News Archives - Page 3 of 289 - 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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World markets rally as US agrees $2 trillion stimulus package

After earlier strong gains, European shares were mixed today after an enormous $2 trillion US stimulus package and evidence of moves by companies to deal with the financial effects of the Covid-19~crisis failed to offset the impact on markets of a surge in cases around the world. 

After jumping as much as 5.1% in earlier trade, London’s FTSE index had gained 0.5% by lunchtime.

The Paris CAC was up 0.7%, but the Frankfurt DAX was down 1.6%. Markets in Paris and Frankfurt had traded over 4% higher earlier this morning. 

Dublin’s ISEQ index was up 1.4% this lunchtime after gaining as much as 5% in earlier trade. Shares in Dalata Hotel Group had jumped over 12%, while ICG sailed 7.4% higher. 

The Irish banks also managed to make back some of their recent losses.

US officials last night agreed on a whopping $2 trillion stimulus package.

Asian markets also soared in earlier trade after US lawmakers agreed that massive stimulus package to support the world’s number one economy as the coronavirus spreads.

Tokyo’s Nikkei index surged 8% while the Hang Seng index in Hong Kong closed with gains of 3.8%.

Wall Street posted its best performance in nearly 90 years last night, as indices rallied on hopes that lawmakers would agree on a massive $2 trillion stimulus package to blunt the coronavirus’ economic impact.  

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EU tells banks to be flexible over loan losses rule during epidemic

European banks have the flexibility to avoid a huge rise in provisioning for non-payment of loans during the coronavirus outbreak, the European Union’s securities and banking watchdogs said today. 

Banks have warned they face mounting provisions as businesses and households they lent money to struggle to repay loans during the outbreak. 

EU states have approved measures to offer some relief to businesses such as repayment holidays on loans. 

But lenders have been unsure whether a payment holiday would technically constitute a failure to pay and therefore trigger increased provisioning as required under a global accounting rule known as IFRS 9. 

Higher provisioning would eat into a bank’s capital. 

“In ESMA’s view, the principles-based nature of IFRS 9 includes sufficient flexibility to faithfully reflect the specific circumstances of the Covid-19 outbreak and the associated public policy measures,” the European Securities and Markets Authority said in a statement. 

ESMA’s banking counterpart, the European Banking Authority (EBA) also sought to reassure lenders today. 

“The EBA calls for flexibility and pragmatism in the application of the prudential framework and clarifies that, in case of debt moratoria, there is no automatic classification in default, forborne, or IFRS9 status,” EBA said in a separate statement.

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Covid-19 unemployment support payments to be increased to €350

The Government is to increase the Covid-19 Pandemic Unemployment Support payment for people who have been laid-off due to the virus from €203 to €350. 

The payment will also apply to the self-employed affected by the virus.

However, people who are already unemployed due to reasons other than Covid-19 will remain on the usual Jobseekers’ Benefit of €203.

The cabinet has also approved an emergency wage subsidy scheme under which the Government will pay 70% of a workers salary up to a cap of €410 per week net – equivalent to the after tax income of a worker on around €38,000. 

Workers earning between €38,000 and €76,000 will be entitled to assistance capped at €350, while workers earning above €76,000 will be excluded from the scheme. 

The scheme costing an estimated €3.7 billion will initially run for 12 weeks, and employers will be free to top-up the government’s element of the salary. 

The scheme is targeted at companies hit by the collapse of economic activity triggered by Covid-19 – and employers seeking to avail of it would have to demonstrate a reduction in income of at least 25%, along with cash flow difficulties. 

It is understood that the aim is to keep employees and employers connected, and make it easier to restart businesses when the crisis ends.

In addition, it was feared that the entitlement of workers on lay-off to demand redundancy payments after four weeks without work in certain circumstance could trigger a tsunami of redundancy claims, payment of which could have driven some businesses to collapse.

In that instance, the state would have picked up the responsibility to pay statutory redundancy of 2 weeks wages per year of service capped at €600 per week.

Informed sources said the scheme will be administered by the Revenue Commissioners, and there will be control checks.

The estimated cost of the wage subsidy scheme is between €3.5 and €4 billion. 

It is hoped that payments will continue to flow possibly as early as next week. 

Director of CIPD Ireland Mary Connaughton said themeasures announced this afternoon will give much needed support for those who have lost, or at risk of losing, their jobs.

“The Government plan to pay 70 per cent of a workers’ salary – up to maximum of €410 per week – where a company in difficulty agrees to continue paying the remainder of the salary, is also to be welcomed,” she said.

