IMF Article IV Report for 2010

I haven’t yet read it but I thought I’d alert readers that the IMF’s Article IV report for Ireland for 2010 is now available online here. The “Public Information Notice” (i.e. press release) is available here.

29 thoughts on “IMF Article IV Report for 2010”

  1. I just loved the observation:
    “In principle, they [the authorities] agreed with staff that institutionalizing the commitment to fiscal goals could prove valuable, and consideration is being given to bolstering the institutional arrangements.” Para 42, p26

    For me, it sums up why Ireland is in the current fiscal, economic and financial mess – and why, unfortunately, it will take so long to recover.

    I am, however, a bit confused by the discussion of the Deflationary Drag (p17). By any measure the level of Irish final prices had shot more than 20% above the EZ average. There has been a patchy, but overall, reduction in this gap since the bubble burst. And I would see a further redcution as an essential element of the internal devaluation required within the EZ. I also understand that this relative reduction in the general price level is increasing real interest rates – which increases the burden of servicing outstanding debt and chokes off the demand for credit (even if were available). The IMF staff seem to accept this as an inevitable outcome of the earlier lunacy. But banks, by increasing nominal interest rates to increase profits and shore up their equity, are adding to this deflationary drag.

    Is there a trade-off between the financial health of the banks and the pace at which the economy will recover? In a strange way, it seems to lend support to those vested interests which are capturing rents and monopoly profits and keeping prices high. Their argument seems to be, if you rip out the (excessive) costs and profits in our businesses and bring prices down, we’ll all be mired in deflation. This, perhaps, is the grey area between micro and macroeconomics where I frequently founder and I would be grateful for enlightenment.

  2. no real evidence on corners being turned here folks, at least not as swiftly as the chaps in Merrion Street would have us belive. DoF 2011 forecast is 50% above consensus . Someone is wrong…

  3. @ Brian Lucey

    You seem to infer that we should have faith in the ‘consensus’. Consensus forecasts have been pretty wide of the mark to date.

    To quote Michael Crichton:

    “Historically, the claim of consensus has been the first refuge of scoundrels; it is a way to avoid debate by claiming that the matter is already settled.”

    – although ‘scoundrels’ is probably putting too fine a point on it. Nevertheless the fact that the DoF is outside the consensus range, would a priori, suggest that it has a greater chance that it is likely to be accurate than the consensus (as do the forecasts which are lower than the consensus).

  4. On the corners being turned lark, can I just add – yet again – my long-standing comment concerning how the fiscal deficit is consistently not taken into account in the calculations of the overall state of the economy.

    If Ireland continues to run a huge bugdet deficit, then it is ‘delayed recession’ that needs to be factored out of GNP in order to get a true picture of the state of the economy.

    It is not small change we are talking about here. It is an appreciable chunk of national income. The order of action should be this: 1) stabilise public finances first then 2) look for green shoots. Not the other way around.

    I find it disappointing that the IMF report does not highlight this point more clearly.

  5. @Brian Lucey – one thing the Canadian Government did in the mid 1990’s when they were reducing their budget deficit (of only 9%), was to use the average (consensus?) external forecasts. In addition they assumed higher interest rates than those from the external forecasts in order to err on the prudent side and they created a contingency fund which could only be used for real contingencies (otherwise the fund was used for deficit reduction).

  6. @Brian Lucey

    No real evidence on corners being turned here folks, at least not as swiftly as the chaps in Merrion Street would have us belive. DoF 2011 forecast is 50% above consensus . Someone is wrong…

    Try and keep more up-to-date.

    It is clear from the figures in the IMF table that the forecasts, from which they calculate their ‘consensus’ (a posh way of saying ‘average’) forecast, were all published some months ago, and prior to the CSO release of the GDP figures for 2010 Q1 on June 30. All forecasting organisations that have published forecasts since then have significantly revised upwards their forecasts for GDP growth in 2010 and 2011. The Dept of Finance last week from -1.0% to +1.5% in 2010, ESRI this week from -0.3% to +0.5% in 2010 and from +2.3% to +2.8% in 2011, Goodbody from 0.0% to +1.5% in 2010. So, the figures in the IMF table are allready out-of-date. As for ‘corner being turned’, I would certainly hope not, as the corner was turned in Q1 and, if it turned again, it would mean going back into recession.

  7. JtO is correct the consensus forecasts published by the IMF are out of date and have been revised higher.

    Do you not think the next few quarters GDP growth will be negative JtO or do you think that the growth rate for the year will be higher than 2.3%?

    p.s. Did you get a chance to look at those housing valuation numbers?

  8. I will post on the housing numbers as soon as I can, Dreaded_Estate, hopefully tonight. Likewise for hoganmahew’s query on revisions to GDP figures.

