"Irish Eyes Are Smiling" But Should They Be?

Tyler Durden's picture

Submitted by Dr. Constantin Gurdgiev via True Economics blog,

Ireland has been basking in the spot of an unusual sunshine this October. The cold spell, that normally takes the island over at the end of the month and into early November, coating it in a wet blanket of wind-swept and never ending rains was nowhere to be seen, replaced by the strangely regular appearances of the sun, blue skies and sight of the still leafy, colour-turned trees.
Similarly, the markets have been kind to Ireland too. There is not a day going by without a praise for the country reforms or recovery or both from some European leader or a Wall Street analyst or a hired gun from the 'official' sectors of the Irish state gracing international newspapers and media screens. CDS are down, estimated probabilities of default are down, bond yields are down. Sales of new bonds are up. Foreign direct investment figures are up. Jobs announcements are up. And forecasts… well, forecasts just keep on climbing.
In the latest round, the European Commission weighed in with its prediction that Ireland will outgrow its euro area peers by some 3-fold in 2014 and 2015.
Truth is, all of this is largely nonsense. Ireland is a small open economy with trade and investment exposures to the Euro area, the US and the UK. In almost even shares.
This means three things, relating to the Irish economy forecasts. 

Firstly, Ireland benefits from the accommodative monetary policy in the Euro area (making its gargantuan public and private debts overhang more manageable, for now, and its exports cheaper).


Secondly, due to the geographic distribution of its trade and investment links, Ireland is also benefitting from the faster growth in demand in the UK and the US.


Both points translate into more robust exports performance for Ireland than for its European peers. But both also mean that most of Ireland's trade in goods and services is nothing more than transfer pricing and tax optimisation-driven shifting of digits across the borders. Yes, the multinational companies provide some employment - roughly 10 percent of the country total. But beyond that, they deliver little. The hiring they are doing is increasingly about bringing people with skills from abroad rather than taking people for training from within. And while in January-October 2013 corporation taxes accounted for just 9.46% of total tax revenues collected in Ireland, over the same period this year, the number is 9.24%.


So whilst the external trade tends to boost Ireland's GDP, the fact that over 3/4 of the country exports are accounted for by the multinationals, making Ireland's GDP / GNP gap the largest of all advanced economies. That's "growth in and profits out" model of an economy run on FDI.


Which brings us to the third point about Ireland's growth outlook: it is highly unpredictable. Whilst exports are volatile because they are dominated by the considerations of tax optimisation rather than actual production, the domestic economy is desperately searching for a growth catalyst, and to-date, finding none strong enough.


In H1 2014 the GDP / GNP gap was actually slightly lowered. But not by a pick up in the domestic activity. The reclassifications of R&D spending as investment in ESA 2010 standards adopted by Ireland ahead of all other countries in the euro area generated a significant uplift in GNP. Overnight, Irish 'investment' side of the National Accounts boomed by almost EUR10 billion (in full year 2013 terms). And surprisingly high retention of profits by the Multinationals in Ireland (most likely prompted by the sluggish capex spending in the stagnating global economy) further helped to temporarily and superficially boost the GNP.

Meanwhile, in the real Irish economy, the country remains the second worst hit by the crisis in the euro area. As shown below, Ireland's real GDP in per capita terms is down off the 2007 peaks and all the miracles of the recovery are unlikely to get it anywhere near the euro area averages any time soon.


Of course, the real long-run question for Ireland is whether the current rates of growth observed in 2014 to-date (closer to 5% per annum) are sustainable in the medium term.
The answer rests with the potential growth rates in the two sectors that make up Ireland's bipolar economy:

1) Domestic demand: Domestic demand is starting to show some signs of revival, exactly in the areas where one would expect these signs to materialise at this early stage of the recovery: first domestic investment, then domestic consumption.


Domestic spending is rising (at 1-2% per annum rate) on both household consumption and public spending uplifts. We can expect this trend to continue, without significant acceleration until H1 2016, as domestic spending is being held back by slow growth in wages and continued high rates of tax extraction from personal incomes.


Domestic investment has been a beneficiary (at the aggregate level) of institutional investors and some domestic cash buyers flooding into the distressed property markets since H2 2012. Accounting gimmickry of ESA 2010 standards is boosting this side of the National Accounts too. The property markets cash-buying spree is now tapering off, and is being partially replaced by the banks starting to issue new mortgages. I suspect this trend will lose more momentum over H1 2015. Aside from this, there is no uplift in domestic investment. Corporate investment is weak, stripping out foreign companies tax inversions. Demand for capital goods is weak. Which underpins the nature of jobs creation claims presented by the Government. Official figures for new jobs created include adjustments made to the labour force surveys in the wake of the last Census, resulting in a massive uplift in the numbers declaring themselves as being employed as farmers back in 2013. Stripping these adjustments out, instead of ca 70,000 new jobs 'created' claimed by the Government, real private sector non-farm payrolls are up roughly 27,000 on 2011 levels. No wonder capital investment is running weak. Meanwhile, labour force participation rate is falling due to exits from the workforce, early retirements, and emigration.


