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23 Apr 2019

Euro zone businesses started second quarter with tepid growth – PMI

Euro zone businesses started second quarter with tepid growth – PMI

Euro zone businesses started the second quarter on the back foot, with growth unexpectedly slowing again as demand barely rose despite more modest price rises, surveys showed today.

The data comes a week after European Central Bank President Mario Draghi raised the prospect of more support for the struggling euro zone economy if its slowdown persists.

IHS Markit’s Flash Composite Purchasing Managers’ Index, which is considered a good guide to economic health, fell to 51.3 this month from a final March reading of 51.6.

The reading confounded the median expectation in a Reuters poll for a rise to 51.8.

“It’s still not in recession territory by any means but is pointing to rather subdued and uninspiring economic growth, and this is reflected in the gloomy expectations,” said Chris Williamson, chief business economist at IHS Markit.

Williamson said the PMIs, if maintained, indicated second-quarter GDP growth of just under 0.2%, below the 0.3% predicted in a Reuters poll earlier this month.

As new business barely increased in April – the sub-index only nudged up to 50.6 from 50.5, perilously close to the 50 mark dividing growth from contraction – there is scant sign of an imminent turnaround.

The downturn was again led by the bloc’s manufacturing industry.

While its PMI rose to 47.8 from March’s 47.5, it spent its third consecutive month below the break-even mark and was below a median forecast for 47.9.

An index measuring output, which feeds into the composite PMI, rose to 48.1 from 47.2 but for an eighth month factories ran down old orders to keep active.

The backlogs of work index fell to a more than six-year low of 44.4 from 45.

A PMI covering the bloc’s dominant service industry fell further than expected. It dropped to 52.5 from March’s 53.3, well below the median forecast in a Reuters poll for 53.2.

“We have further signs of a manufacturing-led slowdown spreading to services,” Williamson said.

Like their manufacturing counterparts with no meaningful increase in new business, service firms turned to filling old orders.

And suggesting they see little improvement in activity over the coming year, optimism waned. The business expectations index for services fell to 62 from 62.3 the previous month.

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18 Apr 2019

Ibec expects employment growth to slow down in 2019

Ibec expects employment growth to slow down in 2019

The organisation representing employers here has warned the biggest challenge facing business is the ongoing capacity constraints in the labour market.

Ibec says the shortages will cause growth in employment to slow this year as the economy approaches full employment and firms struggle to fill vacancies.

In its first quarterly Economic Outlook of 2019, Ibec says the Irish economy is currently in a sweet spot.

“You’re seeing household incomes grow by about 6% on aggregate. So per person, they’re back at record levels,” commented Gerard Brady, Head of Tax and Fiscal Policy with Ibec.

“You’re seeing strong growth in employment and wages, both at around 3%. All of that points towards strong domestic activity going into this year,” Mr Brady added.

But the organisation warns that the current pace of growth will not last indefinitely.

“We’re seeing signs in Germany, China and the US and elsewhere that the global economy is starting to slow and for a small open economy like ours, that means our growth will start to slow too,” Gerard Brady said.

“Despite Brexit uncertainty, there’s still really strong investment and, off the back of that, there’s strong export growth.

Outside the pharmaceutical sector, which had an exceptional year growing by over €10 billion, there is a sign of a slowdown in exports and as global growth slows, growth in exports will slow,” he added.

Today’s report says that the Brexit pause is welcome, it has left businesses to manage costly uncertainty.

And if a solution isn’t found before October, it claims sterling will depreciate, investment will be cancelled, consumer confidence will fall, prices will rise and trade will be disrupted.

Outside of Brexit, it cautions that there are signs of a slowdown coming in many other of our key trading partners, including Germany, China and the US.

As a result, Ibec forecasts growth will slow to 4% this year and 2.7% next, assuming a deal on the UK’s exit from the EU is reached.

If there is no deal, it predicts growth in 2020 while still positive, will be half of what it would have been.

Ibec also says it remains majorly concerned that unexpected corporate tax overruns are being used to fund unexpected current spending, mainly in health.

“That source of income is very volatile. There are big concerns about the amount collected and spent – about €14 billion cumulatively since 2015 – from unexpected corporate tax. If that continues into the future, or if it’s more volatile, it leaves the state open if there’s a downturn in those tax receipts in the future. It’s something we’re worried about,” Gerard Brady said.

Ibec also expresses worries about skills shortages in certain sectors which it says have now turned into labour shortages.

It forecasts that this will cause employment growth to slow to 2% this year as we reach full employment and firms struggle to fill vacancies.

The organisation also suggests that increased participation amongst older cohorts could alleviate some of these pressures.

Wage growth is another risk pointed to by the report, with wages rising 3.5% in the last quarter of 2018.

“Over the medium-term this pace of real wage increases will mean margin compression for business, and ultimately sharper increases in inflation, unless we have much greater success in improving productivity in our domestic sectors,” it says.

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18 Apr 2019

Central Bank seeks extra power to force banks to further increase their capital

Central Bank seeks extra power to force banks to further increase their capital

The Governor of the Central Bank has written to the Minister for Finance asking him to put in place measures that would enable the regulator to force banks to hold more capital if systemic risks increase.

