Euro zone bank lending continues to surge amid crisis – ECB

Lending to euro zone companies continued to surge in May as firms relied heavily on bank credit to stay afloat amid the continent’s coronavirus-related lockdown, data from the European Central Bank showed today. 

With millions of people in stuck at home and much of the bloc’s economy mothballed, activity came to a standstill in March and only started to remerge in May, forcing firms to find emergency cash to survive. 

Lending growth to non-financial corporations accelerated to 7.3% in May from 6.6% a month earlier, its best rate since early 2009. 

Household lending growth meanwhile held steady at 3%. 

Although banks initially appeared to tighten access to credit, a raft of government and central bank measures, from public guarantees to easier collateral rules, has supported lending. 

Indeed, the ECB loaned €1.3 trillion to banks last week for at a rate as low as -1% provided banks at least maintain their stock of lending to the real economy. 

The annual growth rate of the M3 measure of money supply accelerated to 8.9% from 8.2%, beating expectations for 8.6% in a Reuters poll.

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Workers on Covid-19 benefit payments face tax bills

A large number of full-time workers in receipt of the Temporary Wage Subsidy Scheme or Pandemic Unemployment Payment face tax bills of between €150 and €2,828 by the end of the year, Taxback.com has warned.

The latest Taxback.com Taxpayer Sentiment Survey revealed that 57% of respondents receiving either payment are not aware that a future tax liability is building.

Of the 43% who said they were aware of the tax implications, feedback suggests that there is big possibility that they will not know what they will, or can, do about it.

Since its introduction in March, over 551,800 employees have been paid by the TWSS, while 517,600 have received the PUP. 

Taxback.com said the implementation of these supports was absolutely necessary and helped thousands of employers and employees alike.

But it added that the processing of payments fell short in its execution which will leave those in receipt of the payments out of pocket by the end of the year.

Marian Ryan, Consumer Tax Manager with Taxback.com, said that when assessing the impact, we were mindful of the immediacy with which the Government had to roll out the scheme, so anomalies were to be expected. 

“The issue, however, is that thousands of employees appear to be completely unaware of what is coming down the tracks,” she said. 

“The scheme was rolled out in good faith to see employers through the instability of Covid-19 – and to ensure they emerge from the downturn – but a biproduct of its expediency could see less money in the pockets of employees in 2021 and possibly 2022 depending on how the tax burden is spread,” she added.

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Fall in mortgage approvals but market shows resilience

The number of new mortgage approvals in May was nearly 62% lower than the same month last year.

According to the Banking and Payments Federation Ireland, the decrease was not unexpected given the scale of the lockdown and physical restrictions due to Covid-19.

In total 1,879 new mortgages were approved by lenders here in May – a decrease of 14.6% compared to a month earlier.

But compared to May of last year the volume was nearly 62% lower.

At €442 million the overall value of the mortgages approved dropped nearly 16% between April and May, and 61% compared to May of 2019.

On the face of it, the figures may look alarming and point to either a major pull back by mortgage issuers or a dramatic drop in demand.

But the Banking and Payments Federation Ireland said it was expected given the scale of the lockdown and physical restrictions, and their impact on employment figures and economic uncertainty. 

The organisation said it was also significant that despite the majority of the country being shut down and the economy experiencing an unprecedented shock, 1,900 mortgages worth €442m were approved.

It said it shows that demand within the housing market may be more resilient than expected and also demonstrates that banks are meeting that demand.

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Hotel occupancy rates set to fall from 2019 high of 73% to 32%

A survey of hoteliers has found that average national occupancy levels are set to dramatically fall from the highs of over 70% last year to just over 30% this year.

Dublin occupancy levels are forecast to be down by half with regional levels down almost 40%.  

As a result, Dublin hotels expect to be harder hit overall than regional hotels with total revenues for Dublin hotels forecast to be down 62%. 

In comparison, regional hotels are predicting a fall of 55% on 2019 record levels.

This survey was carried out by Crowe, an accountancy practice and advisors to the Irish hotel sector.

87% of hotels have been closed for the past three months but are preparing to reopen on June 29. 

Hoteliers are preparing to operate in a marketplace where lower occupancy levels will be the norm for some time due to the collapse of the international tourist sector, including corporate travel. 

Crowe said it is inevitable that competitive pressure will put downward pressure on average room rates. Hoteliers are predicting the average room rate of €111 in 2019 is set to fall to €94 for 2020. 

It predicts that Dublin room rates will fall by 28% this year while room rates outside of Dublin are expected to be down 13% on 2019 levels. 

