Business News

EU debt levels up in 2018 but debt-to-GDP ratio down

EU debt levels up in 2018 but debt-to-GDP ratio down

Government debt levels rose in the European Union last year, according to Eurostat, but economic expansion in the region pushed the overall debt-to-GDP ratio down.

The countries that use the euro had a combined debt of €9.86 trillion in 2018, up €99 billion (1%) year-on-year. Meanwhile, in the wider European Union, debt levels rose €135.5 billion (1.1%) to €12.7 trillion.

However rising activity meant that debt made up a smaller portion of the region’s economic value.

The EU’s debt-to-GDP ratio stood at 80% last year, down from 81.7% in 2017. In the euro area the ratio was 85.1%, down two percentage points year-on-year.

According to Eurostat the EU member state with the lowest debt-to-GDP ratio last year was Estonia at 8.4%. The highest was recorded in Greece, which saw its ratio rise almost five percentage points to 181.1%.

Last year Ireland’s national debt rose by almost €5 billion to €206.2 billion, however the country’s debt-to-GDP ratio fell 3.7 percentage points to 64.8%.

Eurostat said that 13 countries reported a budget surplus last year, while Ireland reported a balanced budget.

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Less than half of all employees have a private pension – CSO

Less than half of all employees have a private pension – CSO

Less than half of all employees in Ireland were saving towards a pension last year, according to the Central Statistics Office.

Its survey of pension coverage in the third quarter of 2018 found that 47.1% of all people in employment were contributing towards a private pension.

That is up 0.4 percentage points on the same period of 2015.

When pension coverage from previous employments, as well as deferred pensions and pensions in draw-down mode, are included the ratio of those covered rose to 56.3%.

The CSO found that just 16.3% of people aged 20-24 were contributing to a pension, compared to almost 71% of workers aged 45-54.

Meanwhile the data shows that more than half of all self-employed people had pension coverage.

The Irish Congress of Trade Unions said the figures highlighted the need for pension auto-enrolment as part of a wider reform of the system in Ireland.

“Tax relief has failed as a policy instrument for encouraging low and middle-income earners to save enough towards a financially secure retirement, and there is no legal obligation on an employer to provide or contribute to a pension scheme for employees,” said ICTU’s social policy officer Dr Laura Bambrick.

“As the State pension is paid at a flat-rate, rather than earnings-related, workers without retirement savings are exposed to a significant drop in their living standards in old age.”

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Housing completions up by over a fifth in first three months

Housing completions up by over a fifth in first three months

Housing completions were up by over a fifth in the first three months of 2019, according to Goodbody’s Housebuilding Tracker.

It uses Building Energy Regulation (BER) data to compile its figures.

The official data tracks electricity connection figures.

According to Goodbody’s figures, 4,255 residential units were completed in the first quarter, an increase of 22% over the same period last year.

It says under 2,500 of these were accounted for by housing schemes.

Apartment completions grew by almost two thirds in the first three months, the data shows.

“As we noted in our Q4 Tracker, planning permissions data was pointing to a large increase in apartment output, although the timing is quite uncertain. At 18% of the total, the proportion of output coming from apartments remains quite small,” Goodbody chief economist Dermot O’Leary said.

Dublin and the surrounding counties accounted for over half of the total completions in the period.

Mr O’Leary said the figures for Q1 were in line with its forecasts of 22,000 housing completions for the full year.

Goodbody’s figures pointed to housing supply reaching a nine year high in 2018, but still remains at half of the country’s estimated demand.

It said 18,855 new dwellings were completed in Ireland last year.

Government’s €300m Brexit funding scheme for SMEs opens

Government’s €300m Brexit funding scheme for SMEs opens

Small and medium sized businesses here, as well as farmers, can now apply for loans under the Government’s Future Loan Scheme.

The initiative aims to support strategic long-term investment in the post-Brexit environment where financing options may be restricted.

Money borrowed can be use for a variety of reasons, including investing in assets to increase productivity, setting up new offices, investing in product diversification and investment in the processing and marketing of agricultural products.

In total €300 million is being made available for lending and applications are being accepted from today by the state’s Strategic Banking Corporation of Ireland (SBCI).

A minimum of 40% of the fund will go to agri-food businesses and suppliers.

Borrowers from the fund will be able to access loans of up to €3 million, with a maximum interest rate of 4.5% on loans up to €250,000 and 3.5% on sums above this level.

No collateral is needed for loans under €500,000 and businesses with up to 249 employees can apply.

AIB, Bank of Ireland, Ulster Bank and KBC Bank Ireland will participate in the scheme, with applications for eligibility going through the SBCI.

Permanent TSB is also considering joining the initiative.

“I’m very pleased at the level of interest we have received from finance providers. It is likely that we will have five banks offering the Scheme – which means more choice for Irish businesses,” said Minister for Business, Heather Humphreys.

The European Investment Bank and the European Commission are partners in the scheme.

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Home improvements and energy upgrades drive €2.47 billion spend

Home improvements and energy upgrades drive €2.47 billion spend

Irish homeowners have spent a total of €2.471 billion through the Home Renovation Incentive since its launch in 2013.

The scheme, which concluded at the end of last year, facilitated homeowners in carrying out nearly 150,000 home improvement projects over the last four years.

The projects had an average spend of €16,774 per project.

The Construction Industry Federation said the scheme had provided a huge boost to the local economy and employment in the construction sector.

“At a time of modest growth in the construction industry, the scheme encouraged investment by homeowners, which was good news for construction companies and contractors in the country,” commented Shane Dempsey, Communications Director at the CIF.

Broken down by value, the largest amount of work was carried out completing home extensions (34%), followed by general repair and renovations (25%) and then window replacement (11%) and kitchen replacement (10%).

The scheme was introduced initially in late 2013, but the extension of it to rental properties in late 2014 helped increase the number of homeowners who used the scheme.

But a separate initiative, the Deep Retrofit Pilot scheme – which was devised to upgrade homes to the highest energy efficiency levels – has only seen 214 houses upgraded in 2017 and 2018.

The Sustainable Energy Authority of Ireland (SEAI) administers the Deep Retrofit Pilot scheme on behalf of the Government.

Under the pilot scheme, government funding is available for up to 50% of the total capital and project management costs for homes than achieve an A3 Building Energy Rating (BER) post retrofit.

The Construction Industry Federation said that more needs to be done to promote the Deep Retrofit scheme.

“The current ambitious target of 30,000 homes upgrades a year as set out by the Government in the National Development Plan (NDP), rises to 45,000 homes per year from 2021 onwards,” Mr Dempsey said.

“This initiative has the potential to underpin a sustainable and stable construction industry for the next 25 years,” he added.

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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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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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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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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.

Spending

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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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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