Archive for January 11th, 2013

When the old-hand Michael Noonan became the new Minister for Finance in March 2011, he was presented with a  briefing from his Secretary General at the Department of Finance – a redacted version of the briefing was made public, but despite the redactions, it is clear that the priority espoused by the Department of Finance is “creating confidence”. And before we all dismiss the mandarins in the Department as totalitarian Pollyannas, remember that, even if our economy were sound, we need confidence for people to spend and invest and generate growth, wealth, income and employment. On the other hand, there is something comical about imposing confidence on an economy that is still structurally weak.

And as 2013 gets off to an economically eventful start, the Department of Finance fight to impose confidence continues, but what about the reality – the figures and the pronouncements of those who don’t have “skin in the game”. This is a summary of where we are – both half-glass-fullers and half-glass-emptiers will both find evidence to advance their case.


Exports, there were concerns that with the “patent cliff” in Q3,2012 which would mean that some of our drug companies would see dramatic falls in exports in Q4,2012 but that seems to have been overplayed and today, the Irish Exporters’ Association said exports in 2012 were up 5%, which considering the shaky economies in Britain, the US and Europe, is no mean feat at all.

Borrowing, ability and costs. In September 2010, Ireland became unable to borrow money on international bond markets at rates deemed sustainable. This came about with the ending of the banking guarantee in September 2010, the withdrawal of deposits from our banks and subsequently some unhelpful talk from Messrs Sarkozy and Merkel which gave the impression that borrowers might face some degree of default. So we entered “the programme” in November 2010 with the IMF and EU/ECB. Since then, we have received €56bn from the Troika, and we have all but liquidated what was remaining of our National Pension Reserve Fund which had €25bn of rainy-day funds when this crisis first erupted in September 2008. Our notional long term borrowing rates exceeded 14% in June 2011 but today, we are not only back at borrowing levels available in September 2010, just over 4% for long term debt, but we are actually issuing debt, €2.5bn this week. There are caveats, that if there is no bank deal or the deficit doesn’t fall in line with plans this year, but it appears we are on course to be able to borrow at the end of 2013 when “the programme” concludes.

Mortgage approvals. There is something almost desperate about the Irish Banking Federation issuing monthly figures now that mortgage approvals are increasing from their almost moribund base in 2011. We have had monthly reports for October and November 2012, both showing substantial month-on-month increases and solid annual increases. Some might chaff that this business is being temporarily boosted by first time buyers rushing to meet the 31st December 2012 deadline for enhanced tax relief on mortgages, and that the discontinuance of that incentive and its replacement with a property tax holiday which is worth €180-360 for the average home, will not be enough to sustain the brisk business seen in the last quarter of 2012.

Property prices. Make no mistake, it is in the interests of the economy generally and not just the interests of newspapers, politicians, banks and estate agents, that we have stable property – residential and commercial – prices which are gently increasing. The evidence points to a stabilization of prices in the second half of 2012, and indeed small increases in Dublin. That’s based on mortgage transactions, but even Daft.ie’s index based on the Property Price Register records a modest decline of just 0.9% in Q4,2012.


Fitch. The bloody ratings agencies have really peed on our efforts to be optimistic in the New Year. Fitch this week forecast as its base case, a 20% further decline in residential property prices and a more subdued economic outlook generally. Fitch cited the overhand in vacant property plus the mortgage crisis as factors that will keep property declining. The 60% peak to trough decline forecast by Fitch is identical to the forecast last summer by …

Moody’s, have this week confirmed Ireland’s credit rating and outlook – junk and negative – even after the issue of €2.5bn of new debt by the NTMA. Ratings agencies generally haven’t covered themselves in glory in the past decade, with their failure to assess growing debt risks and to predict the crisis and catastrophe that broke from 2007 onwards. Having said that, ratings agencies are independent, despite the best efforts by politicians everywhere to sway their views.

Retail sales for November were bad, and the reason for the year-on-year decline of  0.2% was NOT the so-called “saorview effect” where people went out and bought new televisions and digital receivers in advance of the October 2012 switchoff of the analogue signal. The evidence is that saorview-related sales CONTINUED in November 2012 because year-on-year in November 2012, such sales were up by 5%. Having said that, the three-month picture for Sep-Nov 2012 was positive with 1.8% growth, and anecdotally retailers say they had a good Christmas.

Consumer sentiment, the ESRI publish a monthly consumer sentiment survey in conjunction with KBC. It is volatile to say the least, but the report for December 2012 published today shows a vertiginous tumble in confidence so we are now back at October 2008 levels.

Spending power, PRSI increases of €264 for most workers, child benefit cuts, increase VHI fees, motor tax and the property tax from June 2013 will all depress spending power, and the prospects for wage increases which might help cushion the cuts doesn’t look great. And remember that

Mortgage arrears, the latest figures for Q3,2012 showed the level of arrears continues to grow with 86,146 accounts in arrears of more than 90 days in Q3,2012 compared with 81,035 for Q2. The Personal Insolvency Act is now law, but we are awaiting a commencement day. The new Insolvency Service will be up and running in Q2, 2012 and Minister Shatter has estimated we’ll have 3,000 bankruptcies this year.

Commercial property indices for Q4,2012 will be issued by Jones Lang LaSalle next Wednesday and by SCSI/IPD the following week. The latest figures for Q3,2012 are still falling at an annualized 10% rate.


