The 2013 socio-economic review from Social Justice Ireland was published yesterday. The 360-page document called What Would Real Recovery Look Like? Securing Economic Development, Social Equity and Sustainability can be accessed here (5MB).
The report was preceded by this piece in The Irish Times on Monday. The Irish Examiner ran a less-than-complimentary editorial yesterday which I imagine led to this reply today.
The developments of the past fortnight in Cyprus and at EU level play heavily in Moody’s assessment of Irish government bonds affirming their Ba1 rating (non-investment grade or ‘junk’ status) with a negative outlook.
The statement can be read here.
Some comments made today by Eurogroup President Jeroen Dijsselbloem reported here are worth reading.
We should aim at a situation where we will never need to even consider direct recapitalisation…If we have even more instruments in terms of bail-in and how far we can go on bail-in, the need for direct recap will become smaller and smaller
Now we’re going down the bail-in track and I’m pretty confident that the markets will see this as a sensible, very concentrated and direct approach instead of a more general approach…It will force all financial institutions, as well as investors, to think about the risks they are taking on because they will now have to realise that it may also hurt them. The risks might come towards them.
A subsequently released statement suggested some draw back from his earlier comments.
Cyprus is a specific case with exceptional challenges which required the bail-in measures we have agreed upon yesterday.
Macro-economic adjustment programmes are tailor-made to the situation of the country concerned and no models or templates are used.
The Eurogroup statement following last night’s meeting on Cyprus can be read here.
Laiki bank is going to put into resolution with shareholders, bondholders and uninsured depositors taking the hit. The losses for depositors will be determined over the coming weeks but could be up to 40%.
Insured deposits of less than €100,000 will be moved to the Bank of Cyprus. Bank of Cyprus will be recapitalised via a debt-for-equity swap with bondholders and uninsured depositors. Junior bonds will be cut.
The official loans to be provided remain at €10 billion though no contribution from the IMF is currently in place. Some financial assistance from Russia is expected. Capital controls will be implemented.
This agreement does not require a vote in the Cypriot parliament and, although not confirmed, it is likely that the amount to be raised from the banking measures is greater than €5.8 billion. All insured deposits of less than €100,000 will be protected.
So how does Plan B compare to Plan A?
The CSO have published the Q4 2012 Quarterly National Accounts and Balance of Payments both of which contain preliminary full-year results for 2012.
In Q4, it is estimated that real GDP was flat (though is recorded as –0.0% and it can seen that the reported decline is –0.047%), while real GNP fell 0.8% in the quarter. The first estimates of the Q3 changes published in December have both been revised down, from +0.2% to –0.4% for GDP and from –0.4% to –0.8% for GNP. Two GDP contractions in a row mean that Ireland once again satisfies the technical definition for a recession – for the first time since Q4 2009 (though only because of the very small decline in Q4 which is subject to revision).
The preliminary estimate is that annual real GDP growth in 2012 was 0.9%. Real GNP was 3.4% higher in 2012.
For debt contracts, the level of 2012 nominal GDP is estimated to be €163.6 billion. Nominal GDP is estimated to have grown 2.9% in the year. Nominal GNP is put at €133.4 billion, up 5.0% on 2011.
In real terms, Personal Consumption Expenditure fell 1.6% in the year, Investment rose 1.2% and there was an 3.7% annual fall in the measure of Government Expenditure included in the accounts.
The measure of real Final Domestic Demand fell 1.2%, the fifth consecutive annual decline. This measure is sometimes used to reflect the performance of the “domestic” (i.e. non-MNC) economy but it includes the Investment of MNCs which is volatile due to the purchases of aircraft by aviation leasing firms based in Ireland. By definition, Final Domestic Demand omits the export performance of indigenous Irish firms.
Exports in 2012 were 2.9% higher than in 2011. Goods exports were down 2.8% while service exports rose 7.9%. Imports were 0.3% up in 2012. Goods imports were down 2.7% with service imports up 2.0%.
Exports are 108% of GDP; imports are 84% of GDP. Although not in these figures we know that around 90% of exports are created in the MNC sector, with the top 10 companies accounting for one-third of the total.
In the Balance of Payments the estimated current account surplus for 2012 is 4.9% of GDP up from a 1.1% of GDP surplus in 2011.
Ireland continues to be a massive importer of intellectual property with Royalties/Licenses contributing €32.0 billion to service imports (€29.2 billion in 2011). On the other side €36.5 billion of Computer Services exports were recorded, a 14.7% increase on €31.8 billion of such exports recorded in 2011. The balance of services improved from -€1.8 billion in 2011 to +€2.9 billion in 2012. This has driven the increase in GDP.
GNP is up by more because net factor outflows improved from –€31.7 billion in 2011 to -€28.9 billion in 2012. The driver of this change was an increase in the inflows of factor incomes from €55.9 billion to €58.1 billion. Outflows of income went from €87.7 billion to €88.2 billion. The residency of companies may be a factor in explaining the rise in income inflows.
Separately, Eurostat has released regional GDP figures (albeit for 2010). Per capita GDP in the Border, Midlands and Western region was 85% of the EU average. For the Southern and Eastern region per capita GDP was 145% of the EU average.