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Irish economic growth set to moderate – Commission

Irish economic growth set to moderate – Commission

The European Commission said today that GDP growth in Ireland is forecast to moderate as support from the external environment weakens and risks, including Brexit, grow.

But in its latest quarterly economic forecast, the Commission said that underlying economic activity is expected to remain “robust” on the back of construction investment and positive labour market developments.

The Commission has predicted that GDP here will grow by 3.8% in 2019 and by 3.4% in 2020, below the rates of 4.1% and 3.7% predicted in an earlier forecast in February.

The Commission said that uncertainty surrounding the economic outlook comes mainly from external factors, especially Brexit, as well as possible changes in the international taxation and trade environment.

It also said that on the domestic side, signs of overheating could become more apparent and the “huge impact” of the often unpredictable activities of multinationals could drive headline growth in either direction.

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Easter inflation bounce won’t end slowdown fears

Easter inflation bounce won’t end slowdown fears

A rise in headline inflation in April should have given comfort to the European Central Bank, but the pick-up was due to a rise in package holiday and airline fare prices at Easter and is set to fall back as the year progresses.

Data from the European Statistics Agency issued yesterday showed the headline inflation rate picked up to 1.7pc from 1.4pc in May and at first brush appeared to chime with some bullish economic reports that had suggested the global economy had regained its mojo.

Coming hard on the heels of news that Italy had emerged from recession in the first quarter of the year and that growth in the bloc as a whole came in at 0.4pc quarter on quarter, the impression among many economists and money managers was that the panic had been overdone.

Economists at consultancy Capital Economics forecast inflation would fall back to 1pc this year and stay there as exports, household consumption and investment remain subdued.

It may be time too to prick some of the optimism that has surrounded the world economy after blockbuster annual growth of 3.2pc in the United States for the first quarter and data from China that put growth in the same quarter at 6.4pc.

Those numbers suggested to some that fears of a slowdown were overdone and investors piled yet more money into stock markets, pushing US indices to record highs.

Federal Reserve Chairman Jerome Powell reinforced the upbeat view of the economy at the central bank’s policy meeting earlier this week when it left interest rates unchanged.

The analysis from Fed policymakers was that economic growth, a strong labour market and an eventual rise in inflation were still “the most likely outcomes” as the US expansion nears its 10-year mark, closing on an all time record.

The analysis from Fed policymakers was that economic growth, a strong labour market and an eventual rise in inflation were still “the most likely outcomes” as the US expansion nears its 10-year mark, closing on an all-time record.

That will surely please President Donald Trump, whose re-election campaign depends on a growing economy and buoyant stock market, even though his call for a one percentage point cut in interest rates was ignored by the Fed.

Governor Powell played down the Fed’s failure to raise inflation, which fell to 1.6pc in March, down from February’s 1.7pc and well below the bank’s target of 2pc.

He even described the decline in inflation as being just “transitory”, and while the Fed’s inflation record has been better than that of the European Central Bank, it has been here before and failed to spot a sharp sustained fall in inflation in September 2017 caused by falling phone contract prices.

That policy torpor may turn out to be a big misreading of the economy, according to Steve Blitz, chief US economist at TS Lombard.

“Our reading of recent economic data suggests that the time to be pre-emptive should be now. A slowdown strong enough to pull inflation lower is in the making,” he said.

The latest Institute of Supply Management (ISM) survey of manufacturers last week showed manufacturing hit a two-and-a-half-year low in April and fewer and fewer companies in the sector were seeing inflation.

“In sum, the Fed has moved to the sidelines and out of the policy spotlight. Our read of the data is that by late summer, inflation will be low enough for long enough to pull the Fed back into the game and cut rates,” Mr Blitz said. Survey data such as the ISM series and purchasing manager indexes (PMI) provide a much more up-to-date assessment of the economy than some of the big headline numbers like gross domestic product and employment.

A similar picture has emerged in Europe where the Composite PMI declined for the second month in a row, while the Services PMI – which had been performing well up to now – fell in April and a steep fall in industry confidence pulled the eurozone Economic Sentiment Indicator lower in April.

If the world economy does start slowing rapidly, the effects will be felt here thanks to our high dependence on exports. The Department of Finance has based its forecast of 3.9pc growth on an expectation of 1.2pc growth in the eurozone and 2.3pc in the US for this year.

Recent survey data here has also raised some concerns over the outlook for economic growth with the AIB Ireland Services PMI released yesterday showing that growth in the sector had slowed to a three-month low. Job growth was down and in a parallel with the United States, cost inflation fell to its slowest in over a year.