2) External demand picture is more complex. Rates of growth in exports of services - the factor that drove up Irish current account surpluses in 2010-2013 - are slowing down as Ireland exhausts large FDI sources in the ICT and Financial services sectors, and as negative reputation of Ireland's tax optimisation policies sets in. In the short run, however, we can see an acceleration in FDI inflows as some of the MNCs rush in to lock into Irish 'domicile' before it becomes obsolete. Volatility of exports growth figures will be high in 2015-2016. But in the longer run, we can expect a downward trend in the rates of growth in exports and a pick up in the rates of growth in imports, assuming domestic demand picks up. On manufacturing side, things have been improving due to weakening of the euro. However, there are few new catalysts for growth in the sector at this point in time. Over the longer time horizon there are adverse potential headwinds coming up as patent-cliff-hit pharma companies are gradually starting to bypass Ireland in locating new activities.

In brief, there is little clarity on the future potential growth dynamics. Key ingredients for sustained optimism that are lacking include actual structural reforms (virtually none have been implemented to date and even fewer have been properly planned and resourced) and clear catalysts for growth (there are no broadly-based sectoral drivers for growth other than "things are so bad, they can only get better" argument for domestic demand and "we have lots of FDI" argument for externally trading sectors).
One last caveat - we are already witnessing the process of unwinding of reforms that aimed to deliver moderate savings in public spending. The Government is aggressively trading down any expectations that savings in public expenditure secured in 2009-2013 will continue into the future, beyond 2015. Political cycle does not favour continuation of the past reforms as deeply unpopular and internally torn governing coalition is facing general elections before April 2016.
As Europe gets hungrier and hungrier for a feel-good story, as Brussels longs more and more for a poster child for its 'crisis management' efforts of 2008-2013, as Dublin politicians get closer and closer to facing the crisis-hit electorate, the sunshine being lavished by politicians and the media onto Ireland's economy is likely to get only brighter. It might not feel much warmer, though, on the ground. Nor will it stave off the onset of winter.

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knukles's picture

Hey come on.  Give Europe a break.  They managed to land a drone on the comet and it's gonna do nothing.
So next step is to declare an emergency, take all the comet's deposits as a bail-in, have Mario Doggie state unequivocally that Europe's problem is too much growth and too little inflation, tighten policy and send the whole place into a New Dark Age.  Aside from the powerful in Brussels.  If they like their caviar and escargots, they get to keep you taxpaying for their caviar and escargots.
And Kenya said they had a no return policy.
All's great!


I want my Bammy glasses, too!
Look at this shit.  EU's leadership in 3D glasses.
Nuffin' better to do!


hedgeless_horseman's picture



Fuck growth.

Putting up McMansions and strip malls on Irish pasture is a sin against God, mankind, and the Universe.

Atomizer's picture

Looks like paradise for Obama. Look at all the sheeps he can fuck.

Atomizer's picture


bring back the sheep photo. I look like a fucking idiot since you changed it.


Atomizer's picture

European Union was hoping they could supply ten years of energy from that comet. In the meantime, they have no leverage and have to fork up the bill in arrears.

Atomizer's picture

Breaking news, IMF director is found hung from her cottage home. Wake up ZH members, start going up two levels higher to stop this madness. BTW, Lagarde is not dead. Just a example of MSM bullshit that crosses the screen. Engage!

aVileRat's picture


I'm serious. This is the dumbest thing I could have ever seen posted since the ZOG's started saying oil is being horded by Israel traders earlier today.

Also, on a more serious note, Yes, the IDA is so fucked up it will be side splitting hilarious how they justify their GDP 2015 outlook in January, to, the IMF. See what I did there ? #mindfuck.


Atomizer's picture


That helps people understand. BRICS is the Petrodollar threat to ZOG's. The Quantitative Easing scam is no longer working. Do you understand Rat MindFuck? The idea is to convince us a one world currency will cure problem. That is complete utter bullshit.


Bell's 2 hearted's picture

maybe Guiness Blonde will save them

Headbanger's picture

Isn't it made in the U.S.?

About the only good thing I can say for it is it's good for a 100% Guiness Black & Tan.

RealityCheque's picture

I live in Ireland. The recovery is utter bollocks.

