Report’ by the National Competitiveness Council (NCC) has drawn attention to the fact that, over the past year, administered prices have continued to increase
quite rapidly, despite price and wage reductions in other areas of the economy. In this context, it would be important that the sheltered sectors of the economy are subjected to greater competition and regulation, notably in the areas of health care, health insurance, education, utilities and public transport. Similarly, professional fees in a number of
selected services sectors remain very high in Ireland, a point also stressed by the NCC and the Competition Authority.”

But, of course, none of these are within the CB’s remit and it is likely that the Government will heed these recommendations and suggestions in the same that that it responded to the CB’s previous muted warnings about the banks’ exposure and the property bubble.

The report appears to contain a statistical error, which is a bit disturbing, given that the Central Bank’s mandate includes ‘responsibility for financial stability in Ireland’. I think that requires being able to work a calculator.

On page 10, it states:

‘Output in 2010, as measured by GDP, will be about 14 per cent below that in 2007′.

Note that the ’14 per cent’ refers to GDP, not GNP.

But, in the detailed tables, they give their GDP forecasts for each year. Combined with the CSO estimate that GDP fell by -3.0 per cent in 2008, we get:

2008 fall in GDP: -3.0% (actual, as published by CSO)
2009 fall in GDP -7.8% (new Central Bank forecast in above report)
2010 fall in GDP -2.3% (new Central Bank forecast in above report)

But, a very quick calculation on my calculator shows that falls of -3.0% in 2008, -7.8% in 2009 and -2.3% in 2010, gives a total fall between 2007 and 2010 of -12.7%, not -14%. Would any of the distinguished economists and statisticians who post here agree? Or have I pressed the wrong button on my calculator? If I’m correct, its rather a serious error on the part of the Central Bank.

Anyway, this report is the latest to revise down forecasts for the fall in GDP in 2009 and 2010, although not as much as Davy and NCB last week.
For all three, I have collected their latest forecasts and compared them
with their previous forecasts.

forecasts for change in GDP between 2007 and 2010:

Davy – previous (before Sep 20): -13.2% , latest (since Sep 20): -8.0%
NCB – previous (before Sep 20): -14.0% , latest (since Sep 20): -9.0%
CB – previous (before Sep 20): -13.5% , latest (since Sep 20): -12.7%

Gradually, the various forecasts for the Irish economy can be put into some sort of pattern, which roughly is:

(a) between 1986 and 2007, the Irish economy grew well over 2 times as fast as the EU average virtually every year – indeed, in 15 of those 21 years, Ireland recorded the fastest growth in the EU15

(b) from 2011 on, the Irish economy will probably once again be growing faster than the EU average, but maybe not 2 times as fast – this is indicated by the Davy and NCB forecasts published last week – ESRI also said something similar last week, although they have yet to put a figure on it and said it was conditional on correct government policies in regard to both the budget and wages

(c) the bad bit, in between these two periods of well-above-EU-average growth, is the period from 2007 to 2010 – until a few months ago, the consensus was that GDP in Ireland would fall by -15% between 2007 and 2010 – this is the figure widely quoted in the media and the figure used as the basis for numerous media reports that Ireland was experiencing the largest fall in GDP ever recorded in a developed country – but, in the last few weeks, this -15% figure has been revised down to just -8.0%, -9.0% or -12.7%, depending on which of the above forecasters you believe.

Is this a fair summary of current forecasts? I’m happy to discuss amicably with anyone with a differing point of view.

Yes, does seem to be a mistake.
A 12.8% peak to trough fall is still absolutely terrible.
I also think there is considerable downside risk in many of the latest and we might get closer to 15% than you think.

The 12.8% fall is still far most than most other European countries

@Dreaded Estate

Yes, that is true, a fall of 12.8% would be bad. Indeed, very bad.

But, as my little table showed, the Davy and NCB forecasts are much more optimistic. At this point in time, its impossible to know which will turn out to be the most accurate. We shouldn’t just assume that the Central Bank one will be correct, and Davy/NCB wrong, or vice-versa. We simply don’t know as of now. There are about a dozen other organisations who publish forecasts. ESRI are the best-known. When they’ve all updated their forecasts, we’ll have a better idea.

