Nov 14, 2014 - 0.78 GBP; 1.26 USD; 136.85 YEN; 1.44 AUD and 51.93 RUB. Table 1: 1 Euro set against selected ... Canadian
No. 9, 25 Nov 2014
Contents
Summary
Irish residential mortgage market
1
Trade
2
Foreign exchange rates
3
Selected statistics
6
Jargon buster (JB)
6
Members Research Team Library & Research Service
This Economic Indicators focuses on
The Irish residential mortgage market; Trade; and, Foreign exchange rates.
The first section provides an overview of new lending in the Irish residential mortgage market for Q3 2014, the outstanding credit at Q3 2014 and arrears statistics for Q2 2014. The second section provides an overview of Ireland’s trade performance over the past several years and an analysis of those trends.
The third section examines foreign currency exchange rates and real effective exchange rates. The former impacts on Ireland’s and Europe’s competitiveness and the second is a useful measure of competitiveness. Central Enquiry Desk: 618 4701
Following these articles, a selection of statistics is presented on the final page along with a Jargon Buster (JB).
Irish residential mortgage market On November 14, 2014, the Banking & Payments Federation of Ireland published its Mortgage Market Profile Quarter 3 2014 Report. New mortgage lending was €1,126 million in Quarter 3 2014. There was a quarterly increase in the number of new mortgages of 31.3% (37.3% when measured by value). The annual increase in the number of new mortgages was 40.7% (50.1% when measured by value). Figure 1, overleaf, shows new lending for Q3, 2014, broken down by type for both number of new loans and value of new loans. First Time Buyers make up the largest proportion of new mortgages for Q3 2014, as measured by both number and value of mortgages. However, the difference between First Time Buyers and Mover Purchasers is noticeably greater when measured by number rather than by value of mortgages. This is further reflected in the average loan drawn down by the respective groups.
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Figure 1: New lending by type for Q3, 2014. 60% 50% 40% 30% Number
20%
Value
10% 0%
FTB Purchase
Mover Purchase
Residential Investment Letting Purchase
Re-mortgage
Top-up
Source: Banking & Payments Federation of Ireland, (2014), ‘Mortgage Market Profile Quarter 3 2014 Report’
The average loan for a First Time Buyer in Q3 2014 was €166,516 (up 10.2% on Q3 2013), while that for a Mover Purchaser was €224,431 (up 2.9% on Q3 2013). These two sectors represent 87.2% of the new lending for Q3 by number and 92.8% by value. According to Central Bank figures, the total mortgage credit outstanding to Irish households (JB) was €116.9 million at the end of September 2014, down 5.5% from €123.7 billion at the end of September 2013. The 2014 September end figure represents a 21.6% decline from the peak of €149.2 million, reached in February 2009. This suggests that despite the increase in new lending, overall Irish households are paying back mortgages at higher pace than they are drawing them down. Central Bank statistics show that, overall, 126,005 or 16.5% of PDH mortgages were in arrears (both up to 90 days and over 90 days) at the end of Q2 2014. The corresponding figure for end Q2 2013 was 142,892. Further information is available in the Central Bank’s Residential Mortgage Arrears and Repossessions Statistics: June 2014, and the Spotlight on ‘Mortgage Arrears: Level and Resolution’.
Trade Ireland’s trade performance has seemingly improved dramatically in recent quarters. On a seasonally adjusted, constant price (JB) basis, Ireland’s exports increased by 6.3% in Q2 2014 over Q1 2014 and were 12.8% higher than in Q2 2013. Imports grew at a slightly slower pace, 5.0% in Q2 2014 over Q1 2014 and were 11.5% higher than in Q2 2013. Figure 2 overleaf shows Ireland’s seasonally adjusted imports and exports since 2009. Overall exports grew in 2010 and 2011 but fell slightly in 2012 and stagnated. This levelling off pattern is usually ascribed to the “patent cliff” whereby a number of pharmaceuticals manufactured in Ireland came off patent and thus their value dropped. Since Q2 2013 exports have grown rapidly and in recent quarters goods exports in particular have grown. However, there are issues with what this growth represents especially around “contracted production”. According to the Department of Finance’s Economic and Fiscal Outlook 2015, contracted production “occurs when an Irish-resident (though not necessarily Irish-owned) enterprise contracts a plant abroad to produce a good for supply to a third country. The sale of the good is recorded as an Irish export as the economic ownership of the good prior to sale is regarded as belonging to the Irish-resident enterprise. Imports used in the production process are also recorded as Irish imports.” Thus both imports and exports are increased even though no physical goods actually enter Ireland and the related economic activity e.g. employment is modest.
