Syndicated News Archives - John E Hughes & Co. Accountants

ECB to launch year-long strategy review in January – Lagarde

New European Central Bank chief Christine Lagarde today said the bank would next month launch a major “strategic review” of the bank’s tools and goals, its first since 2003.

Christine Lagarde told reporters the reassessment would start “in the course of January” and aim to be completed by “the end of 2020”.

The review “will turn over each and every stone”, she said, to address “major changes” that have taken place in recent years, including the challenges posed by climate change and technological advances.

Christine Lagarde vowed at her first press conference as ECB chief to keep to her “own style”, as she warned observers against second guessing her by comparing her statements to her predecessor Mario Draghi’s.

“Don’t overinterpret, don’t second guess, don’t cross reference, I’m going to be myself and therefore probably different,” she told journalists.

Ms Lagarde also said today that she does not favour one monetary stance over another, but simply aims to make sound decisions for the euro zone.

“Once and for all, I’m neither a dove nor a hawk, and my ambition is to be this owl, that is often associated with a little bit of wisdom,” said Lagarde. 

In central bank jargon, monetary doves are deemed more favourable to easing than the so-called hawks. 

The ECB’s regular monetary policy setting meeting is always closely watched but today’s is more tightly scrutinised than ever because Lagarde is the bank’s first boss who does not have a central bank pedigree.

Meanwhile, the European Central Bank today slightly lowered its euro zone growth forecast for 2020 to 1.1% from 1.2%, but sees output strengthening in the following two years. 

Growth is projected to reach 1.4% in 2021 and 2022, ECB chief Christine Lagarde said. 

Ms Lagarde also said that the European Central Bank is seeing the first encouraging signs that the euro zone growth slowdown is stabilising despite “persistent global uncertainties. 

“There are some initial signs of stabilisation in the growth slowdown,” Lagarde said. 

While manufacturing remained weak as trade tensions fester, the services and construction sectors remain “resilient”, she added.

Earlier, the European Central Bank left key monetary policy settings unchanged today – as expected.

As expected, the Frankfurt institution held the rate on its main refinancing operations at zero, on its marginal lending facility at 0.25%and its deposit facility rate at -0.5%. 

The governors also left the ECB’s massive bond-buying scheme untouched, having only in November restarted asset purchases to the tune of €20 billion a month. 

With a background in corporate law, Lagarde is the first ECB chief who is not a trained economist. But she is admired as an effective communicator.

Ms Lagarde herself has appealed for patience, saying she has been on a steep learning curve since taking up the job last month. 

“I am trying to learn German, but I am also trying to learn central bank language,” the one-time French finance minister told MEPs last week, acknowledging the market-moving impact of even a single ambiguous word.

In his final act as ECB chief, Mario Draghi in September unveiled fresh stimulus to bolster the euro zone, which has been weighed down by US-China trade tensions, Brexit uncertainty and a weakening manufacturing sector.

Faced with a slew of challenges, Christine Lagarde is expected to echo Draghi’s frequent call for euro zone governments to support the economy through fiscal policy.

Unlike her predecessor however, Lagarde has been outspoken about the bank’s possible role in tackling climate change, which she has described as “high priority”. 

That could range from building climate risks into the ECB’s economic models to greener investments. 

The first female president of the ECB has also said she wants to bring the bank closer to the public by ditching some of the jargon.

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Inflation rate rises to 1.1% in November – CSO

New Central Statistics Office figures show that consumer prices rose by 1.1% in November from 0.7% in October on the back of higher rents and mortgage interest repayments and education costs. 

This was the highest rate of inflation since June of this year.

The CSO said that housing, water, electricity, gas and other fuel prices rose mainly due to higher rents and mortgage interest repayments as well as an increase in the cost of electricity, which was partially offset by a reduction in the price of home heating oil.

November also saw higher health insurance premiums and more expensive prices for hairdressing, but motor insurance premiums were lower. 

Meanwhile, prices in restaurants and hotels were higher on the back of more expensive alcoholic drinks and food consumed in licensed premises and restaurants, along with increases in the cost of hotel accommodation.

November also saw prices fall in the clothing and footwear sector due to sales, while prices for household goods, furniture and furnishings and household textiles were also lower.  

