economy Archives - Pat Carroll PCCO - Chartered Accountants & Tax Advisors

Irish economy to shrink by 8.5% in 2020 before 2021 recovery

The European Commission has said that Ireland’s GDP is projected to contract by 8.5% in 2020.

The economy here is then expected to grow by 6.25% in 2021, on the back of the pent-up domestic demand release and the global post-crisis recovery. 

This compares with the Commission’s earlier forecast of a downturn of 7.9% for this year and a recovery of 6.1% for next year. 

In its latest Summer economic outlook, the Commission said that economic activity here is expected to have plunged in the second quarter of the year due to the Covid-19 pandemic and its associated lockdown. 

It noted that private consumption is set to be particularly hit, since the quarantine measures here were “long and wide ranging”. 

On the production side, the Commission said that some economic activities resumed earlier than initially envisaged, limiting somewhat the domestic economic fallout. 

Official unemployment remained low at about 5.3% in the second quarter of 2020.

Covid-adjusted unemployment figures, which include people who are receiving unemployment payments after losing their job because of the pandemic, surged to 28.2% in April, before declining to 26.6% in May and 22.5% in June. 

It said that fiscal stimulus released in the second quarter to support households and businesses is expected to have dampened the decline in real GDP.

Fiscal policy is set to remain supportive in the second half of the year, the Commission said.

“However, the spread of the global pandemic, which caused a marked decline in exports in April, has also weakened the prospects of exports for the second half of the year,” the Commission added.

The Commission also said that the country’s economic outlook remains affected by specific uncertainty around Brexit, potential changes in the international taxation environment and the activities of multinationals registered here.  

Today’s forecast from Europe is slightly more optimistic than that of the Government. At the end of April the Department of Finance’s Stability Programme Update predicted a fall in real GDP of 10.5% this year, with a recovery of 6% next year.

The European Commission also said that the euro zone economy will drop deeper into recession this year and rebound less strongly in 2021 than previously thought.

France, Italy and Spain are struggling the most due to the COVID-19 pandemic, it noted.  

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Irish economy to fall 8.5% in 2020 before 2021 recovery

The European Commission has said that Ireland’s GDP is projected to contract by 8.5% in 2020.

The economy here is then expected to grow by 6.25% in 2021, on the back of the pent-up domestic demand release and the global post-crisis recovery. 

In its latest economic outlook, the Commission said that economic activity here is expected to have plunged in the second quarter of the year due to the Covid-19 pandemic and its associated lockdown. 

It noted that private consumption is set to be particularly hit, since the quarantine measures here were “long and wide ranging”. 

On the production side, the Commission said that some economic activities resumed earlier than initially envisaged, limiting somewhat the domestic economic fallout. 

Official unemployment remained low at about 5.3% in the second quarter of 2020.

Covid-adjusted unemployment figures, which include people who are receiving unemployment payments after losing their job because of the pandemic, surged to 28.2% in April, before declining to 26.6% in May and 22.5% in June. 

It said that fiscal stimulus released in the second quarter to support households and businesses is expected to have dampened the decline in real GDP.

Fiscal policy is set to remain supportive in the second half of the year, the Commission said. 

“However, the spread of the global pandemic, which caused a marked decline in exports in April, has also weakened the prospects of exports for the second half of the year,” the Commission added.

The Commission also said that the country’s economic outlook remains affected by specific uncertainty around Brexit, potential changes in the international taxation environment and the activities of multinationals registered here.  

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Economic growth averaged 5.2% every year between 2013 and 2018 – CSO

Growth in the Irish economy averaged 5.2% per annum from 2013 to 2018, according to an analysis of new CSO data.

In a Special Article for the ESRI, Professor John Fitzgerald describes a measure, called Net National Product, as the best picture of the “economic welfare of those living in Ireland”.

For years, the traditional measure of economic growth, Gross Domestic Product (GDP) has given a distorted picture of what is going on in the Irish economy.

In 2015, Nobel Prize winning economist Paul Krugman referred to the reported 25% jump in Ireland’s GDP that year as “leprechaun economics”.

The average 5.2% rate compares to an average rate of 10.5% when measured by GDP.

The CSO has made attempts to account for the impact of the tax treatment of intellectual property by multinationals as well as other activities such as aircraft leasing.

Professor Fitzgerald’s analysis on Net National Product also shows the foreign-owned sector accounted for a fifth of that growth and just over a quarter of the national wage bill.

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Economic growth averaged 5.2% every year between 2013 and 2018 – CSO

Growth in the Irish economy averaged 5.2% per annum from 2013 to 2018, according to an analysis of new CSO data.