Ms Connaughton said the Government now needs to consider how businesses, especially SMEs, that have already laid off staff, can take advantage of the wage subsidy scheme to re-engage and support their staff, and stay afloat.

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EU to suspend budget rules as ECB relaxes regulations

The European Commission has said the EU would suspend its strict rules on public deficits to allow governments to open the money taps to face the coronavirus pandemic.

In an unprecedented decision, Brussels triggered something called the “general escape clause”, giving countries free rein to “inject spending into the economy as needed,” EU chief Ursula von der Leyen said.

The temporary measure effectively halts strict oversight by Brussels of national spending and will be welcome in Italy, the country suffering most from the novel coronavirus and one often in violation of EU rules.

EU finance ministers are widely expected to formally approve the clause next week.

Meanwhile, the European Central Bank has relaxed some of its regulatory controls over banks in response to the coronavirus pandemic.

In a statement this afternoon, the ECB said regulators, including the Irish Central Bank, would temporarily exercise ‘flexibility’ when it comes to classifying debtors as ‘unlikely to pay.’

This will apply to banks that call on government established credit guarantees as well as in the case of ‘Covid-19 public moratoriums’.

In Ireland’s case, this would be the recently announced three month payment break for personal and business customers impacted by the fallout from the pandemic.

The statement lists a number of other regulations where flexibility will be shown given the ‘extraordinary nature of current market conditions.’ 

Elsewhere, the European Commission has said it’s ready to consider backing common debt issuance in the euro zone to help the bloc weather the massive economic impact of the coronavirus outbreak.

“We are looking at all instruments and whatever helps will be used,” Commission President Ursula von der Leyen told German radio Deutschlandfunk.

“This also applies to coronabonds – if they help and if they are correctly structured, they will be used.” 

The comments from the Commission president, a member of Chancellor Angela Merkel’s conservatives in Germany, which has long resisted pooling debt with heavily indebted European Union members such as Italy, suggest consensus is now building for such a step. 

Prime Minister Giuseppe Conte of Italy, which has lost more lives in the pandemic than any other country including China where it began, has called for special “coronavirus bonds”, or a European guarantee fund, to help EU states finance health spending and economic rescue programmes.

Germany, the bloc’s biggest economy, resisted common euro zone debt issuance at the height of the 2008 financial crisis that pushed the shared euro currency to the brink of collapse.

Asked about Conte’s bonds proposal, Merkel said earlier this week that euro zone finance ministers were discussing measures to support their economies but no conclusions had been reached. 

German Finance Minister Olaf Scholz has said member states with higher debt levels should have the fiscal leeway for stimulus packages. 

“The same thing applies to debt rules – we are loosening them so that states have every opportunity to use financial resources. We are looking at everything – everything that helps in this crisis will be used, because we’ll support our economy without ifs or buts,” Ursula von der Leyen said.

EU Economics Commissioner Paolo Gentiloni said today that the European Stability Mechanism (ESM) – the euro zone’s bailout fund – would be in the best position to issue coronabonds needed to fund emergency measures. 

The bonds “are market operations and must be launched by financial structures. The most suitable is the ESM,” Gentiloni said. 

He added there was still no decision but “discussions must continue.” 

The idea of a coronabond issued by the ESM has the support of some European Central Bank policymakers as well, a source told Reuters this week.

Further afield, in its latest effort to pump funds into the economy, the US Federal Reserve has announced new measures to enhance liquidity in state and municipal money markets.

The program will be administered by the Federal Reserve Bank of Boston and make loans to financial institutions secured by high-quality assets such as tax-free municipal bonds.

The effort comes on the heels of myriad earlier central bank steps to add liquidity amid large investor liquidations during an economic shock.

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Virus hit firms will be able to defer rates payments

Businesses most impacted by the coronavirus outbreak will be able to defer the payment of their commercial rates for three months under a plan agreed by the Government with local authorities.

The deal will relate primarily to the retail, hospitality, leisure and childcare sectors and will last until the end of May.

In a statement, the Government said the measure would be implemented by each local authority in its own area.

Short term financial support will be made available to local authorities to mitigate the impact on cash flow and critical service delivery, like emergency response, housing, homelessness, parks and amenities.

Every year, firms contribute €1.5 billion in commercial rates to local authorities, providing an average of 33% of their funding.

The Department of Housing, Planning and Local Government said individual local authorities are already dealing with difficulties experienced by rate payers on a case by case basis.