Food prices in general also fell due to lower prices across a range of products such as meat, milk, cheese, yoghurt, sugar, jam, honey, chocolate and sweets.

Commenting on today’s figures, economist Alan McQuaid that that overall price pressures by historical standards are likely to remain fairly muted for a while. 

Mr McQuaid noted that the country’s average inflation rate was 0.5% in 2018, marginally up from 0.4% in 2017. 

“An average inflation rate of 1% is now envisaged for 2019. A slightly higher figure of 1.3 % is currently forecast for 2020,” he added.

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US and China agree ‘deal in principle’ on trade

The White House has reached a “deal in principle” with Beijing to resolve the 17-month US-China trade war, according to a source briefed on the trade talks

The White House was expected to make an announcement later today, the source said.

“The written agreement is still being formulated, but they have reached an agreement in principle,” the source said.

No details were immediately available.

In an attempt to secure a “phase one” trade deal, US negotiators offered to cut existing tariffs on Chinese goods by as much as 50% and suspend new tariffs that were scheduled to go into effect on Sunday, two people familiar with the negotiations said earlier.

The US-China trade war has slowed global growth and dampened profits and investment for companies around the world.

If President Donald Trump does not suspend the new tariffs, Beijing officials will apply more tariffs on US goods and may suspend talks until after the US presidential election in November 2020, trade experts believe.

The 15 December tariffs would apply to almost $160 billion of Chinese imports such as video game consoles, computer monitors.

China and the United States agreed in October to conclude a preliminary trade agreement, but Beijing is balking at US demands that it promise to buy a specific amount of agricultural goods.

Beijing is also demanding rollbacks of all existing tariffs imposed by the United States.

Beijing has said previously it would retaliate if the United States escalates the trade dispute.

In August, China said it would impose 5% and 10% in additional tariffs on $75 billion of US goods in two batches.Tariffs on the first batch kicked in on 1 September, hitting US goods including soybeans, pork, beef, chemicals and crude oil.

The tariffs on the second batch of products are due to be activated on 15 December, affecting goods ranging from corn and wheat to small aircraft and rare earth magnets.

China also said it will reinstitute on 15 December an additional 25% tariff on US-made vehicles and 5% tariffs on auto parts that had been suspended at the beginning of 2019.

NCC warns cost of public liability insurance impacting competition

The National Competitiveness Council (NCC) has warned that the rising cost of public liability insurance is adversely impacting competitiveness.

The body also warns that legal services around the enforcement of commercial contracts in Ireland are both expensive and slow.

The findings are contained in the NCC’s latest Competitiveness Challenges report, which focuses on six key topics: digital economy, infrastructure, cost of credit, human capital, legal services cost and public liability insurance costs.

The NCC finds that Ireland is still a competitive economy, but warns that there is room for improvement and complacency cannot creep in.

“As a small, highly-open and concentrated economy, we are particularly vulnerable to external shocks, as we saw clearly in 2008,” said Dr Frances Ruane, Chair of the NCC.

“Consequently, we cannot afford to be complacent about our strong overall performance and must continuously strive for improvement, so that we remain a highly competitive economy.”

In relation to infrastructure the research welcomes increased funding pledged under Project Ireland 2040.

But it says challenges remain in the delivery of connected infrastructure projects that drive growth and maximise investment returns.

It also states that it is vital that proper governance measures are in place to make sure value for money is achieved and that the economy does not become overheated.

The study also looks at the digital economy and finds that the full impact of rapid digitalisation in recent years is not apparent in national productivity data.

It also expresses concern that when it comes to productivity, small and medium sized enterprises here are underperforming compared to larger firms.

It recommends efforts be focused on lifting SMEs performance by enhancing digital knowledge and improving finance for them.

On the topic of human capital, the NCC says it is worried that growing demands on higher education and persistent under-resourcing of it are placing Ireland at a considerable disadvantage internationally when it comes to producing talent.

It says it is crucial that the funding mechanism for the sector be reformed to ensure participation is increased and quality is high and in-line with businesses’ needs. 

The study also finds that cost of credit is higher here than in other euro area nations and it says this is a concern.