In a Special Article for the ESRI, Professor John Fitzgerald describes a measure, called Net National Product, as the best picture of the “economic welfare of those living in Ireland”.

For years, the traditional measure of economic growth, Gross Domestic Product (GDP) has given a distorted picture of what is going on in the Irish economy.

In 2015, Nobel Prize winning economist Paul Krugman referred to the reported 25% jump in Ireland’s GDP that year as “leprechaun economics”.

The average 5.2% rate compares to an average rate of 10.5% when measured by GDP.

The CSO has made attempts to account for the impact of the tax treatment of intellectual property by multinationals as well as other activities such as aircraft leasing.

Professor Fitzgerald’s analysis on Net National Product also shows the foreign-owned sector accounted for a fifth of that growth and just over a quarter of the national wage bill.

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Stimulus plan for economy to be published in July

The draft Programme for Government includes details of a stimulus plan for the economy to be published in July. 

It also outlines the parameters of a National Economic Plan which will be published alongside Budget 2021.  

At that time, a “medium term roadmap” will be set out to plan a reduction in the budget deficit and a “return to a broadly balanced budget”. 

The document noted that taxation as well as expenditure measures will be used to close the deficit and fund public services if required. 

It said that any tax rises would be focused on taxes like the carbon tax, sugar tax and a possible plastics tax. 

The document commits to maintaining the 12.5% corporation tax and to continue co-operation on tax reform with the OECD. 

Meanwhile, the draft programme also said the state should not sell its shares in the country’s banks until it is likely to recoup a significant portion, if not all, of its investment. 

The Government continues to hold a majority stake in AIB and Permanent TSB, and a minority holding in Bank of Ireland, the three domestically owned lenders to survive a banking crash a decade ago. 

The value of the banks’ shares have fallen significantly in the past two years.

Small and medium-sized enterprises (SME) will form a major part of the economic stimulus package, including a new SME taskforce to help small firms recover from the crisis brought on by the Covid-19 pandemic.

There will also be sector specific responses to help businesses get back on their feet, as well as moves to make the public procurement process more accessible for SMEs.

Building on the forced move to working from home during the pandemic restrictions, the document contains a big focus on enabling remote working in a way that would support balanced development.

The development of stronger links between third-level education and SMEs is also a part of the programme, as are supports for the digitalisation of small firms.

Enacting legislation immediately to help SMEs get access to cheaper finance would also be an urgent priority of the plan, if the other outstanding elements of the negotiations can be agreed.

On the economy, negotiators have agreed to establish a Commission on Welfare and Taxation that would independently consider how best the tax system can support economic activity and promote increased employment, while at the same time ensuring there are enough resources available to meet the costs of public services and welfare supports in the medium and longer term.

The document also contains a commitment to review capital gains tax rates in each budget over the next five-years. 

Encouragement of a greater take-up of the R&D tax credit by small domestic companies is also part of the plan.

An economist from University College Cork has said that as the public health crisis abates, the expectation is that government borrowing will reduce and the shift will turn towards stimulating economic growth.

Seamus Coffey, a lecturer in economics at University College Cork and a former chair of the Irish Fiscal Advisory Council, told Morning Ireland that once a growth pattern slowly returns to the economy there will be scope to do implement some of the new measures in the expected document from Government Buildings. 

Mr Coffey said that the deficit faced by the new government is linked to the current shock in the economy and will reduce as emergency measures are scaled back. 

He said there will be concerns about the increase in debt and as long as the emergency measures are temporary the borrowings can be managed. 

Mr Coffey said that any decisions about measures to be introduced on a permanent basis will need to be backed up by funding in the medium term to fund them on an “every year basis”. 

SMEs will be supported for now with emergency measures and cash grants but over the next few years Mr Coffey said a stimulus package could be front loaded to boost businesses. 

Mr Coffey said investment could be targeted at sectors such as the construction industry, while a rise in household savings could lead to a consumption boom.

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Economic confidence up in May but remains weak overall

Consumer and business sentiment rose slightly in May, albeit from a low base according to the latest Pulse survey from Bank of Ireland.

Consumer confidence was up marginally in the month, while all sectors of business saw an improvement. That came as improving data on the number of Covid-19 cases in Ireland continued to improve, while the Government roadmap offered a way forward for the country.

However the index remained low overall, having only recovered slightly from the record low seen in April.

“The Covid-19 shock is still keenly being felt by households and firms, what our May survey shows though is that the sudden and severe blow to sentiment may have bottomed out,” said Loretta O’Sullivan, chief economist with Bank of Ireland.