    I would be very loathe to forecast quarterly GDP figures for Ireland. They are extremely volatile, more so than in any other country. Even in the late 1990s, when annual growth was plus 10pc, there were some quarters in which it was negative. Wouldn’t surprise me if GDP fell 1pc in some quarter this year, and rose 4pc the next, or vice-versa. Its like trying, not simply to predict the result of the All-Ireland final, but the scores in each quarter. So, I’ll stick to full-year forecasts for GDP. I forecast in September last on this site that GDP would grow by 2.8pc in 2010 (that is full-year 2010 over full-year 2009). I’m not changing now, so I’ll stick to that figure. At the time, the Dept of Finance, Central Bank and ESRI were all forecasting a fall in GDP of about 3pc in 2010. They’ve all moved in my direction since then, although not as far. They are now forecasting GDP growth of 0.5pc (ESRI) to 1pc (Dept of Finance). These forecasts are well short of mine still, but they are closer to mine than they are to the forecasts they were making this time last year, so they’ve moved more than halfway towards my forecast. Only time will tell, of course.

  9. @JTO
    good to see you back. The californian sun hasnt gotten rid of your northern abrasivness I see! So good of you to give us your admonitions. Its nearly as nice as Niall ODowd writing from the USA today in the times telling us here to all buck up and get optimistic.
    @Edgar
    “@Brian Lucey – one thing the Canadian Government did in the mid 1990’s when they were reducing their budget deficit (of only 9%), was to use the average (consensus?) external forecasts. In addition they assumed higher interest rates than those from the external forecasts in order to err on the prudent side and they created a contingency fund which could only be used for real contingencies (otherwise the fund was used for deficit reduction).”
    yeah, that would be sensible though Edgar….

  10. On a bank resolution scheme. Why we still haven’t started this is baffling.

    “More immediate attention is needed to establish a special bank resolution
    framework. Recent discussions at the European level emphasize timely bank resolution,
    triggered by more prudent thresholds. This, in turn, requires a legal framework allowing for broader resolution tools such as the establishment of bridge banks and the assumption of liabilities and the purchase of assets. Some European countries have begun to establish special resolution regimes, with the U.K. taking the lead. The authorities recognize the merits of a special bank resolution framework, and the delay in establishing one reflects discussion on choices with respect to the tools suitable for Ireland. Staff emphasized that early action to introduce a special bank resolution mechanism is needed to meet contingencies and strengthen the stability framework.”

  11. Welcome back John the Optimist. Your rational logic is a welcome relief to the doomsday prophets that are the majority of contributors on this forum.

  12. @de
    “On a bank resolution scheme. Why we still haven’t started this is baffling.”
    not when all banks are too big to fail and all are systemically important. Then they will never need resolving. Simples, no?

  13. Nice to know the Government assured the IMF that an initial ‘flat-rate’ property tax was at least being considered.

    Surely a better alternative than increasing the tax rate (rather than base).

    The reports on unemplyment not going below 10% until 2015 are really, really depressing.

    I really wish they would be a little less cryptic in the type of support they are urging when it comes to homeowners in negative equity. Surely it can’t actually be debt forgiveness?

  14. The review certainly seems to expect tax revenues to grow strongly as % of GDP over the next two years. An extra 1.5bn in taxes collected in 2011 and a further 2.6bn in 2012 whilst numbers employed stays relatively flat. That’ll go down nicely in an election year..

  15. @ Kevin Fitzpatrick

    Your rational logic is a welcome relief to the doomsday prophets that are the majority of contributors on this forum.

    You can choose between the old Pravda and the truth.

    You should also distinguish between those who present doomsday scenarios like David McWilliams, without credible solutions and those who are an antidote to the constant stream of official spoof for the great ignorant public, as they see it.

    In today’s Irish Times, Barry O’Halloran reports that multinationals “employ 240,000 people in the Republic, according to figures released by the IDA yesterday at its mid-year review.

    Of course this is wrong — would the 1998 level of 118,000 be nearer the truth? – – and maybe O’Halloran misread the handout but wonder why headline targets now include an estimate of indirect jobs?

    Wonder why the IDA had an estimate for new jobs yesterday but none for job losses — and the journalists didn’t even notice the spin.

    Last February when the IDA produced its Horizon 2020 document with a headline total of 105,000 new jobs by 2014, the actual direct jobs target was 62,000.

    I asked what the estimate of job losses was, which could have brought the net to nil, but got no reply.

    I had a momentary thought this morning that I might ask about H1 2010 but I decided to leave it to Nov – – one month before their year-end statement. So no excuses about time.