People are poorer and working harder to try and make ends meet. We've exported our unemployment to the far corners of the earth by forcing our youth into emigration (in itself a crime against our people). We've been hit with tax after tax and now the fuckers are trying to reinflate the housing bubble that ruined us last time.

On the plus side, the next and promised final tax, a household water tax, brought 200,000 people out in protest 2 weeks ago. we already pay for water twice through VAT and inome tax, this one is a third and step too far. There's a third protest in Dublin on the 1th that aims to bring it to an explosive conclusion. The authorities are backtracking and bargaining as hard as they can. 2 days after the protest they offered €100 euro to anyone who registers with the water authority. In some countries they call that bribery. They also threatened to use the IRS to collect the bills, strange considering Irish Water is a private company. 

The government here is now more unpopular than the last bunch of crooked cunts and they are falling apart. Elections wont be far away, in which Sinn Fein and independents will excel. which will cause Europe and the ever so beloved "investors" to shit a brick.

We are corrupt and we are fucked. We deserve it for electing an endless string of cunts into power. But a lot of people are waking up over here, anyone for a Green Revolution?!

Monty Burns's picture

We've exported our unemployment to the far corners of the earth by forcing our youth into emigration.

But look on the bright side, they've been replaced by even greater numbers Nigerians, Pakistanis, Somalis etc.

Irishcyclist's picture

I live in Ireland as well and I concur with everything that you say. Apart from Dublin City centre, you'd be hard pressed to find other locations with significant economic activity thoughout the rest of the country. Any jobs growth there is has been in hospitality industry and fishing/farming/forestry.

That's according to the Irish Central Statistics Office http://www.cso.ie/multiquicktables/quickTables.aspx?id=qnq03

In the meantime, the country's debt levels have gone from €65 billion in 2009 to €182 billion today.




GoldBricker's picture

Agree 100%, RC

I just moved after living and working in Galway for the past 2 years. The public health system is a disgrace, so we took private (Aviva). Get this: the have a tax of 400 euro per year, just for having your own insurance (and un-burdening the public system). You retain only about 50% of your salary, and the service are terrible. (At least in other high-tax countries, like northern Europe, high taxes and high services go together.

          " forcing our youth into emigration"

Exactly. Ireland is going back to the poverty that forced young Irish abroad for centuries. Except now it's poverty plus traffic jams plus eyesore bubble-quality tract houses.If young Irish couldn't leave so easily (thanks to the colonial legacy of English), they'd have youth unemployment to rival Spain and Italy.

The controlled media want to play up Ireland as a success because they bowed low and paid off the bankers' debts. These were private debts to fund private bets, bets whose profits would have been pocketed had they turned out right, but having gone bad they're put on the backs of ordinary people.Last time I read, about 20% of Irish mortgages are behind in their payments.

A new guy gets elected on a promise to set things right and does (wait for it) nothing. And the media are too polite to point this out. It's just like the USA, where there is only one party. At least the commie countries are upfront about having a one-party system; we've got a sickening pretense. Why does Ireland always have to play the victim?

Jonathan Equine Phallus's picture
Jonathan Equine Phallus (not verified) Nov 13, 2014 12:18 PM

Ireland is being 'globalized' by the masters of the universe.


What good is it to grow one's economy, if one lose one's soul?


Norway, apparently, is next.... 

Head of Oslo Jewish community claims Norway is too white


funny how so many Jews there are [as in immigration reform in the US in the 1960s that totally changed the demographics - which muist have been the plan] that are pro-diversity and immigration for European/majority white countries - but would never dream of it for Israel, eh?


Barbara Spectre - "Swedish" Zionist | Why I Left Sweden


3 years ago I would have instantly reacted that such a premise is both a conspiracy theory without evidence and trite racism.  Now, I gotta say there seems to be an organized, transnational effort to flood Europe and the US with 3rd world immigrants, and that Zionist Jews are disproportionately visible, although it is presumptively unfair to say it is 'because of' them - plenty of banksters and "globalists" likely yearn to destroy individual national identities and destroy traditional cultures to make the eventual one-world government/reg bodies less 'foreign' and odious.





Monty Burns's picture

"3 years ago I would have instantly reacted that such a premise is both a conspiracy theory without evidence and trite racism. "

Exactly the same for me but my awakening came a bit before yours. And it's the same with every White country, not just the ones you mention. Jarring affirmation came for me when "Ireland's" Alan Shatter increased the awarding of Irish citizenship from a couple of hundred annually to over 60,000 in his two years as Minister for Justice while Irish youth emigrated in their tens of thousands. The evidence is on every street in Ireland today. And Shatter professes to see no inconsistency here with his demand for Israel to be an etnically Jewish state.

