Germany, Italy drive euro zone economic sentiment down to 3-year low

Germany, Italy drive euro zone economic sentiment down to 3-year low

Euro zone economic sentiment dropped to its lowest point in nearly three years in June as confidence fell markedly in the bloc’s largest economies – Germany and Italy – European Commission data show.

The Commission said that its main indicator of economic confidence dropped to 103.3 points in June from 105.2 a month earlier, reaching its lowest level since August 2016.

June’s large fall capped a quarter in which sentiment dropped in each month, except May, sending another stark warning over the health of the euro zone economy which is grappling with weak growth and low inflation.

The fall was also bigger than market forecasts of a fall to 104.6.

The largest falls in confidence were recorded in Germany, the biggest economy of the bloc, and Italy, its third major economic power, the data showed.

The indicator in Germany fell by 2.9 points, and in Italy by 1.5 points. Confidence decreased also in France, the Netherlands and Spain.

Sentiment in the industry sector plunged by 2.7 points, the largest drop in about eight years, equalled only by a similar fall in April, the Commission said, as the export-driven sector suffers from global trade tensions.

Business managers were also pessimistic about the euro zone’s services sector, which posted a drop of 1.1 points.

Consumer confidence went down by 0.7 points, but did not affect sentiment in the retail trade sector, which instead rose by a point.

In a separate release, the Commission said that its business climate indicator, which helps point to the phase of the business cycle, declined to 0.17 in June from 0.30 in May for its fourth consecutive monthly drop.

Economists polled by Reuters had predicted a more limited fall to 0.23.

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Debt costs up for business despite ECB rate-cut talk

Debt costs up for business despite ECB rate-cut talk

Borrowing costs for small and mid-sized businesses in Ireland increased in the first three months of the year, despite the wider speculation in the economy that interest rates will fall.

Irish SMEs already pay some of the highest borrowing costs in Europe.

The latest Central Bank data on credit for small and medium enterprises (SMEs) indicates that firms remain extremely cautious about borrowing.

Despite Ireland having one of the fastest-growing economies in the EU, gross new lending to Irish-resident SMEs slowed to €1.1bn in the first quarter of 2019 from the previous quarter’s €1.5bn flow.

Debt repayments exceeded new lending to all Irish SMEs by €397m in the period.

Nervousness ahead of Brexit, originally scheduled to happen on March 31 is likely to have been an issue, according to Investec Ireland chief economist Philip O’Sullivan.

“When set against the backdrop of heightened Brexit uncertainty and international trade spats, it is not a surprise to see that Irish SMEs adopted a defensive posture with regard to leverage in the opening months of 2019,” he said.

Of the 15 segments of SMEs tracked, only three saw an increase in new lending activity.

Even so, the credit data suggests the economy is performing highly despite continuing to deleverage, he said.

Borrowing costs are rising, however.

The weighted average interest rates on outstanding SME loans increased slightly in the first quarter of this year to 3.51pc.

New lending rates are higher, and now stand at 4.14pc for new drawdowns with the highest costs in sectors including agriculture and transport/storage that are likely to be on the economic front lines in the event of a no-deal or crisis Brexit.

The rise in the cost of debt for businesses is in contrast to the declining cost of credit to lenders.

The ECB’s indication that monetary policy is set to become even looser, with potential interest rate cuts on the way, has pushed down borrowing costs on capital markets.

Borrowing costs were already low for the banks.

Last year the main banks stopped using the State’s Strategic Banking Corporation of Ireland (SBCI), which was set up to channel low-cost finance to SMEs, because the lenders were able to access cheap money in their own right.

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Road freight tonnage increased by 1.4% in 2018

Road freight tonnage increased by 1.4% in 2018

A total of 149.2 million tonnes of goods was transported by road last year, new figures from the Central Statistics Office show, an increase of 1.4% on the 2017 total.

But the CSO said that activity measured as weight by distance was 11,445 tonne-kilometres in 2018, a decrease of 2.7% compared with 2017.

The total distance covered by road freight transport in 2018 was 1.6 billion kilometres.

The commodity group “Quarry products, metal ores and peat” represented 28.1% of all tonnes carried during the year.

Today’s CSO figures also show that a total of 32.8 million tonnes of goods was transported by road in the fourth quarter of 2018 – a drop of 7.9% on the same time in 2017.

There were an estimated 118,032 Irish registered goods vehicles (greater than 2 tonnes unladen weight) operating in Ireland and abroad in 2018.

