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

Economy to shrink by at least 7.1% due to virus – ESRI

The economy could contract by over 7% this year and unemployment could soar to around 18% as a result of measures taken to slow the spread of the coronavirus, the Economic and Social Research Institute warned today.
The ESRI said the Covid-19 pandemic is the greatest threat that the Irish economy has faced since the financial crisis. 

In its quarterly Spring Economic Commentary, the ESRI said that if Government measures to combat the spread of the virus remain in place for a 12-week period, the economy would shrink by 7.1% this year.

The labour market, which had been in a position of strength before the spread of the pandemic, is also set to face the largest quarterly shock in living memory, according to the ESRI.

It predicts that the unemployment rate will increase to 18% in the second quarter of the year from 4.8% in the previous quarter, as more than 350,000 people lose their jobs.

The ESRI said that given the uncertainty around the coronavirus outbreak, it is not possible to undertake traditional economic forecasts.

It said today’s commentary provides a scenario analysis that attempts to assess the economic impact of the current restrictions and closures.

The think-tank said that consumption, investment and net trade would all fall sharply as households cut spending, firms cancel or postpone investment and external demand for Irish goods and services fall.

But the ESRI said its current scenario may turn out to be too benign as it assumes that economic activity both domestically and internationally begins to recover significantly in the third and fourth quarters of 2020.

If this does not occur, then the results will be even more adverse for the economy here, it cautioned.

Ireland’s GDP has outperformed everywhere in the EU each year since 2014, and before the onset of the virus the ESRI expected the economy to grow by up to 4% this year. 

On the general government balance, which had been expected to be in surplus at the start of the year, the ESRI is now predicting a 4.3% deficit.

It said this is as a result of the significant fall in revenues the exchequer will face due to the contraction in the economy.

“It also reflects the significant increase in spending the government will implement in order to support workers who have lost their jobs, assist businesses facing declines in revenue and provide additional health expenditure needed to combat the virus,” the think-tank added.

The ESRI said the swiftness of the economic deterioration is unprecedented in modern times and in many respects exceeds that of the financial crisis.

It urged both monetary and fiscal authorities across the globe to act with “conviction and speed” to smooth the economic and financial effects of the crisis. 

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Recession a possibility as a result of virus; Davy

Stockbroker Davy has said the Irish economy could contract in 2020 as a result of the coronavirus pandemic.

In a range of possible scenarios outlined in a paper on the economy, chief economist Conall MacCoille describes the impact as ‘highly uncertain’.

He said the stockbroking firm was delaying revising downwards its forecast for growth in Gross Domestic Product of 5.5% for the year.

However, he said plausible scenarios could see GDP growth falling towards 1%, if the spread of virus can be contained quickly, or an outright contraction in less favourable circumstances.

In a ‘short, sharp shock’ scenario, Davy says GDP could contract by 3.6% in the second three months of the year.

On the basis of GDP bouncing back to the original forecasts by the end of the year, Conall MacCoille says GDP growth for the year could come in at 3.4%, a hit of two percentage points.

In a recession scenario, Davy’s chief economist assumes a larger than expected short term impact with an 8% fall in GDP in the second three months with a slow recovery thereafter.

“The level of GDP only regains its pre-COVID-19 level by mid-2021. GDP contracts by 1.3% in 2020 before 5.6% GDP growth in 2021,” he explains.

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Economy off to strong start in 2020, services PMI shows

The country’s services sector grew at the fastest pace in seven months in January, a new survey today showed.

This was the second survey this week to suggest the euro zone’s fastest-growing economy made a strong start to the year. 

A slowdown in manufacturing activity in Ireland threatened to spread to the services sector as recently as October but some certainly around Brexit has helped solidify seven years of uninterrupted growth over the past three months. 

AIB’s IHS Markit Purchasing Managers’ Index (PMI) for services rose to 56.9 from 55.9 in December, well above the 50 mark that separates growth from contraction. 

The expansion was driven by the strongest growth in new orders since the end of 2018 and followed a PMI survey for manufacturers that showed a rebound in activity for just the second time in eight months. 

“This report, combined with the marked improvement in the manufacturing PMI in January, indicates that the Irish economy got off to a good start in 2020, helped by less uncertainty around Brexit,” AIB’s chief economist Oliver Mangan said.