“Taken together with Wednesday’s Manufacturing PMI report, these releases point to slightly weaker expansion at the start of Q2,” said Philip O’Sullivan, chief economist for Ireland at Investec.

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Euro zone inflation accelerates in April on energy, services

Euro zone inflation accelerates in April on energy, services

Euro zone inflation surged beyond expectations last month, mild relief for the European Central Bank, even if much of the jump was likely related to seasonal effects due to the timing of Easter.

Inflation in the 19 countries sharing the euro accelerated to 1.7% in April from 1.4% a month ago, beating expectations for 1.6%, Eurostat data showed today.

More crucially, underlying prices excluding food and energy, a figure closely watched by the ECB, picked up to 1.3% from 1%.

This saw it erase a worrisome dip a month earlier and hit its highest rate since October on a jump in services costs.

The ECB targets inflation just below 2% but has undershot this for the past six years despite deploying an arsenal of conventional and unconventional tools to boost growth and prices.

But any relief from solid April figures is likely to be short lived as the ECB expects inflation to slowly sink this year and not hit its target over the next three years.

Indeed, the ECB has already announced plans to provide even more stimulus through a new round of ultra cheap loans to banks to help the economy, backtracking on earlier plans to normalise policy after years of extraordinary help.

It now expects interest rates to stay steady through the year but risks are skewed towards an even later lift-off as markets price no hike for the better part of the next two years.

The problem is that growth is faltering, mostly as Germany, the bloc’s powerhouse, struggles through an unexpected dip caused by weak export demand for its manufactured goods.

German growth could fall to just 0.5% this year, the Bundesbank said today, less than half of the euro zone’s rate, and there was no sign yet of a recovery taking hold.

Still, policymakers agree that weakness is merely a dip, not the start of a recession, and a recovery is likely coming in the second half of the year.

Supporting their argument, employment continues to rise and services remain robust, suggesting that weak external demand, partly caused by global trade tensions, were the chief culprit of the slowdown.

Separately, Eurostat said euro zone prices at factory gates eased 0.1% month-on-month in March for a 2.9% year-on-year rise, falling short of market expectations of a 0% monthly reading and a 3% annual gain.

Changes in producer prices are an early indication of trends in consumer prices, as they tend to be passed on by retailers and intermediaries to consumes.

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Cabinet expected to approve €3bn broadband plan

Cabinet expected to approve €3bn broadband plan

The Cabinet meets this morning to consider approving the National Broadband Plan, which aims to bring high-speed internet to more than half a million homes, farms and businesses across rural Ireland.

Taoiseach Leo Varadkar confirmed to the Dáil that the project could cost as much as €3bn over 25 years, but added that the tender submitted by the sole remaining bidder was being gone through in “excruciating detail”.

However, opposition parties claim that the plan does not represent good value for money – a position that is also held by senior officials in the Department of Public Expenditure.

Back in 2012, the original National Broadband Plan was launched with some fanfare by the then minister for communications Pat Rabbitte, who described it as the “rural electrification of the 21st century”.

Since then, it has been a lengthy, complicated and controversial process that saw five original bidders reduced to three preferred bidders, only for two of them to pull-out, and the sole remaining consortium Granahan McCourt Capital to significantly alter its membership.

In October last year, the then communications minister Denis Naughten resigned following revelations that he met David McCourt, who heads up Granahan McCourt, while the tendering process was ongoing.

Following that debacle, the Taoiseach described delivering broadband to rural Ireland as a “personal crusade”.

Mr Varadkar has said what is now being proposed is very different from the original plan and this accounts for the estimated cost increasing from €500m to €3bn.

However, opposition parties have severely criticised the Government on the price tag.

Fianna Fail’s Timmy Dooley described it as an “appalling betrayal of taxpayers”, while Sinn Féin’s Brian Stanley said it was “the wrong decision after a bad tendering process”.

The added complication for the Government is that senior officials in the Department of Public Expenditure have also been expressing concern about the price tag, something that puts Minister for Finance and Public Expenditure Paschal Donohoe in a difficult political position.

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Live Register figures down by 0.4% in April

Live Register figures down by 0.4% in April

The number of people signing on the Live Register showed a monthly decrease of 700, or 0.4%, in April, new figures from the Central Statistics Office show.

This brings the seasonally adjusted total to 194,700.

The CSO said the number of people on the Live Register in April is the lowest number recorded in the seasonally adjusted series since February 2008.

CSO figures released earlier this month showed that the country’s unemployment rate remained at an 11-year low of 5.4% in April.