Jonathan Equine Phallus's picture
Jonathan Equine Phallus (not verified) Monty Burns Nov 13, 2014 12:58 PM

Even in Texas, The Lobby calls the shots  [but you're a racist if you say they do!]



THE DORK OF CORK's picture

A increase of activity is not "growth"

We are seeing a increase in activity as the countries brand new fleet of diesel cars chase scarce money.

As can be seen post 1994~ transport energy demand pulls away from the rump domestic economy.


Again we see signs of this strange easy credit / hard money energy  dynamic developing.

The pubs are empty and the small shops are closed.

The center of market towns essentially no longer exist as functional geographic areas of exchange and social interaction.

The euro guild   navigators have successfully took basic purchasing power away from us.

We are all now Irish based euro roboten who bulk buy goods in the supermarket once a week (so as to save tokens rather then energy) and remain good little continental like non persons.



THE DORK OF CORK's picture

The Puck Fair.

A ancient fair ,now a shadow of itself.



Dutch & Germans escaping from the euro scarcity engine were common tourists and eventually residents of this era.

Post mid 1990s I remember them fleeing in mass from the American materialist dream / our nightmare. 

THE DORK OF CORK's picture

Policy continues to orbit around the creation of a giant island  racetrack for no particular purpose other then to create the illusion of scarcity.



Towns such as New Ross will have to be destroyed in the interests of the machines.

Old New Ross railway to Waterford ................


THE DORK OF CORK's picture

Meanwhile up North ( under a different monetary system , thanks CNBC)

The rail Renaissance continues.

Indeed NIR has never carried so much passengers.



The only line in decline is of course the cross border Dublin to Belfast route.

There is something intrinsic within the euro currency (its extreme bank credit bias) that wastes a epic amount of capital before it can be effectively used by the person

THE DORK OF CORK's picture

Down South................(this is what a lack of purchasing power crisis looks like  - most certainly not a energy crisis............... indeed the lack of purchasing power in Europe has caused the energy crisis post 1998.)


The Government is prepared to close railways if the current policy of maintaining services and seeking greater efficiency fails, Minister for Transport Leo Varadkar has warned.Speaking in advance of a Labour Court hearing between railway workers and Iarnród Éireann next Monday, Mr Varadkar said if the current policy fails – either through industrial unrest or declining passenger numbers – “we will have to accept that some or indeed many of our rail services are no longer sustainable”. In such a scenario he said the Government was prepared to transfer funding away from railways to more efficient buses “which offer better value money for the taxpayer”.Rail workers who are members of the National Bus and Rail Union voted overwhelmingly in February against a cost-cutting plan which included pay cuts ranging from 2 to 6 per cent for up to three years.

Todd Andrews
Addressing delegates at a transport conference in Dublin yesterday Mr Varadkar cited former CIÉ chairman Todd Andrews as having had the courage to close 12 uneconomic railway lines – only one of which– the Harcourt Street to Bray line, was “probably”a mistake, he said. Mr Varadkar said the railways currently absorbed 50 per cent of the State’s public service obligation subsidy but carried less than 15 per cent of public transport passengers. He said there was to be no additional money for Iarnród Éireann from the exchequer, and very little scope for fare increases.“If our current rail services are to survive, they must be competitive with alternative modes and that is clearly a big challenge,” he warned.He believed the reasons for the decline in inter-city railways were manifold, but involved people seeking transport that was “cheaper or faster, or both”. He cited the express bus journey between Cork and Dublin as being just 25 minutes longer than the train, but added that the train “only takes you as far as Heuston Station” and was usually considerably more expensive.

Faster by bus
“The journey from Galway to Dublin is much faster by bus than it is by train,” he said. While Mr Varadkar did not identify lines under threat, the national rail census published by the National Transport Authority last December found 31 of the State’s 147 stations generate fewer than 100 journeys each a day. It is understood Iarnród Éireann is particularly concerned about passenger numbers on the Ballybrophy to Limerick line, the Western Rail Corridor from Limerick to Galway and the Limerick Junction to Waterford line, among others.Mr Varadkar said he was genuinely worried that the employees of Iarnród Éireann and maybe even the company itself did not appreciate what was at stake.However, general secretary of the National Bus and Rail Workers’ Union Dermot O’Leary said the Government had tasked Iarnród Éireann with “running a 2014 service on a 1988 provision”.He said “railways by their nature are not profit-making entities”.


Ireland has been here before.

In the early 1960s.

Our job again  is to do our utmost (buy more fucking cars) to bail out the Anglo Dutch monetary oil cartel.



Aaronson.Jones.Rutherford's picture

You can take our money, but you'll never take our Barak Obama Plaza!