In particular it highlights the cost of working capital as a major issue.

The NCC expresses disquiet that Ireland is an expensive and a slow jurisdiction in which to enforce a commercial contract. 

It also points to the high cost of legal fees compared to other EU countries, such as Germany, France, and Spain. 

Expeditious reforms that aim to increase competition and improve transparency in the sector are vital, it says.

So too is the quick implementation of the Cost of Insurance Working Group’s recommendations, it says.

The NCC says is clear from business groups that the rising price of public liability insurance is inflating cost of doing business here and adversely affecting our competitiveness.

“It is imperative that progress is made on these recommendations by the relevant Government Departments and State bodies over the course of 2020, supporting competitiveness and sustainable economic growth so that our living standards and quality of life can continue to improve,” said Dr Ruane.

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Fed holds rates steady, expects moderate economic growth next year

The US Federal Reserve has held interest rates steady and signaled borrowing costs are likely to remain unchanged indefinitely. 

Moderate economic growth and low unemployment are expected to continue through next year’s presidential election, it said.

The decision by the Fed’s rate-setting committee left the benchmark overnight lending rate in its current target range between 1.5% and 1.75%.

New economic projections showed a solid majority of 13 of 17 Fed policymakers foresee no change in interest rates until at least 2021. The other four saw only one rate hike next year.

Notably, no policymakers suggested lower rates would be appropriate next year, a sign the Fed feels it has engineered a “soft landing” after a volatile year in which recession risks rose, the US bond yield curve inverted, and trade policy disrupted markets.

In the midst of an ongoing US-China trade war, Fed policymakers said they would continue monitoring “global developments” in deciding whether interest rates need to change.

They also said they would keep an eye on “muted inflation pressures,” a reflection of concern that the pace of price increases has failed to hit the central bank’s target.

The quarterly economic projections showed little change from those in September, as policymakers sketched out an economy they feel has skirted recession risks and is poised to grow close to trend for several years more.

Gross domestic product at the median is projected to grow 2% next year and 1.9% in 2021.

Unemployment is seen staying at its current level of 3.5% through next year, rising to only 3.6% in 2021.

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ESRI in warning over corporation tax windfall levels

The ESRI has warned that any reduction in windfall levels of corporation tax will have a significant impact on the public finances, which could require the Government to implement austerity policies. 

Because of this danger, it advises that the windfall portion of the corporation tax take should be set aside to counter any shocks to the economy in the future. 

In its latest quarterly report on the economy, the think-tank has forecast that the economy – as measured by GDP – will grow by 5.8% this year before moderating to an increase of 3.3% next year. 

The main drag on growth next year will be continuing fallout from ongoing trade disputes between the US and China and the US and the EU. 

When combined with Brexit, there has been a sharp reduction in investment by businesses in the UK which has fed into a reduction of imports of machinery into Ireland. This is reflected in a slide in business confidence here. 

The ESRI expects the current low levels of unemployment will continue. 

As a result, it expects wages to rise by an average 4% next year. This will feed into inflation which it expects to increase to 1.2%. 

It noted that a weak sterling exchange rate due to Brexit has kept down the price of imported goods. 

On the property market, the ESRI believes parts of the market in Dublin have reached the limits of affordability. 

This has resulted in prices either stagnating or falling. 

It also noted that compared to house prices across the EU, prices here are relatively high and said the focus must be on increasing supply.  

It also noted there is a clear divergence between rental levels in Dublin and other urban areas and the rest of the country. 

The ESRI also modelled the impact on the public finances of a reduction in corporation tax. 

It took two scenarios, a “moderate” €2 billion reduction and a “sharp” €6 billion drop. 

This is the range outlined in a paper by the Department of Finance which could be described as temporary either due to windfall gains or future changes to international tax rules. 

In the moderate scenario, the hit to the economy in the first year would be a reduction of €8 billion in GDP. 

But under the sharp scenario, GDP would reduce by €26 billion. 

This would have knock-on effects for borrowing costs and would require the Government to close the gap in the public finances by introducing austerity policies.  

The ESRI recommends that “windfall” amounts of corporation tax should not be used to fund current spending and should be set aside to guard against any shocks to the economy in the future. 