The Live Register is not designed to measure unemployment as it includes part-time workers – those who work up to three days a week – as well as seasonal and casual workers entitled to Jobseeker’s Benefit (JB) or Jobseeker’s Allowance (JA).

According to today’s figures, long-term claimants made up less than 40% of all those on the Live Register, while just over 10% were aged under 25.

They also show that the number of men signing on the Live Register fell 16% to 107,765 in the year to April, while the number of women decreased by 10.4% to stand at 85,353.

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Worsening consumer sentiment erases March recovery

Worsening consumer sentiment erases March recovery

Consumer sentiment soured in April, weighed down by an uncertain economic outlook and related worries about household incomes, a new survey shows today.

The KBC Bank/ESRI consumer sentiment index fell to 87.7 in April from 93.1 in March, largely erasing a partial recovery from February’s 51-month low of 86.5.

April’s weakness “reflects the difficulty the typical Irish consumer is having in assessing how various threats may affect the Irish economy and their own household finances in the year ahead”, Austin Hughes, chief economist at KBC Bank Ireland said.

“During the survey period there was a very gloomy IMF forecast for the world economy. Consumers aren’t feeling like they’ve a lot more spending power. During April, for example, oil prices were going up which hits people in their pockets.

But the economist said that an element of caution may not be a bad thing for the economy.

“They are being cautious and that will probably sustain the economy. The caution should be seen as a good thing rather than any panic,” he explained.

Austin Hughes said there appeared at first glance to be a slight mismatch between what consumers are feeling and the statistics around employment growth and consumer spending, but, he said, the figures had to be analysed closely for a more nuanced view.

“The reality is that there are a lot more consumers rather than consumers spending more. The population is growing fast. If you look at household income, the total number rose by 12%, but if you adjust for the number of people, it’s up less than 1%. There are simply more people and while some are doing very well, on average consumers are not doing brilliantly and they’re risk averse,” he explained.

Despite being widely seen as the EU country with the most to lose from Brexit, Ireland weathered initial concerns stemming from Britain’s 2016 referendum vote, which failed to interrupt a run of five years in a row as Europe’s fastest growing economy.

But the Central Bank has said that if Britain crashes out of the EU without a deal it could knock as much as 4 percentage points off the country’s growth rate in the first full post-Brexit year.

The survey’s authors said there was little clarity on Brexit during the survey period, and while the likely postponement of the UK’s exit lessened the near-term risks, the shadow cast by the current uncertainty is a drag on consumer sentiment.

They said that Irish consumers are currently positioned for bad news.

“Only one in five consumers now expects the Irish economy to strengthen in the next 12 months whereas two in five see it becoming weaker,” the added.

One factor that consumers with a mortgage have in their favour is that interest rates don’t look like they’ll be increasing in the near future.

“The Vice President of the ECB said yesterday that the low rate environment is with us for the foreseeable future and he added that when rates rise they won’t go back to the sort of levels they were at,” Austin Hughes said.

“Changes in the world economy mean rates won’t be rising to the sort of levels we saw in the past and that reflects the fact that the economy is not growing as dynamically as it had and that taps into some of the concerns that consumers have,” he added.

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Euro zone factory activity contracted for third month in April – PMI

Euro zone factory activity contracted for third month in April – PMI

Euro zone factory activity contracted for a third month in April, hurt by weak global demand, rising trade protectionism and concerns over Britain’s upcoming departure from the European Union.

IHS Markit’s April final manufacturing Purchasing Managers’ Index registered 47.9, beating March’s six-year low of 47.5 and just above a flash estimate of 47.8.

But that was its third month below the 50-mark separating growth from contraction.

An index measuring output change, which feeds into a composite PMI due on Monday that is seen as a good gauge of economic health, also held below break-even. It rose to 48 from 47.2 in March.

“The manufacturing sector remained deep in decline at the start of the second quarter,” said Chris Williamson, chief business economist at IHS Markit.

“The survey’s output index is indicative of factory production falling at a quarterly rate of approximately 1 percent, setting the scene for the goods-producing sector to act as a major drag on the economy in the second quarter,” he added.

The bloc’s economy expanded a slightly better-than-expected 0.4% in the first quarter, rebounding from a slump in the second half of 2018, official figures show.

An April Reuters poll predicted growth would be 0.3% this quarter and as the bloc’s prospects have dimmed, expectations for interest rate hikes from the European Central Bank were also pushed further into next year.

Although rising from recent lows, the new orders index still showed a seventh month of decline in a row.

Stocks of raw materials were run down, backlogs of work were completed at a pace not seen in over six years and headcount was barely increased.