The services sector covers areas as diverse as communication, financial and business services, IT and the tourism trade. 

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Irish economic growth for 2018 revised up to 8.2%

Irish economic growth for 2018 revised up to 8.2%

The Irish economy grew 8.2% last year, according to new data released by the Central Statistics Office.

Gross Domestic Product, a measure of the total output of an economy, stood at €324 billion for the year, the CSO said.

But when the profits of multinationals were stripped out, as measured by Gross National Product or GNP, the economy grew at the smaller rate of 6.5%.

The GDP figure is higher than anticipated when the CSO reported provisional data in March, when it was estimated that it would come in at 6.7%.

The growth means Ireland’s debt to GDP ratio now stands at 63.6%, down from the peak of 120% in 2013.

Using Modified GNI*, a different measure of the economy which strips out the skewing caused by the depreciation of foreign-owned intellectual property assets here and the depreciation of aircraft owned by aircraft leasing firms, the size of the economy was €197 billion.

When measured using Modified GNI*, the debt ratio stood at 104%.

Today’s data also showed that Government expenditure rose 4.4% last year.

The significant economic growth in 2018 was driven by a 10.4% rise in exports of goods and services.

Among the areas of the economy where multinationals are most active, growth in the ICT sector registered a 21.2% expansion.

Meanwhile, in the domestically focused economy, the distribution, transport, hotels and restaurants sectors grew by 6.6%.

The positive growth trend continued in the first quarter of this year, albeit at a reduced rate, with GDP growing by 2.4% between January and the end of March.

GNP rose 2.1% during the same period.

The ICT sector expanded by 11.5% over the three months, while in the domestically focused economy, construction activity rose 5.6%.

The distribution, transport, hotels and restaurant sector registered a modest contraction of 0.1%.

On the international trade front, the current account of the Balance of Payments recorded a surplus of €11 billion in flows with the rest of the world between January and March, down from €11.3 billion in the same time last year.

The accounts also include Balance of Payments Current Account transactions with the UK, which show a surplus of €1.4 billion for trade with the UK in the first thee months of the year.

The CSO said this trade surplus was offset by a deficit of €2.9 billion in income flows, giving an overall current account deficit of €1.6 billion with the UK in the quarter.

Computer services exports rose by €5.7 billion in the quarter, compared to the same quarter a year earlier, the CSO noted.

Irish GDP growth has outperformed the rest of the European Union every year since 2014, undeterred by Brexit.

The Government has warned that Brexit could lead to a sudden contraction if the UK left without a transition agreement, which it does not yet have.

The strong first quarter also tallies with striking jobs numbers for the first three months of 2019.

The labour market, already close to capacity with unemployment below 5%, added new workers at the fastest pace since Ireland’s economic recovery began.

Many economists use the labour market as the most accurate barometer of how Ireland’s open economy is doing.

The relevance of GDP diminished when 2015 growth was adjusted up to 26% after a massive revision of the stock of capital assets.

Such distortions, related to the country’s large cluster of multinational companies, inflated GDP again for the last two years.

In its quarterly economic forecasts yesterday, the European Commission said that the Irish economy – as measured by GDP – will grow by 4% this year before moderating to 3.4% in 2020.

The commission predicted that the Irish economy will continue to grow at a solid pace, but warned that the risk of overheating could increase in the near term.

Commenting on today’s CSO figures, Minister for Finance Paschal Donohoe said the “continued softness in the international environment” and Brexit showed the need for careful management of the economy.

Ibec chief economist Gerard Brady said the negative impact of mounting global trade tension, whilst not targeted at Ireland directly, will inevitably wash up on our shores.

“How long these tensions last, and their ongoing reverberations will have a big say in the future of open economies such as ours,” he added.

Economy set for solid growth but EU warns of overheating

Economy set for solid growth but EU warns of overheatingThe European Commission has predicted that the Irish economy will continue to grow at a solid pace but warned that the risk of overheating could increase in the near term.

In its quarterly economic forecasts, the Commission said that the Irish economy – as measured by GDP – will grow by 4% this year before moderating to 3.4% in 2020.

This compares to its previous forecast of growth of 3.8% for this year and 3.4% for 2020.