Nationally 42% of hoteliers expect the impact of Covid-19 to last more than 18 months, affecting trade into 2022. 

But the survey revealed that hoteliers have learned lessons from the economic crash of 2008 and now understand that discounting has a limited impact on overall demand stimulus. 

As a result, Crowe is predicting that hoteliers plan to protect room rates by avoiding over-discounting room rates in 2020, allowing the industry to create a better base for 2021.

Aiden Murphy, a partner at Crowe, said the survey also reveals that 90% of hotels have needed to approach their bank for changes to their loan repayment terms or additional working capital. 

“Due to the collapse of international demand and an increase in operating costs, there is little expectation for hotels to generate a profit this summer. As a result, there is a situation whereby 50% of hotels in Ireland could run out of money in the months ahead,” Mr Murphy added.

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Unions warn of fallout from wage legislation ruling

A trade union has warned employers of an “industrial war” if they try to renege on pay and pension agreements with workers.

It comes after the High Court yesterday deemed legislation allowing for the setting of legally enforceable pay and conditions for workers in various employment sectors to be unconstitutional.

The Connect Trade Union, which represents workers in construction and engineering, said it would take “stringent action” against employers that try to use the ruling to to break from previously-agreed Sectoral Employment Orders.

Connect’s general secretary Paddy Kavanagh said they had written to all stakeholders to ask them to continue to honour the agreements that have been in place. He said a failure to do so would “end the industrial peace, which benefits us all at this time.”

“Employers are now on notice that we will consider an attack on any one sector or worker in that sector an attack on all,” he said.

Meanwhile the Unite union has called on the Government to an immediate seek a stay of the court’s decision pending an appeal to the Supreme Court.

It also called for robust emergency legislation to protect workers’ terms and conditions should an appeal be delayed for any reason.

Unite’s regional officer Tom Fitzgerald said the timing of the ruling “threatens the incomes of tends of thousands of workers and thus puts our economic recovery at risk”.

He also said it opened the door for workers to take industrial action, which could be damaging to employers.

Yesterday’s ruling strikes down legislation from 2015, which was put in place to address flaws in the 1946 Industrial Relations Act, which in 2013 was itself deemed unconstitutional in how it dealt with sectoral wage-setting mechanisms. 

The Sectoral Employment Orders fixed legally binding minimum rates of pay conditions including a sick pay scheme, pension contributions for all employers in the sector – including those who had not been party to the negotiations. 

Employers breaching the terms could face criminal prosecution.  

However a body called National Electrical Contractors Ireland (NECI), representing small to medium-sized electrical firms, challenged both the Industrial Relations (Amendment) Act 2015, and a 2019 SEO for the electrical contracting sector made under the legislation.

Yesterday a spokesperson for the Minister for Business, Enterprise and Innovation, which oversees the Labour Court, said the detailed judgment was currently under review, and that the Department was not in a position to comment on the ruling until the matter had received proper consideration. 

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Economic growth averaged 5.2% every year between 2013 and 2018 – CSO

Growth in the Irish economy averaged 5.2% per annum from 2013 to 2018, according to an analysis of new CSO data.

In a Special Article for the ESRI, Professor John Fitzgerald describes a measure, called Net National Product, as the best picture of the “economic welfare of those living in Ireland”.

For years, the traditional measure of economic growth, Gross Domestic Product (GDP) has given a distorted picture of what is going on in the Irish economy.

In 2015, Nobel Prize winning economist Paul Krugman referred to the reported 25% jump in Ireland’s GDP that year as “leprechaun economics”.

The average 5.2% rate compares to an average rate of 10.5% when measured by GDP.

The CSO has made attempts to account for the impact of the tax treatment of intellectual property by multinationals as well as other activities such as aircraft leasing.

Professor Fitzgerald’s analysis on Net National Product also shows the foreign-owned sector accounted for a fifth of that growth and just over a quarter of the national wage bill.

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Consumer sentiment improves for second month after Covid-19 collapse

Consumer sentiment improved in June for the second month in a row, but remains well below levels recorded before the onset of the COVID-19 crisis, a survey showed today. 

The KBC Bank consumer sentiment index climbed to 61.6 in June from 52.3 in May, but remains some distance from February’s pre-pandemic reading of 85.2. 

In April the index had dropped to 42.6 in the sharpest month-on-month decline in the survey’s 24-year history. 

The recovery in consumer sentiment mirrors gains in similar indicators for the UK, the US and the euro zone, and suggests the easing of lockdown measures is making consumers feel slightly less negative about the economic outlook, the index compilers said. 