I usually interpret these forecasts like I do opinion polls. Rather than placing all my faith in one, I look at the average and I look at the trend. That’s why I sometimes post a list of them on here, and why some other websites show lists of the latest forecasts from 15 or so organisations, and then calculate an average for them (e.g. DKN, Derek Brawn).

Right now, the trend for the forecast fall in GDP is clearly down, i.e. the forecasts for the fall in GDP are clearly being lowered right across the board, but by varying amounts. The average of the three published this month is for a fall of about -10% (NCB around this, Davy below, CB above) between 2007 and 2010. But, obviously, that average might move up or down when all the other forecasting organisations publish their latest forecasts. But the one indisputable is that the trend is down.

I would never criticise any person/organisation for making inaccurate forecasts. I often make inaccurate forecasts myself (for example: my forecasts for house prices in 2007 were totally wrong). We all do the best we can. If I could predict with certainty, I’d be on Paddy Power’s website, not this one. However, the point I made about the cumulative -14.0% figure between 2007 and 2010, which the CB gives in its commentary, and which is allready being reported in the news headlines, not matching the detailed year-on-year forecasts given in the tables in the same CB report, isn’t related to forecasting, but is just statistical sloppiness. That should be unacceptable, and the new Governor should look into it.

But it may not be statistical sloppiness.

One of the individual annual figures could be incorrectly printed or the total could fall could be incorrectly printed.

John, I can only think they’re mixing and mingling some kind of mid-year peak to trough calculation (e.g. based on quarters) with the annual averages. It should be explained.

Did I miss something but am I right that those Public Servants in the Central Bank said nothing about Public Sector pay needing to be brought down apart from mention of the Mc Carthy Report. (Maybe I am wrong) They mentioned downward pressure on Private Sector pay. This is the Bunch who on a monthly basis produced stats on the growth in Private Sector Credit ( PSC) for around 5 years up to 2007 at rates from 25 – 28% annually and did not SHOUT Stop to the entire country. Of course if the other arm of this body the Financial Regulatory Authority had spent more time controlling the Banks lending practices rather than chasing after small fry Financial Intermediaries we would not be in the mess we are now in . The CB and their Economists have no credibilty and the only valuable exercise they provide is the stats which they give on the banks etc.

To echo what Frank Galton is saying, is it possible that from Q3 2007 to Q2 2010 that the drop will be 14% (i.e 12 quarters of negative growth)?

Not very clear if that is what they mean.

to echo what the others have said, it could be two particular quarterly data points. or they could have multiplied 1.03*1.078*1.023. Which gives 14% (rounded up). If so, it might qualify as a schoolboy error.

@yoganmayhew, Frank Galton

Maybe you are correct. But, it would be out of line with their normal practice, and that of other forecasters, who normally give calendar year forecasts only. If that is what they mean, they should make it clear.

They definitely should have made that clearer.

So are they saying we are looking at a peak to trough fall of 14%?

@D_E, John
I haven’t a bulls notion what the fall will be! But that is the only thing that makes sense, as, as John points out, it is a pretty gross error otherwise.

I have seen peak to trough used as a measurement datapoint in other studies, though (and not by calendar year), but, as you point out John, because it is exceptional, it is pointed out as such.

There is at least one error in the article.

“Securum had privatised all its credit by the late
1990s – much sooner than initially expected.”
Securum sold the last 20% of its most toxic assets to Venatius, another workout vehicle (for housing associations), at a huge loss to end it’s existence. Venatius took another ten years to work those and its own assets out.

Off to bed now (mum says) so more tomorrow!

@John…..I’m no great shakes with a calculator but when I add -3.0 and -7.8 and -2.3………… I get – 13.1 so whats wrong with My calculator given that you are most probably correct with your answer of -12.7 ??????

Time to call a halt on this one methinks. Simply adding those percentage changes is correct, but only to an approximation (I think, formally, it is correct to a Taylor series approximation ignoring higher order terms). Put simply, 2% componded with 2% is not 4%, it is 1.02*1.02. And you have made the error worse by ignoring the fact that these are ngative changes.

‘Before the excesses and imbalances of the early and mid-2000s, the Irish economy had reached an advanced level of productivity and performance which stands comparison with any other country.’

This is nonsense. The ‘productivity’ was Multi-national transfer pricing and routing turnover via Irish accounts + debt-fueled property bubble + government largess divided by working population…giving a flattering picture. I don’t believe that – outside of the multi-national sector – Irish productivity was at all healthy.

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