“When we look at what’s behind that, it looks as though efforts to contain the spread of the virus are bearing some fruit and the Government has set out a timetable to help society and business get up and running again.”

That appeared to have offered a light at the end of the tunnel for consumers and firms, making them feel slightly better about their prospects as a result.

“Households and firms are hoping that, as the restrictions are gradually lifted over the summer, the economy begins the process of healing and this has led to less pessimistic readings over the month,” Ms O’Sullivan said.

However the majority of consumers remained apprehensive about expenditure – with just one in six saying they were planning a ‘Big Ticket’ purchase.

At the same time three quarters said they would save over the next year – which could help lead to a spending boom eventually, though only if conditions allow.

“There may be pent up demand for certain goods and services, but there may also be some nervousness in the absence of a vaccine or in the absence of a treatment for sectors where there is more social contact,” Ms O’Sullivan said.

Some types of business that are more vulnerable to the spread of the virus are likely to see the least gain as things return to some level of normaility, with Ms O’Sullivan warning that the recovery will likely differ across sectors.

That is reflected in the Pulse data, with the services sector – which includes hospitality – more pessimistic than most.

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Consumer economy collapses in April due to Covid-19

Disposable income was down by as much as 25% in April, despite the implementation of wage supports and enhanced welfare arrangements for workers impacted by Covid-19.

This is according to the latest Consumer Market Monitor from the Marketing Institute and the UCD Smurfit Graduate Business School.

Consumer sentiment dipped to its lowest level since 2012 with sales of property and cars down 90% in the month.

However, the lack of spending opportunities has resulted in increased savings and pent-up demand may provide a sales boost once shops and services reopen.

Several features of this crisis differ from the last recession and give cause for some optimism about the pattern of future recovery, Marketing Professor Mary Lambkin of UCD Michael Smurfit Graduate Business School said.

The report said that one way in which conditions differ between this crisis and the previous one is the level of government supports for the unemployed.

It is estimated that employee support payments are protecting up to 75% of disposable income which should help to cushion spending. 

But despite this, a drop of 9% in consumer spending is still forecast for the full year of 2020. 

This assumes a strong first quarter followed by a major drop in the second quarter, a modest recovery in the third quarter, and a good final quarter, today’s market monitor predicts.

It said that card spending data – which includes cash taken out at ATMs – gives a good indication of the pattern evident in recent months. 

Spending on debit and credit cards was up by 10% in March compared to the same month in 2019 due to the stockpiling that was seen in the middle of the month.

However, card spending fell by 36% in April year-on-year after the shutdown of all but essential retailers and most services outlets.

The consumer market monitor noted that sales of food and drink performed very strongly in March, up 19% year-on-year.

This was partly because of stockpiling but also because people are staying at home and eating more of their meals there. It seems likely that this trend will continue and result in good growth for the year, of possibly 5-10%, it added.

Sales of electrical goods and home furnishings also held up remarkably well in the first quarter, up 12% year-on-year, and were especially strong online. 

But sales of clothing and footwear were hit badly, down 52% in March year-on-year, and down 21% for the quarter. Department stores were also badly affected, down 28% in March and 12% for the first quarter year-on-year.

Service sectors such as transport, hotels and restaurants, arts and recreation have experienced drastic falls in business – down 80-90% – in the first quarter of 2020 and it seems unlikely that they will be able to recoup this loss over the summer. 

The most likely outlook is for a major loss of business for the year, possibly of the order of 25%, the monitor predicts. 

In contrast, sectors such as information and communications and finance and insurance experienced relatively small declines in sales of 10-20% in the first three months of the year. 

“This is because many of these services are considered essential and are subject to annual contracts which are paid by direct debit. However, banks and finance providers have moved to offer customers payment breaks on mortgages and personal contract plans (PCPs) where necessary,” the report noted.

Sales of big-ticket items like cars and property have also been badly hit. Sales of new cars were down 29% in March and sales of imported used cars were down 39% year-on-year. 

This decline in sales was further amplified in April when motor dealerships closed with sales falling by 90%. 

On this basis, sales of new and imported cars combined look like they may end the year close to the record low of 104,000 experienced in 2009.

Meanwhile, residential property sales almost ground to a halt since March with agreed sales being put on hold in many cases. Industry experts are forecasting that sales will be down by 25-30% for the year.
 
Some of this lost spending may have been deferred and may come back later in the year, the monitor suggests. 

“There is discussion in some corners about the effect of pent-up demand and whether this will give a noticeable sales bounce across various sectors in the latter part of the year. This will be welcome if it happens but is unlikely to make up fully for almost a whole year of lost sales,” it added.