So while optimism picked up a touch in April – the future output index rose to 55.7 from 55.5 – it remained weak compared with historical levels.

“Some encouragement can be gained from the PMIs having risen in all four largest euro member states in April, and forward-looking indicators such as future expectations, new order inflows and the orders-to-inventory ratio having all come off their lows,” Williamson said.

“But it remains too early to call a turning point,” he added.

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Services growth slows in April as Brexit hits sales – PMI

Services growth slows in April as Brexit hits sales – PMI

Growth in the country’s services sector slowed in April, adding to signs that the economy began the second quarter at a more moderate pace amid the global slowdown.

The AIB services purchasing managers’ index slipped to 54.7 from 55.3 in March.

While the reading was still comfortably above the 50 mark that has separated growth from contraction since 2012, it was just above the near six-year low the series fell to in January.

The weaker expansion was driven by a fall in new orders, the sub-index for which dropped to 54.1 from 55.7, the lowest reading in two and a half years.

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

“Although the rate of expansion remained solid amid reports of improved customer demand conditions both domestically and abroad, some panellists indicated that Brexit had negatively impacted on sales,” AIB’s chief economist Oliver Mangan said.

“Softer new order growth resulted in a weaker increase of backlogs. Outstanding business rose modestly in April, with the rate of accumulation easing to its slowest in 69 months,” he added.

Ireland has brushed aside the initial uncertainty from the 2016 Brexit vote, posting the fastest economic growth in the bloc for five years in a row.

However a corresponding survey for manufacturers earlier this week showed that it was growing at the slowest rate since the aftermath of the Brexit vote, also due to a moderation in new orders.

“Overall, the AIB Services PMI reading of 54.7 for April suggests that the Irish economy is continuing to expand at a good pace, though not as strong as in recent years,” Mangan said.

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Exchequer broadly on track in April as deficit falls

Exchequer broadly on track in April as deficit falls

Figures released by the government show that the exchequer recorded a deficit of just under €3.2 billion at the end of April, €238 million lower than at the same period last year.

Revenue from taxes came in broadly at the level that it was expected to, with €15.6 billion received in the first four months of the year.

That represents an increase of 5.7% or €833 million on the same period in 2018.

When combined with non-tax and other revenues, the total revenue received between January and April was €17.05 billion, up 7.4% on the same period last year.

Income tax receipts came in at the predicted level for the month, but in total the amount of money received from workers since the start of the year is slightly under the target set by the Government.

Nonetheless, income tax revenue is 6.6% higher than it was at this time in 2018, the Department of Finance said.

Excise Duties were considerably higher than had been anticipated for the month, owing to the ending of the front-loading of tobacco products by tobacco companies ahead of the introduction of plain packaging.

As a result, excise receipts came in at €593 million for the month, compared to a target of €112 million.

Corporation tax receipts were €110 million behind what had been estimated in April, as a result of higher than expected repayments.

But overall for the year corporation tax revenue is €157 million higher than it was at this point one year ago.

VAT revenue was also lower than had been anticipated due to higher than expected repayments, but is ahead by €147 million or 3.0% compared to the first four months of last year.

Planned spending was 5.3% or €817 million higher than it was at the end of April a year ago, roughly in line with expectations as they were set out in the Budget.

However, additional spending, at €4.02 billion was 2.9% or €115 million higher over the four months, compared to a year earlier.

This extra expenditure was caused in the main, the Department of Finance said, by increases in Irish payments to the EU and the timing of those payments.

Elsewhere, €90 million was collected in Motor Tax in April, up 7.5% against what had been anticipated, with cumulative receipts of €356 million for far this year, €10 million ahead of 2018.

While Stamp Duty receipts were €104 million in the month, €10 million lower than targeted, but 6.6% ahead of the same period in 2018.

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ECB still has ammunition left to fight recession – Lane

ECB still has ammunition left to fight recession – Lane

The European Central Bank’s policy arsenal has not been depleted and fiscal policy could help stimulate investment, the ECB’s incoming executive Board member Philip Lane has said.

Investors fear the ECB’s window to potentially raise interest rates has closed, meaning it has little in its toolkit to face the next recession.

But in some of his first public remarks since securing the job of replacing current ECB chief economist Peter Praet, Central Bank Governor Philip Lane said the ECB still had options.

“The idea that the ECB lacks potency is very far from where we are,” he told academics and diplomats at Ireland’s embassy in London.

Professor Lane added that fiscal policy could also help reduce policy uncertainty, and encourage the private sector to resume investing.

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