“Any commercial ratepayers that have had to temporarily close or significantly curtail operations during the COVID-19 response period should contact their local authority immediately in relation to any rates payments falling due in the period to end-May,” it said.

“Ratepayers that can continue to pay their outstanding local authority rates should continue to do so in the normal way.”

Chambers Ireland said the move offered some relief to businesses who have had to close in recent days.

But it added that as the crisis evolves, an extension of the deferral would be required.

“The extent of the crisis we are facing is still uncertain,” said Chambers Ireland CEO, Ian Talbot.

“Businesses that closed over the weekend and since then, have no idea when normal trading conditions might resume. Recovering from this shock will be an enormous task and every assistance possible must be made.”

“Because of this, Government must commit to extending the Rates relief to correspond with the duration of the crisis. Government must also ensure that sufficient monies are made available to local authorities, as and when needed, so that essential local services can continue to be funded.”

While the Irish Hotels Federation said proposals to defer rates payments are wholly inadequate and a futile exercise that will do little to get the 260,000 people in Irish tourism back to work.

“Securing jobs is our priority now and it is disappointing that the Government does not realise the reality of what is needed,” said Elaina Fitzgerald Kane.

Earlier the chief executive of Dublin City Council has said he favours dealing with hardship faced by some businesses in Dublin on a “case by case” basis rather than implementing an across the board freeze on commercial rates in the city due to the Covid-19 crisis.

Owen Keegan said that many businesses are functioning as “near normal”‘, while others doing well and he does not see any reason why they should not pay their rates.

Mr Keegan told Morning Ireland that the income from rates is necessary to keep services going, including some essential services likes water and emergency ambulances in the city.

Owen Keegan said he accepts that the hotel sector is badly affected and asked those businesses to contact the Council, saying they will be dealt with “in a sympathetic way”.

‘Clearly if they can’t pay we will recognise that – we won’t be pursuing anyone in court and will be reasonable,” Mr Keegan said.

He said that a reduction in the Council’s overall income is likely.

Mr Keegan also said that social housing tenants’ rent is income-related, so if these tenants lose their jobs their rent will automatically reduce.

In this regard, they are in a better position that private tenants, he added.

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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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ECB announces €750bn bond purchase scheme amid Covid-19 crisis

The European Central Bank on Wednesday announced a surprise €750 billion scheme to purchase government and corporate bonds.

It comes as it joined other central banks in stepping up efforts to contain the economic damage from the coronavirus. 

The ‘Pandemic Emergency Purchase Programme’ comes just six days after the ECB unveiled a big-bank stimulus package that failed to calm nervous markets, piling pressure on the bank to open the financial floodgates. 

The asset purchasing scheme will be temporary and be concluded once the bank “judges that the coronavirus Covid-19 crisis phase is over, but in any case, not before the end of the year”, it said in statement. 

The decision came after the bank’s 25-member governing council held emergency talks by phone late into the evening. 

The ECB said it was “committed to playing its role in supporting all citizens of the euro area through this extremely challenging time”.

“The governing council will do everything necessary within its mandate,” it said, adding that the size of the asset purchases could be increased if needed. 

It also said it stood ready to relax some self-imposed restrictions on bond purchases to potentially help countries like Italy whose bond yields have soared over the coronavirus panic. 

Critics had in recent days slammed the ECB for not doing enough to support the euro zone compared to the drastic action taken by the US Federal Reserve. 

But the immediate reaction from analysts was positive. 

The ECB’s latest medicine could be “a game changer for the euro area economy and credit markets” if it was accompanied by fiscal action from eurozone governments, Pictet Wealth Management strategist Frederik Ducrozet said. 

ECB President Christine Lagarde said the bank intends to use all tools to defend the euro as “there are no limits” to its commitment to the single currency. 

“Extraordinary times require extraordinary action,” Ms Lagarde tweeted.

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Banks announce measures for customers and businesses impacted by Covid-19

The main banks are to introduce a range of measures to help those affected by the outbreak of coronavirus.

They include including a payment break up to three months, the deferment of court proceedings and the provision of working capital support to support businesses and personal customers.

It follows a meeting between representatives of the banks, the Banking and Payments Federation and Minister for Finance Paschal Donohoe.

AIB, Bank of Ireland, KBC, Permanent tsb and Ulster Bank, said they would work collaboratively to ensure that continuity of service plans are in place and that critical functions can continue.

They added that staff would remain available to continue to service customers.