  16. @Michael Hennigan – a look at the 2009 Forfas Employment Survey shows total employment in foreign agency supported firms down 10% in 2009 compared to 2008, while the figure for Indigenous agency supported firms was 12%. Total employment in the foreign owned agency supported firms was 139,457. We will have to wait til next march to get the corresponding 2010 numbers.

  17. @Brian Lucey

    The californian sun hasnt gotten rid of your (JTO) northern abrasivness I
    see! Its nearly as nice as Niall ODowd writing from the USA today in the times telling us here to all buck up and get optimistic.

    Thank you for the welcome back. It sounds as though you missed me.

    If I were you, I wouldn’t knock Niall O’Dowd for his optimistic attitude. His optimism about achieving peace in Northern Ireland played a big part in getting the Peace Process going in the mid 90s, when lots of the Dublin 4 media/academia set were doing everything they could to scupper it and, with their usual gloom, were claiming that it would lead to Civil War and a military coup. But, at the end of the day, what matters most is not whether distinguished journalists like him or distinguished academics like you are optimistic, let alone nonenties like me, but whether those who create wealth and jobs are optimistic. If you cared to come out of whatever gloomy cellar you are posting from and emerge into the sunlight, you’d discover that more and more of them are indeed becoming optimistic and showing that optimism by announcing expansions and new jobs. This has clearly accelerated dramatically in the past few month and is now happening on an almost daily basis. Just this week alone (and its only Thursday), we have had:

    Glenworth Financial announce expansion and 117 new jobs in Shannon
    Eli Lilly announce expansion and 100 new jobs in Cork
    Tesco announce 748 new jobs across the country
    Riot Games announces its setting up its European Headquarters in Dublin
    PFH announce expansion and 80 new jobs in Dublin and Cork
    United Health Group announce expansion and 200 new jobs in Donegal

    All this is in the past 4 days. Apart from the Tesco one, they were all won in the face of stiff international competition. The reason its happening is because these wealth-and-job-creators don’t share the morbid pessimism about the future of the Irish economy that so many taxpayer-funded academics do.

    As for my northern abrasiveness, if you think its bad now, wait a very few years until we have a United Ireland, and we’re running the country, in the process liberating the 26 counties from the dead hand of the Dublin 4 media/academia set, with their permanent cultural cringe, manic pessimism and ingrained and frequently-expressed belief (not least on this site) that all those on this island living outside their own small Dublin 4 world are thick, ignorant and lazy.

  18. @ Edgar Morgenroth

    There are 3 agencies which grant support foreign firms: IDA, Shannon Development and Údarás na Gaeltachta.

    Forfás reportd last March that total permanent full-time employment in the manufacturing and internationally traded services sectors amounted to 272,053 in 2009. It was 276,287 in 1998. Employment in foreign-owned firms was 132,596 in 2009 and 140,281 in 1998.

  19. #JTO
    If you cared to come out of whatever gloomy cellar you are posting from

    im in Italy at present, 34 and sunny!
    I can create about 10 academic and support jobs “just like that” (ok, in a year) with export (non irish) students on courses. At zero cost to the exchequer. Im pretty sure that elsewhere in TCD others can do so also. And then theres the other universities. But HEA wont let universities hire, even on self supporting courses. So the students (aka exports) go elsewhere….go figger.

    Entrepeneurship is not the province of one sector of the economy. JTO

    Now, what restaurant to go to…

  20. ps ; I do not now and never did live in D4. I live in kildare….
    Your still in norn iron JTO?

  21. @ JTO and Brain L.

    You guys should do a Dave McWilliams on it and bring your show on the road. Might support a job or two in Ticketmaster.

  22. @ JTO

    ‘As for my northern abrasiveness, if you think its bad now, wait a very few years until we have a United Ireland, and we’re running the country, in the process liberating the 26 counties from the dead hand of the Dublin 4 media/academia set, with their permanent cultural cringe, manic pessimism and ingrained and frequently-expressed belief (not least on this site) that all those on this island living outside their own small Dublin 4 world are thick, ignorant and lazy’

    As someone who has worked and lived for lots of years in both parts of Ireland, I recognise the limitations of the D4 mentality. On the other hand, the NI economy is hugely dependent on declining British state subsidy………….

    I trust you are not seriously characterising the contributiions on this sensible blog as ‘manic pessimism’. You don’t have to be a Dubliner or an academic to recognise that our economic development model is broken. Michael H is only talking sense.

    As for the job gains..How many family businesses will go to the wall when Tesco expands its monopsonist network ?

  23. @ John The Optimist,

    ” wait a very few years until we have a United Ireland, and we’re running the country, in the process liberating the 26 counties from the dead hand of the Dublin 4 media/academia set, with their permanent cultural cringe, manic pessimism and ingrained and frequently-expressed belief (not least on this site) that all those on this island living outside their own small Dublin 4 world are thick, ignorant and lazy.”