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US was country’s biggest export market in 2018

New figures from the Central Statistics Office show that Ireland exported a total €141 billion of goods in 2018 and imported €92 billion worth of goods. 

The country exported over €39 billion of goods to the US in 2018 – its largest export market. It also imported €17 billion from the US last year. 

The second biggest export partner was Belgium, with €18 billion of exports. 

The CSO said that medical and pharmaceutical products and organic chemicals comprised €25.8 billion, or 66% of the total exports to the US in 2018. 

The UK, Germany and the Netherlands complete the list of the remaining top five export markets.

Today’s figures also show that imports from the UK were €20 billion in 2018 to make the UK our largest import partner. 

They also reveal that food exports to the UK in 2018 were €4.8 billion and accounted for 43% of total food exports.

Nearly half of our food imports came from the UK, at a value of €3.7 billion.  

Ireland exported almost €800m of cheese, milk and butter to the UK in 2018, one-third of our total exports of these products. 

More than three-quarters of our imports of these products came from the UK, valued at €480m.

The figures also show that we exported over €1 billion of bovine meat to the UK in 2018 and imported €100m. 

This accounted for 52% of our total exports and 90% of our total imports of bovine meat. 

Ireland also exported over €400m of cereals to the UK in 2018, representing over 90% of total exports of this product. 

The CSO noted that almost 80% of all our exports of fruit and vegetables went to the UK, but only 8% of our seafood were exported to the UK in 2018.

Comparing trade figures from 1973 to 2018, the CSO said that food and live animals comprised 41% of Ireland’s total exports in 1973, and were valued at €1.1 billion. 

Exports of chemical products accounted for just 7% of exports in 1973. 

But in 2018, exports of food and live animals were just 8% of total exports, or €11 billion, while chemical products comprise 61% of total exports, or €85.7 billion.

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US trade offensive takes out WTO as global referee

US disruption of the global economic order has reached a major milestone as the World Trade Organization (WTO) loses its ability to intervene in trade wars.

This threatens the future of the Geneva-based body.

Two years after starting to block appointments, the US will finally paralyse the WTO’s Appellate Body, which acts as the supreme court for international trade, as two of three members exit and leave it unable to issue rulings. 

Major trade disputes, including the US conflict with China and metal tariffs imposed by US President Donald Trump, will not be resolved by the global trade arbiter.

Stephen Vaughn, who served as general counsel to the US Trade Representative during Trump’s first two years, said many disputes would be settled in future by negotiations. 

Critics say this means a return to a post-war period of inconsistent settlements, problems the WTO’s creation in 1995 was designed to fix.

The EU ambassador to the WTO told counterparts in Geneva yesterday that the Appellate Body’s paralysis risked creating a system of economic relations based on power rather than rules. 

The crippling of dispute settlement comes as the WTO also struggles in its other major role of opening markets.

The WTO club of 164 has not produced any international accord since abandoning “Doha Round” negotiations in 2015. 

Trade-restrictive measures among the G20 group of largest economies are at historic highs, compounded by Trump’s “America First” agenda and the trade war with China. 

Phil Hogan, the European Union’s new trade commissioner, said last week that the WTO was no longer fit for purpose and in dire need of reforms going beyond just fixing the appeals mechanism. 

In a statement today, Commissioner Hogan called the move as a regrettable and very serious blow to the international rules-based trade system, which, for the past 24 years, has relied on the WTO’s Appellate Body – and dispute settlement generally.

“This is a critical moment for multilateralism and for the global trading system. 

“With the Appellate Body removed from the equation, we have lost an enforceable dispute settlement system that has been an independent guarantor – for large and small economies alike – that the WTO’s rules are applied impartially,” he added. 

For developed countries, in particular, the WTO’s rules must change to take account of state-controlled enterprises. 

In 2017, Japan brought together the US and the European Union in a joint bid to set new global rules on state subsidies and forced technology transfers. 

The US is also pushing to limit the ability of WTO membersto grant themselves developing status, which for example gives them longer to implement WTO agreements.

Such “developing countries” include Singapore and Israel, but China is the clear focus. 