In addition to the measures being introduced by the banks, the Minister for Finance is requesting that the banking industry increase the limit on contactless payments to €50. 

That would see it increase from the current limit of €30.

Paschal Donohoe said the increased limit would cover most transactions as the average value of debit card transactions is €41.52.

The minister is also deferring the collection of stamp duty on credit cards to July. This is normally levied in April.

Minister Donohoe said he would legislate for this in due course.

Revenue confirmed this evening that the duty of €30 per year per credit card account would now be levied on 1 July, three months after the legislated date of 1 April.

It added that individual credit card account holders did not need to take any action as the collection date would be changed automatically by financial institutions.

Minister Donohoe said the country was at the centre of a “very significant economic shock”.

Mr Donohoe said: “I would not at this point in time like to talk about many hundreds of thousands of jobs being lost until we get accurate estimates from the Live Register.”

While refusing to be drawn on the number of job losses anticipated, he said: “We are facing into a significant period of job losses.

“I want to assure people who have lost their jobs that all that can be done to get income to them quickly and get them access to the pandemic benefit can be done.”

The measures being introduced by the five main banks are as follows:

1. Implement a payment break up to three months for business and personal customers affected by Covid-19, to be followed by ongoing reviews depending on the scale and extent of the situation. Customers wishing to avail of a payment break should contact their respective bank.

2. The banks agree there is a need for a simplified application process to make it as easy as possible for businesses and personal customers impacted by Covid-19 to receive support from their banks.  They are working with all member banks to achieve this.

3. The banks want to ensure that any Covid-19 application for a payment break and further reviews will not adversely impact the customer’s credit record, and the banks reporting of these facilities. Banks want to avoid this and are meeting with the Central Bank of Ireland to urgently achieve a solution in this regard.

4. Banks will also defer court proceedings for three months. 

5. The banking system stands ready to provide working capital support. 

6. They had initial discussions with Credit Servicing Firms and with those non-bank lenders who provide mortgages. Both the Credit Servicing Firms and non-bank lenders have issues which we need to address with the Central Bank of Ireland, but both are committed to working with the Government and industry to provide the flexibility that people need right now.

Sinn Féin Finance spokesperson Pearse Doherty welcomed the joint plan.

But he also called for an immediate engagement from Government and the Central Bank with so-called “vulture funds” and non-bank lenders to ensure the same reliefs are provided to all mortgage-holders.

Speaking on RTÉ’s Primetime, Minister Donohoe acknowledged that some of those who have loans with so-called ‘vulture funds’ may be in “particularly vulnerable situations”.

He also said that landlords with buy-to-let mortgages who avail of the measures could not evict a tenant during the same period. 

“You can’t have it both ways,” Minister Donohoe said, adding that he and Minister for Housing Eoin Murphy were looking “at all options” to address that issue. 

Mr Donohoe said he would like see the agreement extended to include non-bank lenders in Ireland in the coming days.

He said the Banking Payments Federation of Ireland is currently engaging with non-bank lenders. 

The minister said he would like to see, where possible, the similar flexibility in place for people who have a loan with non-bank lenders.

He said he would like the spirit of the agreement, if not the full agreement reached with the banks, to be in place for all.

While Retail Ireland, the Ibec representative body for the retail sector in Ireland, welcomed the move to increase the limit on contactless payments. 

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European rout pauses as ECB stimulus measures calms recession panic

European shares edged higher from near-seven year lows today as another set of dramatic stimulus measures by the European Central Bank injected a ray of hope around its preparedness to tackle a major health crisis gripping the world.

The pan-European STOXX 600 index was up 0.5% in opening trade. 

The European Central Bank joined peers in Japan, Australia and the US in launching a fresh wave of emergency stimulus to help businesses battered by a near halt in economic activity from the coronavirus pandemic. 

Although banking and oil and gas stocks rose in early trading, travel and leisure firms fell another 3% on growing concerns of a complete collapse of the sector. 

Germany’s Lufthansa said the airline industry may not survive without state aid if the virus outbreak lasted for a long time.

Shares in Milan jumped 4.3% in opening trade this morning, while the Madrid stock exchange gained 3.1%.

The Paris CAC was up 2.3% in early trade, while shares in London and Frankfurt reversed their opening losses to stand 0.04% and 0.3% higher respectively. 

Dublin’s ISEQ index was also lower again this morning, falling by 0.67% in opening trade.

Earlier in Asian trade, Tokyo’s Nikkei index closed 1% lower while the Hang Seng index in Hong Kong was down 2.6%.

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