Philip Lane said the extra capital required by the Systemic Risk Buffer (SyRB) would help improve the loss-absorbing capacity of the main lenders here if there was a structural shock to the Irish economy.

However, if given the go-ahead and used, the new power could put further pressure on the interest rates paid by bank customers here, which are among the highest in the euro zone.

The SyRB was put in place when some countries in Europe wanted their banks to have higher capital requirements than those agreed under the 2013 Capital Requirements Directive.

Ireland and Italy were, at the time, the only countries not to transpose the new rules into domestic law.

However, the Central Bank Governor has now written to Paschal Donohoe asking that it be added to the regulatory toolkit here.

In a speech delivered in UCD this evening, Mr Lane said the move would ensure that the banking system would be resilient in the event of a structural shock to Irish economy.

“The advantage of the systemic risk buffer is that extra capital would improve loss-absorbing capacity if a systemic risk event occurred,” the soon to be European Central Bank executive board member said.

“Furthermore, credit supply could be further protected by switching off the systemic risk buffer under such circumstances.”

If the minister agrees to the request, legislation will have to be passed by the Oireachtas to give it effect.

Even then, the Central Bank would still have to carry out a full assessment of the financial risk environment before triggering it.

“With any of our policy instruments, the calibration and timing of the systemic risk buffer will be based on a thorough evidence-based assessment of its benefits and costs,” said Mr Lane.

“Furthermore, we adopt a holistic approach to policymaking, taking an integrated view of the interactions across the full set of macroprudential instruments…and the overall capital position of the banking system”.

The Central Bank also has a number of other macroprudential rules at its disposal, including the mortgage lending rules and the Counter-Cyclical Capital Buffer (CCyB).

The CCyB differs from the SyRB in that the former relates to domestic exposures only, while the latter is based on the whole of a bank’s book.

Countries that already have the SyRB in place require their banks to put aside varying levels of capital under it, with some demanding as much as 3%.

The Governor also told the UCD School of Economics that policymakers must look beyond the short-term horizon of the macro-financial cycle and ensure financial and fiscal resilience against tail risks.

He said it was imperative to build the resilience of both the financial system and the public finances against “tail risks” or events unlikely to occur.

Mr Lane also warned that dependence on high-tech multinational companies could amplify an economic shock here if it led to outflows of capital and labour and the loss of the technology embedded in departing firms.

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18 Apr 2019

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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17 Apr 2019

Controversial copyright reforms get backing of EU countries

Controversial copyright reforms get backing of EU countries

European Union countries have adopted copyright reforms championed by news publishers and the media business, but opposed by US tech giants like Google.

EU countries adopted the reforms that were agreed last month by the European Parliament, they said in a statement.

“The new rules ensure adequate protection for authors and artists, while opening up new possibilities for accessing and sharing copyright-protected content online throughout the European Union,” they said.

An EU source said Italy, Finland, Sweden, Luxembourg, the Netherlands and Poland voted against the controversial legislation.

The culmination of a process that began in 2016, the revamp to European copyright legislation was seen as urgently needed as it had not been updated since 2001, before the birth of YouTube or Facebook.

The reform was loudly backed by media companies and artists, who want to secure revenue from web platforms that allow users to distribute their content.

But it was strongly opposed by internet freedom activists and by Silicon Valley, especially Google, which makes huge profits from the advertising generated alongside the content it hosts.

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17 Apr 2019

First Budget surplus for State since 2007 as ‘lost decade’ took toll on national purse

First Budget surplus for State since 2007 as ‘lost decade’ took toll on national purse

The State eked out a Budget surplus of €50m last year, its first since 2007.

The latest financial data shows rising tax revenues offset a 7.5pc surge in the wage bill of Government employees to €22.2bn, or 27pc of total spending.

Data from the Central Statistics Office released yesterday showed how the wage bill for State employees has risen since the 2013-15 period during which they were capped below €19bn. The number of Government employees had risen to 399,700 by the end of the third quarter of last year, from 379,700 at the end of 2015.

Overall the Government recorded a 7pc rise in revenues, much of it from company taxes that outstripped a 6pc hike in spending from 2017 levels, and the tax take rose by €4.7bn from 2017 levels to €60.6bn.

Despite the hefty rise in spending, which rose 6pc last year, it now accounts for just over a quarter of gross domestic product (GDP), down from the more than 40pc peak hit in 2013 in the wake of the financial crisis.

Debt interest service costs have fallen too, despite a rise in the level of gross debt, and they stood at €14.3m a day, down from €15.8m a day in 2017 as the National Treasury Management Agency refinanced debt at lower interest rates and for longer maturities.

The gross debt level rose to €206.2bn at the end of 2018 from €201.4bn in 2017, although strong economic growth last year cut the debt to GDP ratio to 64.8pc, down from 68.5pc in the previous year.

That still places Ireland above the 60pc level mandated in the European Union’s Stability and Growth Pact, but the ratio is moving in the right direction.

The Budget surplus for last year means the State will join 13 other EU countries who ran a budget surplus in 2017.