This marked an 8.8% increase on 2017.

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Bank of Ireland’s chief finance officer to step down

Bank of Ireland’s chief finance officer to step down

Bank of Ireland has announced that its chief financial officer, Andrew Keating, is to leave the bank.

Mr Keating, who has worked at the bank since 2004, is set to take up a “senior finance role” in an “international organisation outside the financial services sector”, the bank said in a statement.

It said he would step down as CFO and executive director of Bank of Ireland Group by the end of the year, having served in the roles since 2012.

Bank of Ireland said a process to appoint his successor would now begin.

In its statement Bank of Ireland’s CEO Francesca McDonagh said Mr Keating had “demonstrated a strong track record of successful financial leadership” during his time as CFO and had “built a market leading finance function” within the lender.

“I wish to acknowledge Andrew’s strong support to me in my role as Group CEO and wish him every success in the next phase of his career”, she added.

Bank of Ireland chairman Patrick Kennedy said Mr Kenny had “been a key member of the Board and Group Executive team” in recent years and wished him well for the future.

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Ireland runs risk of austerity-era spending cuts, economist to warn politicians

Ireland runs risk of austerity-era spending cuts, economist to warn politicians

Politicians will be warned today that Ireland runs the risk of austerity-era spending cuts if it continues with existing expenditure plans.

Stephen Kinsella, Associate Professor of Economics at University of Limerick, will address the Budget Oversight Committee on the same day as the Government publishes its Summer Economic Statement.

In his opening remarks, Mr Kinsella will call on politicians to introduce fiscal tests to deal with volatility in tax revenues.

He will tell TDs and senators that: “Ireland risks replaying the 2007-9 period of dramatic cuts to public expenditure on its current forecasted path of spending increases.”

Mr Kinsella will call on politicians to introduce automatic rules that would set “ceilings and floors” on spending to deal with increased volatility.

He will say that the “time to implement this methodology is now when the State’s finances are strong”.

Ireland needs a more robust fiscal system to withstand economic shocks, Mr Kinsella will say.

This system should comprise a medium-term strategic arm, an accounting and verification arm, and the annual budget cycle.

“One key tool in discovering where we are weak is the fiscal stress test.”

Such tests examine the effect of spending increases at the same time as drops in tax revenue and calculate the additional amount the State will have to borrow.

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UK car industry warns next PM no-deal Brexit is not an option

UK car industry warns next PM no-deal Brexit is not an option

Britain’s car industry has warned the next prime minister against a “seismic” no-deal Brexit in October, which it said could add billions of pounds in tariffs and cause border disruption, crippling the sector.

Boris Johnson, the frontrunner to succeed Theresa May, and his leadership rival Jeremy Hunt, have said they are prepared to take Britain out of the EU without a deal on October 31.

Both have said, however, that this is not their preferred option.

Industry body the Society of Motor Manufacturers and Traders (SMMT) warned about the scale of disruption a disorderly exit would cause.

“Leaving the EU without a deal would trigger the most seismic shift in trading conditions ever experienced by automotive, with billions of pounds of tariffs threatening to impact consumer choice and affordability,” it said.

The UK automotive industry fears that a disorderly exit from the EU, its biggest export market, could see the imposition of tariffs of up to 10% on finished models and border delays which could snarl up ports and motorways, ruining just-in-time production.

A hard Brexit border could cost £50,000 a minute in border delays, the SMMT said.

“The next PM’s first job in office must be to secure a deal that maintains frictionless trade because, for our industry, ‘no deal’ is not an option – we don’t have the luxury of time,” SMMT chief executive Mike Hawes told a conference.

The UK car sector, rebuilt by foreign manufacturers since the 1980s, had been a runaway success story in recent years.

But since 2017 sales, investment and production have all slumped, blamed on a collapse in demand for diesel vehicles and Brexit uncertainty.

Brexiteers have long argued that the EU’s biggest economy Germany, which exports hundreds of thousands of cars to Britain ever year, would do its utmost to protect that trade.

The British car sector has faced a series of setbacks this year including around 4,500 job cuts at Jaguar Land Rover (JLR) and plant closure announcements from Honda and Ford.

Several investment decisions are also due, including whether JLR will build electric cars in its home market and whether Peugeot will keep its Vauxhall car plant open.

“If the right choices are made, a bright future is possible,” said Hawes. “However, “no deal” remains the clear and present danger,” he added.