The Commission said that domestic activity is projected to continue growing at a solid pace with robust private consumption growth underpinned by strong growth in employment and wages.

It added that investment in construction is also forecast to expand at a brisk pace.

The Commission noted that the economy maintained its momentum in the first half of 2019, with employment soaring by 3.7% year-on-year and the unemployment rate falling to 5% – a level last seen in 2007.

Average weekly earnings also rose by 3.4%, supporting household disposable income, it added.

But it cautioned that the economic outlook remains clouded by uncertainty, particularly due to Brexit and changes in the international taxation environment.

It also said that the “difficult-to-predict activities of multinationals could drive headline growth in either direction”.

The Commission also warned that in the absence of major negative external shocks, the risk of overheating could increase in the near term.

“The tight labour market and diminishing spare capacity point to an economy possibly operating above its potential,” it said.

“The use of volatile and potentially short-lived foreign-company sourced corporation tax receipts to stimulate domestic demand would also fuel overheating,” the Commission added.

Meanwhile, the European Commission has today lowered its estimates for euro zone growth and inflation, saying uncertainty over US trade policy posed a major risk to the bloc.

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Ireland remains competitive, but threats to economic sustainability on the rise

Ireland remains competitive, but threats to economic sustainability on the rise

Ireland continues to perform well in the three most influential competitiveness indicators, according to the latest Competitiveness Scorecard published by the National Competitiveness Council.

The NCC said that Ireland is ranked 7th in the IMD rankings and ranked 23rd in both the WEF and World Bank rankings.

The NCC said that the economy made large competitiveness gains from 2010 onwards.

But it also pointed to the risks facing the country’s competitiveness, including Brexit and potential changes in US international trade policy.

It said these issues are compounded by domestic issues, including the concentration of the economy on a small number of firms, in a small number of sectors, which leaves it vulnerable to shocks.

The Council noted the risk of overheating – recently highlighted by the Irish Fiscal Advisory Council – but it added that this possibility could change rapidly in the face of an international downturn.

Today’s scorecard report also shows that Ireland also remains a high cost economy.

It said that higher costs, in general, are less of a concern, should productivity levels grow at a faster pace, but the majority of firms here are showing stagnant or declining growth in productivity.

Commenting on his last report as NCC Chairman, Professor Peter Clinch said that with the highest public debt levels in the EU, Ireland is vulnerable in the face of any future crisis.

Professor Clinch said that threats to the sustainability of the economy sit alongside other sustainability issues.

Ireland is on course to fail to meet its 2020 EU commitments for reductions in greenhouse gas emissions, which continue to rise despite decreasing across the EU, he said.

“The Council welcomes the Government’s Climate Action Plan and notes that significant behavioural change will be required for Ireland to come close to meeting its 2030 targets,” Professor Clinch added.

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Euro zone economy accelerates in Q1 as Germany rebounds

Euro zone economy accelerates in Q1 as Germany rebounds

The euro zone economy accelerated quarter-on-quarter in the first three months of the year, the EU’s statistics office confirmed today.

This was thanks to a rebound in the biggest economy Germany and the end of a technical recession in Italy.

Eurostat said the economy of the 19 countries sharing the euro expanded by 0.4% quarter-on-quarter in the three months from January to March, the same as its initial estimate, after 0.2% growth in the last three months of 2018.

Year-on-year, the euro zone grew by 1.2% in the first quarter, also as previously estimated, the same rate as at the end of last year.

The quarterly acceleration was mainly thanks to Germany, which rebounded to 0.4% growth from zero growth in the previous three months.

Italy also helped as it rallied from a technical recession of two consecutive quarters, when its economy contracted each time by 0.1%. It expanded by 0.2% in the first quarter of 2019.

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UK economy expands on Brexit stockpiling

UK economy expands on Brexit stockpiling

The UK economy grew by 0.5% in the first quarter, boosted by companies stockpiling ahead of Brexit, official data showed today.

British gross domestic product expansion outpaced the 0.2% seen in the final three months of 2018, the Office for National Statistics said in a statement.

The ONS added that UK manufacturing jumped 2.2% in the first quarter with recent surveys showing Brexit-facing companies building inventories, said to include key car parts and medicines.

The first-quarter growth figure was meanwhile in line with market expectations.

The strong manufacturing performance offset a slowdown in services output to 0.3%, the ONS data showed.