Analysis from the Department of Finance shows that debt reduction is far more sensitive to economic growth than it would be to a rise in interest rates.

Growth here is expected to be in the region of 4pc this year, depending on the terms on which Britain leaves the European Union.

The immediate risk of a hard Brexit has fallen sharply as the EU has extended talks until October 31.

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17 Apr 2019

Trade surplus drops by 12% in February – CSO

Trade surplus drops by 12% in February – CSO

New preliminary figures from the Central Statistics Office show the volume of exports decreased by €604m, or 4%, to stand at €13.22 billion in February compared with January.

The CSO also said that imports increased by €265m, or 4%, to €6.925 billion.

This resulted in a decrease of €868m – down 12% – in the seasonally adjusted trade surplus to €6.295 billion in February compared with the previous month.

Today’s CSO figures also show that the unadjusted value of exports for February stood at €12.614 billion, an increase of 21% on the same time last year.

The value of exports in January and February stood at €26.313 billion, up 17% when compared with the first two months of 2018.

The CSO said the biggest rate of growth in seen in exports of organic chemicals, which increased by 68% to €2.870 billion, while exports of medical and pharmaceutical products rose by 9%.

Meanwhile, exports of electrical machinery, apparatus and appliances were 32% higher and exports of office machinery and automatic data processing machines increased by 35%, the CSO said.

On the imports front, the unadjusted value of goods imports in February amounted to €6.356 billion, down 1% on the same time last year.

Imports of other transport equipment, including aircraft, decreased by 20% in February, while imports of food and live animals increased by 14% and imports of medical and pharmaceutical products fell by 37%.

The CSO also noted that exports to Great Britain increased by 16% to €1.224 billion in February on the back of a rise in exports of mineral fuels, lubricants and related materials.

Exports to Great Britain accounted for 10% of total exports in February of this year.

Meanwhile, imports from Great Britain were up 19% to €1.642 billion. The main increases were in the imports of mineral fuels, lubricants and related materials and Machinery and transport equipment.

Imports from Great Britain were 26% of the value of total imports in February.

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16 Apr 2019

EU gets green light for US trade talks

EU gets green light for US trade talks

EU countries gave initial clearance yesterday to start formal trade talks with the United States, EU sources said, in a move designed, but not guaranteed, to smooth strained relations between the world’s two largest economies.

The European Commission has sought clearance for two negotiating mandates – one to cut tariffs on industrial goods, the other to make it easier for companies to show products meet EU or US standards.

The commission presented its mandates in January and found support from most EU members. France resisted, however, insisting that agriculture should not feature in the talks but that climate change provisions should – a difficult demand given US President Donald Trump’s withdrawal from the Paris climate agreement.

The EU and the US reached a detente last July when Trump agreed to hold off from imposing punitive tariffs on EU cars as the two sides sought to improve economic ties.

US tariffs still apply to EU steel and aluminium, however, while Trump has threatened further tariffs on €9.8bn of EU products related to a long-running aircraft subsidy dispute.

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16 Apr 2019

Ireland records the highest start-up figures in 13 years

Ireland records the highest start-up figures in 13 years

An average of 71 companies were set up every day in Ireland during the first three months of 2019.

This is despite Brexit uncertainty and concerns about a slowdown in the global economy.

The largest number of companies was founded in the professional services sector, according to figures from business information company CRIF Vision-Net.

The construction sector also reported a modest increase in new businesses, however there was a slight drop in the number of finance firms being set up here.

“The buoyant entrepreneurial spirit in Ireland continues to weather the continued uncertainty across the water,” said Christine Cullen, managing director of CRIF Vision-net.

Ms Cullen said the first quarter of 2019 has been “the best in 13 years” for start-ups.

Meanwhile, last year saw an almost 26pc year-on-year drop in insolvencies versus 2017.

In the first three months of 2019 there were 192 insolvencies, an average of two per day.

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16 Apr 2019

€8.6bn invested in Irish office space since 2013

€8.6bn invested in Irish office space since 2013

Almost €8.6 billion has been invested in Irish office property over the past six years, according to a report from Savills.

It said that low interest rates and a rapid growth in services-based employment has driven demand for office space in Ireland, particularly in Dublin.

The report found that more than 1.4 million square meters of Dublin office space has traded hands since 2013, representing almost 40% of all offices in the city.

“By any international comparison Ireland’s rate of job creation has been exceptional in recent years, and 30% of all the jobs created last year were Dublin office-based positions,” said Savills’ director of research John McCartney. “This has generated enormous demand for office space in the capital and, although new buildings are emerging, supply has been unable to keep pace.

“As a result the vacancy rate has been pushed to a 20 year low. Inevitably this underpins rents and values.”

The report notes that Brexit and US-China trade tensions could impact global growth, however Mr McCartney still expects demand for offices in Ireland to remain strong.

“With a global shift from goods to services, Dublin’s position on the western edge of Europe is no longer a barrier to trade. Increasingly this, and other factors such as favourable demographics and the widespread use of English are attracting space-consuming technology companies to the city.”

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