US Commerce Secretary Wilbur Ross told Reuters last week the US wanted to end concessions given to then struggling economies that were no longer appropriate.

“We’ve been spoiling countries for a very, very long time, so naturally they’re pushing back as we try to change things,” he said. 

The trouble with WTO reform is that changes require consensus to pass. That includes Chinese backing. 

Beijing has published its own reform proposals with a string of grievances against US actions. 

Reform should resolve crucial issues threatening the WTO’s existence, while preserving the interests of developing countries. 

Many observers believe the WTO faces a pivotal moment in mid-2020 when its trade ministers gather in a drive to push though a multinational deal – on cutting fishing subsidies. 

“It’s not the WTO that will save the fish. It’s the fish that are going to save the WTO,” said one ambassador

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34,000 new homes needed every year for next decade – Central Bank

A study from the Central Bank has found that 34,000 new dwellings will be needed each year for the next decade to keep up with demand.  

The demand for housing comes from a natural increase in the population and more people coming to live in the country. 

At the peak of the boom in 2006, 93,000 housing units were built. 

But following the crash, house construction collapsed and between 2011 and 2014 an average of just 5,500 houses a year were built. 

But the population did not stop growing during those years. 

Today’s study from the Central Bank found that in order for housing to have kept up with the growth in the population, around 27,000 dwellings per year would have had to be built in the past eight years from 2011 until 2019.  

However, the average housing completion rate for this period was just 10,500 dwellings a year. 

Since 2016, the recovery in the economy has also meant more people are returning to Ireland and more people from abroad are coming to live here. This accounts for around a third of housing demand. 

The Central Bank study shows that from the years 2006 to 2011, the overall population grew by 348,000 with 122,000 or just over a third from net inward migration. 

After the crash – between the years 2011 and 2016 – 25,000 people left the country but the population kept growing, adding 175,000 people. 

When the economy picked up again from 2016, the numbers coming into the country also went up. 

Between 2016 and 2019, it is estimated there was net inward migration of 104,000 with the population overall increasing by 182,000. 

The current population stands at 4.922 million. In 2006, it had stood at 4.233 million. 

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Housing construction activity sees first slowdown since 2013

Activity in the construction sector declined for the third month in a row, the latest Purchasing Managers’ Index from Ulster Bank shows.

Ulster Bank’s Construction PMI showed a reading of 48.2 in November, up from 46.2 in October. Any figure under 50 signals contraction in the industry. 

The November slowdown included a decline in activity in housing, the first one recorded since June 2013, but activity in the commercial sector returned to growth for the first time in three months. 

Meanwhile, civil engineering activity declined for the 15th consecutive month and at the fastest pace in almost six and a half years.

Simon Barry, chief economist at Ulster Bank, noted that official “hard” data on residential construction, including housing starts and completions, continue to point to robust growth in the sector. 

“Indeed, this divergence between the relative strength of “hard” official measures of economic activity and the relative weakness of survey results is not confined to the housing sector,” the economist said. 

“We think that recent weakness in the Housing PMI is perhaps more reflective of large, adverse moves in business sentiment generally – likely related to acute Brexit uncertainty – than of marked weakness in actual underlying housing activity,” Mr Barry said.

“In this respect, we would not be surprised to see some reversal of recent Housing PMI weakness in the months ahead, though we do think that the recent trend in the overall Construction PMI is pointing to downside risks to the construction outlook as we head into 2020,” he added.

Today’s PMI shows that despite a slowdown in activity and new orders, construction firms increased their workforce numbers again during November. 

Ulster Bank also noted that the rate of job creation was the fastest in four months, with companies indicating that greater workforce numbers sometimes stemmed from company expansion initiatives. 

Meanwhile, amid widespread reports of greater raw material prices – including steel, insulation and fuel –  input costs rose sharply during November with the rate of inflation quickening to a seven-month high. 

Looking ahead, Ulster Bank said that business confidence was little changed from October’s three-month high, with around 29% of survey respondents anticipating activity to increase over the coming 12 months. 

Expectations of an increase in customer orders was among the reasons for positive sentiment, but the degree of optimism was below the series average, amid reports of Brexit uncertainty, Ulster Bank said.

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