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Consumer economy collapses in April due to Covid-19

Disposable income was down by as much as 25% in April, despite the implementation of wage supports and enhanced welfare arrangements for workers impacted by Covid-19.

This is according to the latest Consumer Market Monitor from the Marketing Institute and the UCD Smurfit Graduate Business School.

Consumer sentiment dipped to its lowest level since 2012 with sales of property and cars down 90% in the month.

However, the lack of spending opportunities has resulted in increased savings and pent-up demand may provide a sales boost once shops and services reopen.

Several features of this crisis differ from the last recession and give cause for some optimism about the pattern of future recovery, Marketing Professor Mary Lambkin of UCD Michael Smurfit Graduate Business School said.

The report said that one way in which conditions differ between this crisis and the previous one is the level of government supports for the unemployed.

It is estimated that employee support payments are protecting up to 75% of disposable income which should help to cushion spending. 

But despite this, a drop of 9% in consumer spending is still forecast for the full year of 2020. 

This assumes a strong first quarter followed by a major drop in the second quarter, a modest recovery in the third quarter, and a good final quarter, today’s market monitor predicts.

It said that card spending data – which includes cash taken out at ATMs – gives a good indication of the pattern evident in recent months. 

Spending on debit and credit cards was up by 10% in March compared to the same month in 2019 due to the stockpiling that was seen in the middle of the month.

However, card spending fell by 36% in April year-on-year after the shutdown of all but essential retailers and most services outlets.

The consumer market monitor noted that sales of food and drink performed very strongly in March, up 19% year-on-year.

This was partly because of stockpiling but also because people are staying at home and eating more of their meals there. It seems likely that this trend will continue and result in good growth for the year, of possibly 5-10%, it added.

Sales of electrical goods and home furnishings also held up remarkably well in the first quarter, up 12% year-on-year, and were especially strong online. 

But sales of clothing and footwear were hit badly, down 52% in March year-on-year, and down 21% for the quarter. Department stores were also badly affected, down 28% in March and 12% for the first quarter year-on-year.

Service sectors such as transport, hotels and restaurants, arts and recreation have experienced drastic falls in business – down 80-90% – in the first quarter of 2020 and it seems unlikely that they will be able to recoup this loss over the summer. 

The most likely outlook is for a major loss of business for the year, possibly of the order of 25%, the monitor predicts. 

In contrast, sectors such as information and communications and finance and insurance experienced relatively small declines in sales of 10-20% in the first three months of the year. 

“This is because many of these services are considered essential and are subject to annual contracts which are paid by direct debit. However, banks and finance providers have moved to offer customers payment breaks on mortgages and personal contract plans (PCPs) where necessary,” the report noted.

Sales of big-ticket items like cars and property have also been badly hit. Sales of new cars were down 29% in March and sales of imported used cars were down 39% year-on-year. 

This decline in sales was further amplified in April when motor dealerships closed with sales falling by 90%. 

On this basis, sales of new and imported cars combined look like they may end the year close to the record low of 104,000 experienced in 2009.

Meanwhile, residential property sales almost ground to a halt since March with agreed sales being put on hold in many cases. Industry experts are forecasting that sales will be down by 25-30% for the year.
 
Some of this lost spending may have been deferred and may come back later in the year, the monitor suggests. 

“There is discussion in some corners about the effect of pent-up demand and whether this will give a noticeable sales bounce across various sectors in the latter part of the year. This will be welcome if it happens but is unlikely to make up fully for almost a whole year of lost sales,” it added.

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Ireland could run €30bn deficit this year, Donohoe tells Dáil

Minister for Finance Paschal Donohoe has said that there is a possibility that Ireland will run a deficit of €30 billion this year.

“We expect public debt to increase significantly this year,” the Minister said.

Speaking in the Dáil, Paschal Donohoe said the deficit can be financed at low interest rates at the moment but he said sentiment towards countries can change.

Minister Donohoe also told the Dáil that around 1.25 million people are now in receipt of income support from the State due to Covid-19, which he said is unsustainable in the long term.

Some €13 billion has been invested by the Government to support the economy but he warned there will be constraints on this spending in the future.

He said the change in the national finances is beginning to have a sharp effect.

Minister Donohoe said it was right for the Government to run a deficit when the private sector had experienced a demand shock of this magnitude.

He said the national income of the country will fall by 10.5% this year and it is expected that 220,000 jobs will be lost.

The Minister said the economic turmoil was as a result of a health crisis and not an economic crisis.

