Ireland’s Parallel Universe

By parallel universe, I imply of a wide chasm in the performance between the economy and the financial markets.

First economic performance.

Ireland’s economy has been stagnating.

From the Irish Times:

The Irish economy unexpectedly shrank last year on the back of a sharp fall-off in net exports linked to the so-called pharma patent cliff.

Preliminary figures from the Central Statistics Office (CSO) showed gross domestic product (GDP) contracted by 2.3 per cent in the fourth quarter and by 0.3 per cent for the year as a whole.

Published on the same day as the State’s first full return to the bond markets, the figures represent something of a setback for the Government’s recovery plans and reflect the volatile nature of Ireland’s post-bailout economy.

The Department of Finance had predicted GDP growth of 0.2 per cent for 2013 on the back of a surge in employment growth which saw the creation of 60,000 new jobs.

Gross national product (GNP), which screens out the effects of multinational operations, however, increased by 3.4 per cent last year and by 0.2 per cent in the final quarter.

Here is the Q-on-Q GDP chart

And here is the annualized GDP chart 

Whether q-q or y-y, Ireland’s economy has been laboring her way out of the recession.

Meanwhile, Ireland’s Non Performing loans stood at 18.7% of overall bank loans in 2012 according to the World Bank. For 2013, credit ratings agency the Fitch estimates Ireland’s NPLs at 17%.

The point of the above is to exhibit that there has hardly been any material economic recovery and that Ireland still has a significant debt burden.

But financial markets says ‘don’t worry be happy’.

Yields of Irish 10 year bonds has been in a collapse since 2011. This means bonds have rallied strongly in the face of rising NPLs.

And Irish stocks, as measured by the Irish Stock Overall Index,  have not only been ascendant rising from 2012, current gains have been accelerating. This comes even amidst a stagnating economy.

More proof of that global financial markets have been a central bank sponsored Truman Show.