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Government to borrow to cushion impact of hard Brexit

Government to borrow to cushion impact of hard Brexit

October’s Budget will involve a package worth €2.8 billion, Minister for Finance Paschal Donohoe said as he published the Government’s Summer Economic Statement.

However, €2.1 billion of that is already committed to current and capital spending plans, which leaves just €700m to be allocated on budget day on 8 October.

This is three weeks before Britain is due to leave the European Union.

The Summer Economic Statement also targets a budget surplus of 0.4% of GDP as being appropriate to an economy at the top of an economic cycle.

However, the Budget also has to account for the possibility of a disorderly, or no-deal Brexit, which is expected to deliver a severe economic shock to the economy.

In that case, the Government proposes to spend more on social welfare provisions and targeted support schemes.

Along with the loss of revenues associated with an economic shock, the Government is planning to borrow funds to pay for extra spending.

This would result in a deficit on between -0.5% and -1.5% of GDP, depending on the size of the economic shock.

A decision on which case will become the central scenario for planning October’s budget will be taken in September, when more information will be available to the Government concerning the Brexit situation.

“The external environment is becoming increasingly challenging, and at this point in time a disorderly Brexit is a real possibility,” Minister Donohoe said.

“That is why I am setting out two budget scenarios in this SES – the first involving an orderly Brexit occurring, while the second involves a disorderly scenario.”

The Summer Economic Statement said the “appropriate budgetary strategy must be to avoid further inflating the economy and, concurrently, build up resources which can be deployed in the event of the UK leaving the EU without a trade agreement at the end of October”.

“In summary, the economy is caught between possible overheating on the one hand and the very real possibility of a disorderly Brexit on the other hand,” it said.

It added that budget policy must take account of the fact that “the virtual attainment of full employment means the budgetary policy must lean against the wind, it must be counter cyclical so the mistakes of the past must be avoided”.

The Minister for Finance said the Government this year was targeting a surplus of 0.2% of GDP and a surplus of 0.4% for next year.

Speaking at today’s press conference, he said the Government was outlining two different scenarios for the country, but one Budget.

Mr Donohoe said the first scenario outlines what the economy will look like in the event of an orderly resolution to Brexit – an extension of current arrangements for the UK’s trade relationship with the EU.

He said that will result in an environment of continued growth.

The second scenario outlines what will happen in the event of a no-deal Brexit and Mr Donohoe said this builds on the Stability Programme Update published in April.

He said from an economic point of view we would have an economy that instead of growing 3.5-3.75% next year would grow by just 0-1%.

He also said the Government believes the early years of Brexit would result in 50,000 jobs being lost, which he described as a major challenge.

To respond to this, Mr Donohoe said the Government would allow its finances to move into a deficit position to deliver two really important goals.

The first of these is to ensure that we have the resources to meet the needs of citizens who lose their jobs as a result of Brexit, the so-called Automatic Stabilisers.

He said the type of supports that are available through our social welfare and taxation system will be maintained.

The second goal is that the Government will ensure that the parts of the country and economy that need resources will have them to get through the Brexit period.

He said the resources available will be along the lines of those suggested by the Fiscal Advisory Council.

This would put in place resources for demographic change, commitments to public servants and money to go ahead with a planned increase in capital spending next year of €700m.

The minister said the Government this year increased capital spending by 24%.

“We will increase that investment by a further €700m to continue the work we have started to ensure our economy gets what it needs and ensure additional spending at a time of an economic shock,” he said.

That will leave €700m of unallocated resources and it will be up to the Cabinet to allocate that sum, and indicate how that sum could grow if it introduces further tax measures to raise revenue, he added.

“If we have an orderly Brexit we will target a surplus of 0.4% of GDP. In the event of a no-deal Brexit we will run a deficit to be determined on Budget day,” the minister stated.

“We are giving our best judgement at this point in time of the scenarios we will have to grapple with in the autumn. The budget parameters I believe are the safest parameters for dealing with those scenarios,” he added.

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Report suggests new agri-food area for Ireland, UK

Report suggests new agri-food area for Ireland, UK

A new shared food safety and animal health area taking in the island of Ireland and the island of Great Britain as a whole should be created to prevent the Irish backstop taking effect, according to a report by a UK non-government body of MPs, academics, trade and customs experts.

The report suggests that such an arrangement would mean remove the need for customs, food safety and animal health checks between north and south, or between the island of Ireland and Great Britain.

