05 Feb 2019
Irish Economy: Services PMI cools in January
The latest AIB Services PMI report shows that business activity growth slowed for a fourth successive month in January, with the headline PMI reading of 54.2 (December: 56.3) the weakest since May 2013.
Growth in activity has been trending lower since mid-2018 amid rising concerns about the external environment. New Orders rose at their slowest pace since October 2016 as customer demand has cooled. This moderation in demand had a predictable impact on Backlogs of Work, where the rate of accumulation eased to its slowest since September 2016, so it is not a particularly surprise to see that Employment growth was at a 10 month low.
On the margin side, input prices continue to march higher at an above-average pace, due in the main to rising wages, with fuel mentioned by some panellists as a cost headwind. Firms were, however, able to pass on at least some of these rising costs by upping Prices Charged.
Notwithstanding the above, Business Confidence improved to a three month high in January, with close to 44% of panellists predicting a rise in activity this year. How events play out in Westminster in the coming weeks is likely to prove pivotal in determining whether this optimism is warranted.
Irish Economy: Exchequer Returns show a bright start to 2019
Exchequer Returns for January, released by the Department of Finance (DoF) last night, show a bright start to 2019 with good momentum evident across most tax headings.
The DoF collected €5.4bn in taxes in January, which represents a 7.0% increase y/y (FY18: +8.3% y/y, while the income tax cuts unveiled in last October’s Budget took effect on 1 January). Within that, Income Taxes were +7.6% y/y at €1.9bn, reflecting rising employment and earnings; VAT was +11.7% y/y (helped by good Christmas trading); and Excise Duties were -2.9% y/y (reflecting sluggish new car sales – separate SIMI data show that new car sales were -12.6% y/y in January, while Customs Duties were +60.7% y/y, flattered by a low base). The volatile Corporation Tax heading showed a negative outturn, -€102m, as refunds exceeded receipts in what is usually a quiet month for that tax-head. The various capital tax headings (Stamp Duty, CGT and CAT), were all up by between 12.4% y/y and 17.8% y/y, helped by rising asset values.
On the spending side, total net voted (discretionary) expenditures rose 6.5% y/y, lagging the growth rate in taxes. National debt interest costs fell 18.1% y/y, helped by the NTMA’s moves to refinance expensive legacy debt.
Helped by the above dynamics, the Exchequer booked a cash surplus of €1.6bn last month, representing a €114m uplift on the surplus achieved in January of last year. While it is too early in the year to draw firm conclusions about what this might mean for the State’s fiscal position, these Returns nonetheless show a positive opening to 2019.
Irish Banks: Tracker mortgage examination now totals almost 40,000 cases
The Central Bank of Ireland’s latest update on the continued progress of its Tracker Mortgage examination shows that 39,800 total cases have now been identified (as of end-Dec) as having been impacted by tracker mortgage related ‘failings’ by the Irish banking sector.
This figure represents an increase of 2,700 on the previous update at the end of March 2018, and includes 7,100 cases that were identified before the beginning of the CBI’s formal examination process. The CBI report shows that €647m in compensation and redress has been paid out to impacted customers by the Irish banks as at the end of 2018 (€459m at end March 2018), with our estimate that at least another €400m in costs have been borne by the Irish banks in terms of internal accounting restatements and legal/compliance costs related to the examination.
The CBI reports says that approximately 1,900 customers remain to be paid compensation and redress, suggesting the total banking sector pay-out to customers will end up close to €700m, with other related costs (including a likely €50-100m in conduct fines) taking the total hit for the sector to between €1.2-1.3bn. However, we believe almost all of these costs will be covered by existing provisions, with some small top-up provisions perhaps being required by one or two of the institutions involved in the examination.
Brexit talks continue
In the latest developments on Brexit, PM May will today be delivering a speech in Belfast, where she will be aiming to reassure Northern Ireland that she intends to secure a deal with the EU which avoids a hard border between Northern and the Republic of Ireland. PM May will also be staying in Northern Ireland tonight ahead of talks with key political leaders there on Wednesday morning. At the centre of this debate remains the contentious backstop plan. On this topic the Alternative Arrangement Working Group held its first day (of three) of discussions yesterday on an alternative backstop plan; talks were described as detailed and constructive, but as yet no firm new proposals have arisen. The EU for its part is maintaining a hard line, with various EU officials reiterating that there will be no legal changes to the Withdrawal Agreement. Other Brexit news has also seen reports that the UK is preparing to wave freight traffic through its ports without checks in the event of a no deal Brexit in order to avoid the possibility of extended delays and chaos at UK entry points.
Trump to deliver his (delayed) State of the Union address
Due to the recent US shutdown US President, Donald Trump, is to deliver his postponed annual state of the Union address early tomorrow morning (2am Irish time). It’s never easy predicting what exactly the tone of the speech will be but most observers are assuming a chunk of it will be dedicated to his proposed wall at the southern border and the political tensions surrounding it. Some commentators are surmising that he may even go as far as to declare a national state of emergency in relation to the southern border issue. It’s also probably a safe bet to expect that he will reference the ongoing US/China trade negotiations at some point during the speech.
UK BRC Retail Sales Monitor (Jan)
Figures out earlier this morning from the UK British Retail Consortium (BRC) suggest that consumers modestly increased their spending in January after a subdued December. On a total sales basis, sales improved to 2.2% year-on-year, while on a like-for-like basis they ticked up by 1.8%. The BRC reported a number of factors had helped to support spending. These included the usual New Year discounts as well as the colder temperatures boosting clothing sales. Looking at the three-month measure – which encompasses the whole of the festive season – sales were 0.8% higher than they were in the same period last year, which was weaker than the equivalent 1.5% growth in the three months to January 2018.
UK 09.30 Services PMI
EU 09.00 Composite PMI (final)
09.00 Services PMI (final)
10.00 Retail sales
US 14.45 Services PMI
15.00 ISM non-manufacturing index