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According to their calculations in the first half of 2014 net exports were approximately €4 billion higher due to such production. In previous years the effect was negligible or even negative. This means that the recent strong performance of Irish exports and GDP growth is attributable in part to such production. This also boosts headline GDP figures. The Irish Fiscal Advisory Council (IFAC) has pointed out that this makes economic forecasting more difficult. Figure 2: Seasonally adjusted imports and exports Q1 2010 to Q2 2014. 60,000 50,000
Euro
40,000 30,000 20,000
Goods Exports
Services Exports
Goods Imports
Q2…
Q1…
Q4…
Q3…
Q2…
Q1…
Q4…
Q3…
Q2…
Q1…
Q4…
Q3…
Q2…
Q1…
Q4…
Q3…
0
Q2…
Q1…
10,000
Services Imports
Source: CSO Quarterly National Accounts Q2 2014, Annex 1B. Constant prices.
Foreign exchange rates Eurostat data shows that on a monthly average for October 2014, 1 EUR would buy 0.78 GBP; 1.26 USD; 136.85 YEN; 1.44 AUD and 51.93 RUB. Table 1: 1 Euro set against selected currencies Currency
Oct-11
Oct-12
3 Year Percentage change
1 Year Percentage Change
Pound Sterling
0.87036
0.80665
0.84720
0.78861
-9.4%
-6.9%
Swiss Franc
1.2295
1.2098
1.2316
1.2078
-1.8%
-1.9%
Australian Dollar
1.3525
1.2596
1.4328
1.4436
6.7%
0.8%
Canadian Dollar
1.3981
1.2801
1.4128
1.4214
1.7%
0.6%
US Dollar
1.3706
1.2974
1.3635
1.2673
-7.5%
-7.1%
10.9188
11.2215
13.5283
14.0266
28.5%
3.7%
105.06
102.47
133.32
136.85
30.3%
2.6%
Russian Rouble
42.8569
40.3558
43.7440
51.9380
21.2%
18.7%
Renminbi-Yuan
8.7308
8.1390
8.3226
7.7635
-11.1%
-6.7%
South African Rand Japanese Yen
Oct-13
Oct-14
Source: Eurostat
The figures indicate a significant year-on-year depreciation of the Euro of 6.9% against the Pound Sterling and 7.1% against the US Dollar to October 2014. There has been an appreciation of the Euro of 0.8% against the Australian Dollar, 2.6% against the Japanese Yen and 18.7% against the Russian Rouble. However, this is perhaps more a sign of other countries underlying weaknesses rather than Eurozone strength.
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It is the depreciation of the Euro against the US Dollar and the Pound Sterling that is perhaps of specific note, as the United Kingdom and the United States are the two biggest trading partners of the Eurozone. The Eurozone is affected by a myriad of issues:
Low inflation rates – 0.4% for the year to the end of October 2014; Low ECB interest rates – historically low at 0.05%; and, Low GDP growth – seasonally adjusted GDP grew by 0.8% year-on-year for the third quarter of 2014.