However, Irish officials have flatly dismissed the idea as tantamount to Ireland having to leave the EU’s single market for agriculture and food safety.

The Alternative Arrangements Commission has set out a range of proposals that it claims would avoid the backstop taking effect in a 206-page interim report published today.

The commission is a privately funded organisation, which seeks to replace the backstop with other solutions in order to ensure that the Good Friday Agreement can be preserved, but that post-Brexit the UK will also in all circumstances have an independent trade policy.

The commission’s work is supported by a significant number of eurosceptics and DUP MPs, although it is headed by two Conservative MPs, Nicky Morgan and Greg Hands, who voted remain in the 2016 referendum.

The group’s interim report says that so-called alternative arrangements to the backstop should be “fully up and running within three years”.

These would include harnessing “existing procedures and technologies and customs best practice”.

It recommends the creation of Special Economic Zones on the Irish border and a “multi-tier trusted trader programme for large and medium-sized companies”, with exemptions from customs checks for smaller firms.

The report suggests that so-called Sanitary and Phyto-Sanitary (SPS) checks – i.e. animal, plant and food safety checks that would normally apply on an EU-third country border – should be carried out by “mobile units away from the border using the existing EU Union Customs Code or a common area for SPS measures”.

The AAC says a legal protocol should be “inserted into the existing Withdrawal Agreement”, or “utilised in any other Brexit outcome”.

Once Britain leaves the EU it will become a third country for trade purposes.

The UK believes that the future relationship negotiated with the EU, and/or the technology, trusted trader schemes and other such exemptions, will guarantee no hard border on the island of Ireland.

However, the EU and Ireland have insisted that a “backstop” is needed if those solutions work, and that it should apply “unless and until” some legal arrangement is found that guarantees no return to any hard border, the avoidance of related checks and controls, and the preservation of north-south cooperation.

The backstop is enshrined in the Withdrawal Agreement concluded between the EU and UK last November.

However, the treaty has been rejected three times by the House of Commons and was instrumental in the resignation of Theresa May.

Both sides have pledged in the Withdrawal Agreement, and its accompanying political declaration on the future relationship, to exploring “alternative arrangements” to the backstop.

But the EU insists that if they are not found to work, then the backstop – essentially Northern Ireland remaining in the EU’s single market for goods, with the UK as a whole remaining in a Customs Union with the EU – should apply until a legally operable solution is found through a free trade agreement.

Today’s interim report from the AAC says that “all future proposals must be based on the principle of consent” in Northern Ireland, and that “derivative of this, there can be no physical infrastructure at the border and no related procedures and controls at the border”.

However, the report recommends checks and controls happening “away from the border” where necessary, using, for example, “mobile SPS control”.

The AAC also says all sides should “understand the need for an executable and real UK independent trade and regulatory policy”.

Critics of the backstop suggest that it could result in the UK being trapped in the EU customs union if future free trade negotiations break down. The EU disputes this.

The AAC paper states: “There is no one solution to the Irish border – we propose a multi-layered approach, involving many different mitigations. We seek to give traders as many choices as possible.”

It suggests that exemptions under WTO rules could apply at the border based on national security and “frontier traffic exemptions”.

However, the most controversial suggestion is that Ireland would join the United Kingdom in a common area for animal health and food safety.

This area then would be “equivalent” to the EU’s legal regime governing these so-called SPS sectors by way of a “common rulebook”. It would be based on the Australia-New Zealand Food Safey Area.

The AAC states: “Such a common area would ensure no customs registration procedures within the islands as is the case for the Common Travel Area for people but would mean customs procedures being introduced between [Ireland] and the EU-26 (as is the case for people now) if the whole area diverged from the EU SPS rules in ways that were unacceptable to the EU.”

If the UK did diverge from EU rules, the paper suggests, the Ireland “could break” with this new common area.

Then, the paper suggests, the Northern Irish Assembly could “determine if NI remained within the all-Ireland common SPS area or stayed within the diverging UK SPS area”.

The AAC suggests that Ireland would have an interest in creating a two-island SPS area because it would make the Dover-Calais frontier more frictionless.

“…The economic data… shows that a significant volume (at least 70%) of trade into the EU-26 flows across the UK land-bridge. The vast majority of this trade ultimately enters the continent via Dover-Calais routes.

“The Irish Government therefore has a strategic interest in making sure the land bridge works (Dover-Calais).”

However, the idea has been swiftly rejected by Irish sources.