Jobs, the evidence from the monthly jobs statistics is there is a stabilization of unemployment at a very high level, and that the number in work – employment – is stable. Even accounting for emigration, the picture looks stable, even if that still means unemployment is at 14.6% according to the latest monthly estimate – 14.8% according to the latest more accurate survey in Q3,2012 – with youth unemployment at 30% and long term unemployment, as measured by Live Register claimants, over 12 months of 200,000 or 45% of Live Register claimants. If you take into account that there are 5,000 extra people on various schemes like JobBridge in 2012 compared to 2011, then the Live Register also remains flat at around 430-440,000. Headline-grabbing job announcements are sadly being offset by more low-key retrenchments.

Exchequer statement for 2012. The end of year Exchequer statement was surprisingly good with a reversal of fortunes for tax with some beefy corporation tax receipts in December 2012, we also had a boost from the €450m 4G mobile phone licence windfall. We overspent €700m, mostly due to health and social protection though we used €200m from the capital budget to cushion that overspend. However, it seems that taxes are coming in on target, and under the auspices of the IMF, there should be renewed focus on keeping a lid on costs in 2013.

Economic growth. With the publication of the national accounts for Q3,2012 we saw that nominal GDP and GNP looks like they are both on target to meet the Government’s own targets for 2012. Real GDP in Q3,2012 was up 0.8% on the previous year and real GNP was up by 3.7%, though GNP in particular can be volatile as it is heavily impacted on remittances by foreign companies. The recent trend has been generally to downgrade growth forecasts, but the November 2012 forecast from the Department of Finance bucked that trend with raising the forecast for 2012.

Crime. Apart from burglaries, crime generally is decreasing say the official statistics though burglaries are up substantially year-on-year and high profile burglaries contribute to the perception of more crime. You can carp about issues with recording of crime but it is difficult to hide murder and kidnapping, and both are substantially down.

Debt sustainability. The politicians seem unsure how to present the sustainability of our debt – if they claim it’s manageable, that undermines debt negotiations in Europe, if they claim it’s unsustainable, then that deters investments and undermines confidence. But between the Scylla and Charybdis, there is the reality of debt:GDP marching towards 120-125% this year or close to 150% of GNP and the prospect of low-inflation and modest growth leading to a lost decade as we work to service our debt.

Bank deposits and reliance on ECB – both are stable, and although ECB lending to our banks is down to an overall total of €121bn comprising €71bn direct lending and €40bn lending from our own Central Bank, this is down from €187bn in February 2011, but given the massive deleveraging undertaken in our banks, it is less to do with confidence than having a smaller banking sector. Deposits are stable at around €155bn, up from a low of €140bn in July 2011 – in recent months there have been small declines and increases, but overall deposits are stable.

Don’t Know

Emigration, the latest emigration statistics are for the year ended April 2012 when 87,100 of us are estimated to have left the State, that’s 19 in every 1,000 men, women and children. Anecdote suggests there is still substantial emigration, but on the other hand there is immigration and the employment figures would point to emigration reducing. However, it will be September 2013 when we get the statistics for the year to April 2013.

Debt deal, there are claims, counterclaims, utterances of support, and beneath the surface there seems to be a belief that we will shortly get agreement to extend the period over which we repay the Anglo promissory notes from 20 years to 30-40 years. It doesn’t look likely we’ll get anything other than the market value for our stakes in the banks, estimated at around €14bn excluding our stake in PTSB.


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Although An Taoiseach committed to reforming  the Freedom of Information legislation by the end of 2012, and although that is another timed-commitment missed – like the Seanad referendum – commitment, it seems that in 2013,  there will at least be a new Bill, though it’s by no means certain that the new legislation will extend as far as NAMA.

Yesterday, the Minister for Public Expenditure and Reform, Brendan Howlin appeared before the Oireachtas Finance, Public Expenditure and Reform committee and discussed the extension of Freedom of Information legislation to several new organizations including An Garda Siochana and the Department of Defence. Of primary interest on here is NAMA, but it remains uncertain if NAMA will be included in the new Bill, and if so, to what extent its activities will open to scrutiny.

Minister Howlin stressed that NAMA’s commercial remit may make some requests unacceptable.

This concern is really a diversion on the Minister’s part, because there are existing exclusions under our FoI legislation to protect the necessary commercial sensitivity of transactions undertaken on our behalf by the State. The assessment on here, over the past three years, is NAMA is intrinsically opposed to transparency. We saw this with the extraordinary resistance to the determination by the Information Commissioner Emily O’Reilly that NAMA be subject to environment requests – that resistance is still being played out in the High Court.

The resistance is understandable. NAMA is a new Agency with colossal power and money, and is under constant pressure from those wishing to take a bite out of that power and money. NAMA is not excessively resourced compared to its competitors and dealing with FoI requests can take considerable time. And NAMA will not want mistakes, which it like any large organization will inevitably commit at some point, brought to light where they can undermine the morale and effectiveness of the Agency.

When are we likely to see the new Freedom of Information legislation? The changes will be published in the forthcoming session, says Minister Howlin, which means by the end of March 2013. Will NAMA definitely be included? Not “definitely”, although Minister Howlin was emphatic on “Tonight with Vincent Browne” on 10th October 2011 when he said “we will introduce FOI to NAMA”. Will Freedom of Information which excludes requests which might be deemed commercially sensitive, be of any use? Oh yes indeed, I for one would like to see the independent valuation report which NAMA claims it had before selling a property in Lucan to Enda Farrell, okay, the figures might be redacted but it would put to bed once and for all the doubt over whether NAMA did get an independent valuation.

[Juno McEnroe in the Irish Examiner today has a detailed report on yesterday’s Oireachtas committee proceedings, the transcript of which won’t be available for a few days]

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