The Bank of England last week raised its forecast for UK economic growth this year, as stockpiling offsets lower business investment elsewhere ahead of Britain’s departure from the European Union.

UK economic activity was given a temporary boost as companies rushed to build up stocks of components and goods before the original March 29 Brexit deadline, the Bank of England said.

The Bank of England is predicting UK GDP expansion of 1.5% this year, up from its previous growth estimate of 1.2%.

Following today’s data, the pound was little changed as first-quarter output of 0.5% had been widely forecast following the recent BoE update, analysts said.

Britain is due to leave the EU by October 31 after two delays this year triggered by MPs rejecting a divorce deal Prime Minister Theresa May had struck with the bloc.

The Centre for Economics and Business Research said that businesses in the first quarter had purchased more goods to keep in storage in the event of a no-deal Brexit affecting supply chains and the ability for businesses to the buy goods they need for production.

The Bank of England, meanwhile, sees the boost to growth from stockpiling as only temporary, forecasting that UK GDP would slow to about 0.2% output in the second quarter of this year.

Many analysts agreed with Joshua Mahony, senior market analyst at IG trading group, who said that “while manufacturing is enjoying a bullish moment, there is a strong chance that such strength could be short-term given its reliance upon Brexit stockpiling”.

Reacting to the latest GDP data, British finance minister Philip Hammond described the UK economy as “robust”.

“The economy has grown for nine consecutive years, debt is falling, employment is at a record high and wages are rising at their fastest pace in over a decade,” the minister said.

The Treasury said that the UK economy was forecast to grow faster than Germany, Italy and Japan in 2019.

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Booming economy sees incomes soar to record levels

Booming economy sees incomes soar to record levels

Household income is at a record high and continuing to grow sharply, underpinned by jobs and investment, according to a new report.

In contrast to the Celtic Tiger, when notional wealth was linked in many cases to debt-funded property assets, rising incomes are underpinned by what are described as “exceptional levels” of business investment and related employment effects, in the new research from employers’ group Ibec.

In its latest ‘Quarterly Economic Outlook Q1 2019’, Ibec says per-person household income is at a record high and growing 6pc annually. That trend has been flattered by low inflation boosting the impact of wage growth.

“Since 2015, Irish households have seen growth of real income, per person, of just over 11pc cumulatively. UK households on the other hand saw their incomes fall by 1.2pc over the same period,” the Ibec report said.

However, it said the pace of growth will not last indefinitely as the global economy shows signs of slowing.

A no-deal Brexit would also be expected to have a significant impact including cancelled investment, falling consumer confidence, rising prices, and trade disruption.

For now, however, disposable income per person is now back above pre-crash levels for the first time, according to Ibec, driven by the drop in unemployment levels and labour market participation of 83.5pc for prime-age workers (25-54 years), which has never been higher.

Those figures may be the reason consumer spending held up last year despite a drop in consumer sentiment linked to fears over the risks of a no-deal Brexit in particular.

“The Irish economy is in a sweet spot, with growth in employment and wages both hitting close to 3pc in 2018,” the report said.

Meanwhile, Finance Minister Paschal Donohoe claimed spending has been brought under control and promised there will not be a repeat of last year’s €600m Department of Health spending overrun.

Mr Donohoe published a Stability Programme Update 2019 yesterday, effectively kick-starting the Budget 2020 process.

He said he will deliver a budget surplus both this year and in 2020 helped by strong corporation tax receipts already forecast to come in €500m above expectations this year.

“We are aiming to deliver a significant improvement in performance on health expenditure for this year,” Minister Donohoe said on Tuesday.


The first quarter exchequer receipts showed net Government spending of €12bn was up 7.2pc on the year but 2.6pc below plan.

“But given the experience that I had last year, I am not at all being complacent this year,” Mr Donohoe said.

The number of people working for the Government last year hit almost 400,000, driving a surge in the public wages bill to €22.2bn.

Pressures on the budget are growing, from overruns on the new children’s hospital to expensive drugs and the now rising cost of paying for the Fair Deal for nursing home care schemes.

However, surging corporation tax receipts enabled the Government to eke out a modest budget surplus last year and are already running ahead of budgeted spending increases, creating extra wriggle room this year and for Budget 2020.

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