Wednesday, 24 August 2011

Macro update - Ireland June trade surplus - A glimmer of hope?

Is Ireland showing us a glimmer of hope?

In my previous post "the more it changes, the more it's the same thing" - Review of the ongoing economic issues", written in March this year, I indicated Ireland 10 year bonds broke north of 10% for the first time since 1992.
Also I indicated:
"From 1991 until 2010 Ireland's Government Bond Yield for 10 Year Notes averaged 5.72 percent reaching an historical high of 10.47 percent in December of 1992 and a record low of 3.06 percent in September of 2005."

I argued at the time:
"The example of Ireland clearly showed the issue, where Ireland's public finances were put in disarray due to the massive bail out need of its financial sector" (please see previous posts on that subject: The European Vortex, The Irish Black Hole, Ireland in the need of a lucky Shamrock).

But, we are starting to see divergence between Portugal and Ireland, not only in the CDS 5 year space, but also in the 10 year government bond space:
Ireland 5 year CDS versus Portugal 5 year CDS, correlation was one and breaking since a couple of weeks as per below grap:

Portugal 10 year bonds yield:

As per an article published in Bloomberg today by Lukanyo Mnyanda and Anchalee Worrachate:
Aug. 24 (Bloomberg) -- "Irish bonds are delivering the best
returns in the world as investors bet the former Celtic Tiger is the most likely of the euro areas bailed-out nations to grow itself out of trouble, while Portugal and Greece shrink. Irish securities handed investors a 14 percent gain in the past three months, the highest among 26 government debt markets, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. The nation's 10-year yield is at more than two percentage points below its three-month average, the biggest recovery among the countries that received aid. Greek yields are 1.13 percentage points higher than their average since May 23, while those of Portugal are 2 basis points above their mean."

I indicated in my post "European Government Bonds - Back to the Future?" that:
"Ireland has in the past faced economic difficulties as well as high interest rates and recovered. Could it be really different this time? Could Ireland not recover from this crisis? What sunk Ireland so fast was its financial sector. Time will tell."

In relation to Ireland we are indeed getting very positive trades figures as indicated by Dr Constantin Gurdgiev in his excellent blog "True Economics":
"Latest trade stats are out for June 2011 for Ireland and the results are, overall, excellent:

The seasonally adjusted trade surplus increased by 7.54% mom (a whooping 22.45% yoy) to €4,079m. This is the highest monthly surplus ever recorded in nominal seasonally-adjusted terms.
Compared to June 2009, trade surplus increased 7.48% (+€283.8 million) and compared to June 2010 trade surplus is up 22.45% (+€747.9 million).
The non-seasonally adjusted trade surplus in June 2011 was €4,473m comprising exports of €8,343m and imports of €3,870m. Per CSO: "This is the highest trade surplus since June 2001".
Imports came in at a weak €3,821 million in seasonally-adjusted terms in June 2011, down 7.48% on June 2010 and up 2.83% on June 2009.

Exports posted the best seasonally-adjusted performance since February 2011, reaching €7,900 million in June 2011, up 5% (+374.6 million) mom. Exports rose 5.89% yoy (+€439.1 million) and 5.18% (+€388.90 million) on June 2009."

And Dr Gurdgiev to conclude is must read post:
"On the net, therefore, very positive set of figures on trade from Irish exporters! something truly worth cheering."
Ireland Current Account to GDP
Ireland Current Account

Of course it is too early to conclude Ireland is out of trouble given the current European situation and with unemployment at 14.3% in July 2011, but, in all this current gloom and doom situation, it was worth highlighting these latest figures.

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