    That just cracked me up with laughter. I can’t wait for the day when we have a reverse take over of the south by the North. Maybe then we will have some straight talking, and less of this evil spin. We need a massive clear out down here, get rid of all this ballast and waste.

  24. @Brian Lucey

    Im in Italy at present, 34 and sunny!

    Your still in norn iron JTO?

    On holiday in Italy? Oh well, that would explain why you weren’t up-to-date with the GDP forecasts. I can understand that. Everyone is entitled to a holiday, and who wants to read an IMF report during one? But, you’ll find when you come back that all the GDP forecasts have been revised up by quite a lot since you went.

    You seem obsessed with the fact that I come from N. Ireland. You asked me the same question on another thread yesterday and I answered it. Of what relevance is it? Are you from the Conor Cruise O’Brien school of politics? Not that it matters in the slightest, but, for the record, I am not this week in ‘norn Iron’ but abroad or, as you would no doubt call it, the mainland. But, I’ll be in ‘norn Iron’ tomorrow en route to the Ulster Final or, as you would no doubt call it, the international between Tyrone and Monaghan.

    @DreadedEstate, @hoganmahew

    I do apologise for not yet answering your questions. It will probably be Saturday morning now before I find time.

  25. @JTO
    “he international between Tyrone and Monaghan.”
    no, as a kerryman I call that ……lining em up! Is there football in July still? Sure the championship doesnt even start till the semifinal….

  26. I raised a query about deflationary drag and the IMF’s apparent equanimity concerning it in an earlier comment. Deflation seems to be moving up the international policy agenda. In today’s FT:
    http://www.ft.com/cms/s/0/5c8c6aec-9049-11df-ad26-00144feab49a.html
    some concerns, that to me seem well founded, are being raised.

    Is the EMU locking the Irish economy into an even more devastating mirror-image of the low interest rate, pro-cyclical fiscal policy, high inflation, bubble-fuelling malaise in the run-up to the crash that comprises a pro-cyclical contractionary policy, falling asset prices, general deflation, a falling money supply and a widening output gap?

    I’m not for a moment suggesting we exit the Euro, but, since the ECB won’t pursue the necessary agressive easing of monetary policy to create the expectation of sufficient inflation (as recommended in the FT article), because Germany neither needs it nor will sanction it, are we facing deflationary drag or a deflationary spiral?

    There was bound to be some recovery in the economy given the depths to which it has plumetted, but is it a dead cat bounce?

  27. @Brian Lucey
    Buone vacanze in Italia. Switch off the computer and enjoy yourself.

    When you return to this fair Green Isle you may wish to reconsider your comment on another thread re JTO’s Norn Iron roots.

    I have posted this reply on that thread to your comment –

    “you are still based in NI arent you? as in, in another economic juristiction? Just want to be sure…”

    Aidan C Says:

    July 15th, 2010 at 9:16 pm

    I mostly agree with Brian Lucey’s scepticism about the way the government is handling the economic/banking crisis and I mostly disagree with John’s “optimistic” contributions.

    Brian ,what is the point of your comment to John about being based in NI.

    If you are suggesting that someone who is based in NI (full-time or part-time) is not entitled to air their views on the economy of the Republic of Ireland, then I totally disagree with you. Like John , I am a “cross-border” body myself. Originally from Sligo, I moved to the North during the severe recession of the 1980’s. I now work in the South on a part-time basis but still live in the North.
    I , and many other people who live in NI, have an interest in and are interested in what happens economically and socially in Ireland, North and South.

    Brian, please clarify what your comment means . There may be a funny angle to it that I don’t get. 😕

  28. The IMF on NAMA (from the report):

    ‘Rather than aiming to time the market for an upturn in property prices, the goal should be to reduce the large overhang of property in state hands (which could keep investors on the sidelines and prices low), restart market transactions and, thus, help normalize the property market. The lesson from the experience of all asset management companies—including those that dealt primarily with commercial real estate (in Sweden and the Resolution Trust Corporation (RTC) in the United States)—is that a sound and transparent process for the management of asset sales is needed, but moving ahead with early sales is important.’

    NAMA’s response:

    NAMA ‘will reflect market conditions in its decision as to whether to sell individual properties with the goal of disposing of assets in a phased and orderly manner.’
    http://www.rte.ie/news/2010/0715/nama.html

    As NAMA didn’t simply agree with the IMF, it leaves the suspicion that, even though property is still overvalued, they are waiting for an upturn, as feared.

    More wise words from the IMF report:
    ‘Governance of NAMA is strengthened by its independent board. However, given the government’s large presence in the property market, implementing the provisions for the oversight of NAMA’s operations, is vital.’

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