He also said the Government was still examining if there is a way of changing the rules around the Wage Subsidy Payment to allow women returning from maternity leave to become eligible for the scheme.

The Minister said it was always intended that the payment would treat all citizens equally.

Responding to Fianna Fáil’s Finance spokesperson Michael McGrath, the Minister said discussions are taking place between the Department of Finance and the Revenue Commissioners on the matter.

Sinn Féin’s David Cullinane has said it is “unacceptable, discriminatory” that women returning from maternity leave are excluded from the Wage Subsidy Scheme.

Deputy Cullinane said the wage subsidy was increased from 70% to 85% for a group of employees – despite “the clear” provisions in the legislation.

He asked why the same mechanism cannot be used to instruct Revenue to deal with the issue of women on maternity leave and said the issue needs to be sorted.

Responding, Minister Donohoe said it was because of the legislation that he made the change that he did to the Wage Subsidy Scheme.

He said the decision that he made then did not change the eligibility criteria for the scheme and the numbers that could access the scheme.

Several ministers were facing questions from the Opposition today over the Government’s handling of the Covid-19 crisis.

The cancellation of the Leaving Certificate and the failure to deliver childcare for frontline health workers this week were to be the focus for many TDs in the Dáil when Minister for Education Joe McHugh and Minister for Children Katherine Zappone were answering questions.

Negotiations on a programme for government will also take place.

Significant progress was made yesterday on housing with a broad agreement in principle now in place for several initiatives.

These are understood to include the building of social and affordable homes on public lands.

There was also a discussion on climate action where the ambition to reduce greenhouse gas emissions by 7% annually was restated.

Detailed talks on this key point will take place later in the week and it will encompass several government departments.

The parties are set to discuss policy priorities for the Irish Language, foreign affairs and agriculture today.

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Ireland could run €30bn deficit this year, Donohoe tells Dáil

Minister for Finance Paschal Donohoe has said that there is a possibility that Ireland will run a deficit of €30 billion this year.

“We expect public debt to increase significantly this year,” the Minister said.

Speaking in the Dáil, Paschal Donohoe said the deficit can be financed at low interest rates at the moment but he said sentiment towards countries can change.

Minister Donohoe also told the Dáil that around 1.25 million people are now in receipt of income support from the State due to Covid-19, which he said is unsustainable in the long term.

Some €13 billion has been invested by the Government to support the economy but he warned there will be constraints on this spending in the future.

He said the change in the national finances is beginning to have a sharp effect.

Minister Donohoe said it was right for the Government to run a deficit when the private sector had experienced a demand shock of this magnitude.

He said the national income of the country will fall by 10.5% this year and it is expected that 220,000 jobs will be lost.

The Minister said the economic turmoil was as a result of a health crisis and not an economic crisis.

He also said the Government was still examining if there is a way of changing the rules around the Wage Subsidy Payment to allow women returning from maternity leave to become eligible for the scheme.

The Minister said it was always intended that the payment would treat all citizens equally.

Responding to Fianna Fáil’s Finance spokesperson Michael McGrath, the Minister said discussions are taking place between the Department of Finance and the Revenue Commissioners on the matter.

Sinn Féin’s David Cullinane has said it is “unacceptable, discriminatory” that women returning from maternity leave are excluded from the Wage Subsidy Scheme.

Deputy Cullinane said the wage subsidy was increased from 70% to 85% for a group of employees – despite “the clear” provisions in the legislation.

He asked why the same mechanism cannot be used to instruct Revenue to deal with the issue of women on maternity leave and said the issue needs to be sorted.

Responding, Minister Donohoe said it was because of the legislation that he made the change that he did to the Wage Subsidy Scheme.

He said the decision that he made then did not change the eligibility criteria for the scheme and the numbers that could access the scheme.

Several ministers were facing questions from the Opposition today over the Government’s handling of the Covid-19 crisis.

The cancellation of the Leaving Certificate and the failure to deliver childcare for frontline health workers this week were to be the focus for many TDs in the Dáil when Minister for Education Joe McHugh and Minister for Children Katherine Zappone were answering questions.

Negotiations on a programme for government will also take place.

Significant progress was made yesterday on housing with a broad agreement in principle now in place for several initiatives.

These are understood to include the building of social and affordable homes on public lands.

There was also a discussion on climate action where the ambition to reduce greenhouse gas emissions by 7% annually was restated.

Detailed talks on this key point will take place later in the week and it will encompass several government departments.

The parties are set to discuss policy priorities for the Irish Language, foreign affairs and agriculture today.

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