The USA and the UK have higher inflation and economic performance and this, in part, explains the relative strength of the US Dollar and the Pound Sterling against the Euro (JB). Real effective exchange rates The Real Effective Exchange Rate (REER) is used as a measure to assess a country’s (or currency area’s) price or cost competitiveness relative to competitors in international markets. REERs are weighted averages of bilateral exchange rates adjusted by relative consumer prices. The REER used in the dataset of the graph below seeks to measure the value of Ireland’s goods against those of 41 of its trading partners at the prevailing nominal exchange rate. This is then compared with the REER of the Eurozone and the EU, measured against the same panel of 41 countries. A rise in the index means a loss in competitiveness and a decrease implies the opposite. As is evidenced by the graph below Ireland has seen a slight increase of 0.3% in competitiveness as set against 41 trading partners in the year to June 2014 after a loss of 2.3% in the year to June 2013. Against this, EU28-bloc has seen a decrease in competitiveness of 4.2% year-on-year to June 2013 and a further decrease of 2.3% year-onyear to June 2014. See map overleaf for individual country level data. In this light, it can be considered that in the 12 months to June 2014, Ireland has increased its competitiveness as against its EU trading partners, especially in the UK. Figure 3: Real Effective Exchange Rate for Ireland, the Eurozone, and the EU28, June 2012 – June 2014 98 95.73
96.21 European Union (28 countries)
96 94 94.48
92.17
94.18
92 92.36
90
91.84 89.72
Euro area (18 countries)
88 86 86.10 84 82
Ireland
80 June '12
June '13
June '14
Source: Eurostat
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Selected statistics Macro Indicators Gross domestic product (SA €m) Gross national product (SA €m) Exports (€m constant prices) Imports (€m) Consumer Sentiment and Performance New private cars licensed for the first time Residential property price index (Jan 2005=100) Retail sales volume (2005=100) Consumer price index (Dec 2011=100) Harmonised index of consumer prices (2005=100) Labour Market Number employed SA (QNHS) Unemployment rate (Live Register) Live Register (SA) PPS number issued to non-Irish nationals Industry Industrial production (SA) (2005=100) Services output index (2010=100) Agricultural output price index (2010=100) Manufacturing output price index (2010=100) New goods vehicles licensed for the first time Number of dwellings completed Loans to Irish households outstanding (€bn)
Period 2014 Q2 2014 Q2 2014 Q2 2014 Q2 Period 2014 JanOct
Latest 45,611 37,983 51,774 40,958 Latest
Previous 42,810 35,510 45,952 36,620 Previous
Change +6.5% +7.0% +12.7% +11.9% Change
89,915
69,402
+29.6%
2014 Oct
80.7
69.4
+16.3%
2014 Sept 2014 Oct
99.7 101.8
94.1 101.6
+6.0% +0.2%
2014 Oct
109.6
109.2
+0.4%
Latest 1,916,900 11.0% 371,400
Previous 1,890,100 12.4% 410,000
Change +1.4% -11.3% -9.4%
62,354
54,642
+14.1%
Latest 115.1 113.3 114.7 102.1
Previous 95.3 107.8 129.7 101.8
Change +20.7% +5.1% -11.6% +0.3%
14,861
10,014
+48.4%
782 137.1
604 149.3
+29.5% -8.2%
Period 2014 Q3 2014 Oct 2014 Oct 2014 JanAug Period 2014 Sept 2014 Sept 2014 Sept 2014 Oct 2014 JanOct 2014 Aug 2014 Sept
Click indictor title for source. Some indicators are preliminary and subject to revision. The previous figure refers to the figure for the corresponding period in the previous year. SA = seasonally adjusted.
Jargon buster Total credit outstanding to Irish households – This figure represents the total amount of credit outstanding to Irish households which is held by a financial institution that is regulated by the Central Bank of Ireland. This represents the vast majority of credit in the Irish Market and covers a larger number of institutions than the Department of Finance Mortgage Arrears Statistics, which cover the six institutions which have been set mortgage arrears resolution targets. However, there are a small number of unregulated institutions that are not covered. Constant Prices – Constant prices are a way of measuring the real change in output. A year is chosen as the base year. For any subsequent year, the output is measured using the price level of the base year. This excludes any nominal change in output and enables a comparison of the actual goods and services produced. Interest, inflation, and exchange rates – If the interest rate charged by a central bank increases, all else equal, then that currency becomes more desirable to hold and so demand for the currency increases causing its value to appreciate. If interest rates are high, this also acts against inflation, which also makes a currency attractive to hold. These variables naturally operate within the context of other economic forces. No liability is accepted to any person arising out of any reliance on the contents of this paper. Nothing herein constitutes professional advice of any kind. This document contains a general summary of developments and is not complete or definitive. It has been prepared for distribution to Members to aid them in their Parliamentary duties. Authors are available to discuss the contents of these papers with Members and their staff.
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