“There is absolutely no way Ireland is going to be dragged out of the single market by the UK leaving the EU, and left with this terrible decision in a couple of years time if Northern Ireland changes its rules,” says one source. “What do we do then? We’re left with the mess. It’s utterly unattractive.”

The commission also suggests lessons can be learned from other borders around the world, including the US-Canada frontier, where “the CSA Platinum programme allows highly trusted companies not to deal with customs at all (by filling out the equivalent of tax returns)”.

“These sorts of arrangements are particularly suitable for the Irish border and the largest companies that use it.”

If there was no common SPS area that would mean agri-food products and live animals moving north and south across the border would be subject to checks and veterinary certification procedures via EU-approved Border Inspection Posts (BIPs).

The report suggests these border posts could be moved “away from the border” and that “mobile units” could conduct checks where possible.

Currently, no such checks are required as both the UK and Ireland are in the EU.

The report also recommends a multi-tiered “ladder” system be applied to the current Approved Economic Operator (AEO) system.

Under customs and trade rules, in certain circumstances large “trusted traders” can be exempt from certain customs formalities.

However, most observers believe that the expense and the nature of Northern Ireland’s SME and micro-business economic profile means that AEO status would be out of reach for most companies, especially those that trade in agri-food across the border.

The AAC report suggests that the biggest traders would only have to submit papers on a quarterly basis, with “benefit packages” for those smaller companies on the lower end of the “ladder”.

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Second-hand property prices continue to drop in Dublin – survey

Second-hand property prices continue to drop in Dublin – survey

Second-hand property prices in Dublin have decreased by an average of €4,500 in the past three months, a survey has found.

The Real Estate Alliance survey found the average house price for a three-bed semi-detached house in Dublin stands at €433,000, for the second quarter of 2019.

This is a second consecutive quarter fall (-1%) since the end of March, and 2.2% decrease compared to June 2018.

The average semi-detached house nationally now costs €236,028, a rise of 0.05% on the Q1 2019 figure of €235,898.

Overall, according to the survey, the average house price across the country rose by 1.54% over the past year – a decrease on the 2.96% recorded to March – and an indication that the market is continuing to steady after an 8% overall annual rise to June 2018.

The report said increased availability of new homes has had a suppressing effect on prices in some commuter areas such as Kildare, north Wicklow and Meath.

Prices in the country’s major cities outside Dublin were “relatively static” with no change in Limerick and Galway due to “an increase in supply and new home developments”.

Cork city showed a slight rise of 0.8% to €320,000 while Waterford city had a quarterly increase of 2.4%, with tightening supply rising prices to €215,000, up €5,000 from the end of March.

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Revenue owed €40m in tax, fines and interest by defaulters

Revenue owed €40m in tax, fines and interest by defaulters

More than €39.82m remains unpaid to the Revenue Commissioners in taxes, penalties and interest from published tax defaulters in 2017 and 2018.

That is according to figures provided by Finance Minister Paschal Donohoe which show €15.5m remains unpaid by published tax defaulters in tax, penalties and interest from last year.

In a written Dáil reply to Labour’s Joan Burton, Mr Donohoe confirmed that a further €24.2m remains unpaid in taxes, penalties and interest from the 2017 lists of published tax defaulters.

The figures show that of the 265 tax settlements agreed last year with defaulters, the numbers that remain unpaid amount to 79 or 30pc of settlements.

This compares to 289 settlements agreed for 2017 where 101 settlements remain unpaid or 35pc of the overall total.

Ms Burton said: “I’m very shocked at the level of non-payment of tax settlements.” She said: “It is very unfair on the hard-pressed taxpayer that some of these tax defaulters can seemingly walk away from their obligations.”

A spokeswoman for Revenue said while Revenue vigorously pursues collection/enforcement of unpaid settlements “in some cases, the collection/recovery of the full amount unpaid will not be possible”.

“In some instances for example, a company may have gone into liquidation, while a number of the unpaid settlements in the Tax Defaulters List are as a result of the taxpayer claiming ‘inability to pay’,” she said.

Documentary evidence of inability to pay must be submitted to Revenue, with each case then considered on its own merit, as to whether an ability to pay exists or not.

Revenue currently has 500 people employed in all aspects of debt management.

The spokeswoman said: “In 2018, we collected €211.6m as part of our debt collections and enforcement actions. We can, and do, work very successfully with businesses and individuals who engage early with us to resolve their payment difficulties.”

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