“There was a significant improvement in expectations for household finances a year from now but, again, this needs to be seen in context,” said Austin Hughes, chief economist at KBC Bank Ireland. 

“Only one in 20 consumers envisages better financial circumstances through the next 12 months whereas one in three expects a deterioration,” the economist added. 

Ireland in March shut pubs, restaurants and non-essential retail outlets and ordered people to stay at home.

But the Government has announced plans to accelerate the reopening of its economy as the rate of Covid-19 infections falls.

Austin Hughes said that fading fears should support stronger spending.

But he but warned that “the cautious tone of responses to questions on personal finances suggests a still fearful and, in many instances, financially damaged Irish consumer”.

“To set sentiment and spending on a solid rather than a shrunken trajectory, we think the survey emphasises the need for an ambitious and early fiscal stimulus to limit the lasting damage of Covid-19 to the Irish economy,” the economist added.

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Ibec calls for end to travel restrictions

Employers’ group Ibec has called for Ireland’s international travel restrictions to be ended and for testing and tracing to be used in place of “ineffective” quarantine measures.

People entering Ireland from abroad currently have to quarantine themselves for 14 days upon arrival into the country.

Ibec CEO Danny McCoy said there were benefits from quarantine but there were costs too and the benefits will only accrue if the quarantine is effective.

Speaking on RTÉ’s Today with Sarah McInerney, he said that filling out forms is an “ineffective quarantine”.

He said the proportion of people with the virus is so small that testing and tracing would be more effective than a “crude” quarantine system.

He said the ongoing restrictions as a result of Covid-19 continue to suppress the economy and is leading to other bad health outcomes and even creating air bridges with some countries carries risks unless transmission rates are at zero in those countries.

Mr McCoy said it is important for many businesses that travel resumes as “subject matter experts” have to fly in to serve business all the time.

Public health expert Dr Gabriel Scally said he would favour the continuation of quarantining to achieve a zero-Covid-19 Ireland.

Speaking on the same programme, Dr Scally said he doubts that anyone outside the aviation industry thinks dropping the quarantine period is a good idea and that the quarantine measures should be extended past 9 July.

The only safe way forward, he said, is to keep up the barriers and be a zero-Covid island, before opening travel links with other countries who are in a similar situation.

Dr Scally said the disease was imported by air and the country does not need a second wave when things are going well.

He said the idea of air bridges is a good one and gradually over time, as more countries eliminate the virus, more opportunities for that type of travel will open up, adding that one of the busiest air links in Europe is Dublin to London, but the situation in England is not under control.

Pádraig Ó Céidigh, aviation taskforce member and aviation businessman, said there is no way of policing quarantine and he believes that “it isn’t working”.

Mr Ó Céidigh said the code of practice for safe air travel, developed by the European Centre for Disease Prevention and Control, should be adopted.

The number one objective of aviation in Ireland, he said, is safe travel for passengers and this objective will remain number one.

He said that Ireland will never reach a point of becoming a zero-virus country.

Elsewhere, the Irish Congress of Trade Unions has called on the Government to make Covid-19 an occupational illness.

ICTU General Secretary Patricia King has written to the Minister for Business, Enterprise & Innovation, Heather Humphreys on the issue.

If contracting Covid-19 in the workplace was designated an occupational illness, all cases would have to be notified to the Health and Safety Authority.

“In particular healthcare workers continue to perform their duties in circumstances of serious and ever-present danger of contracting that disease. The situation in which they are, of necessity, placed is without precedent or parallel,” the letter from Ms King states.

“Public transport workers frontline workers interacting with the public, airport and port workers are by virtue of the nature of their occupation also more exposed to the virus.”

More than 8,000 healthcare workers have been infected with the virus, with the majority of these cases of the virus contracted in the workplace.

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IMF lowers 2020 growth forecasts again amid Covid-19 crisis

The International Monetary Fund has further lowered its forecasts for global economic growth this year.  

In its World Economic Outlook published today, the IMF said economies around the world have been more negatively impacted in the first half of the year than it had anticipated and recovery has been more gradual than previously forecast.  

The IMF has lowered forecasts for global growth this year by an additional 1.9%, compared to its forecast in April, and it now expects global GDP to shrink by 4.9% in 2020.

Next year, it said it expects activity to recover by 5.4%.

But this would still leave the level of global GDP next year 6.5% lower than it had been forecast to be back in January of this year.

The IMF also warned today that the impact of Covid-19 on low income households will be “particularly acute.”

Using data from the International Labour Organisation, it said the reduction in global work hours from the fourth quarter of 2019 to the first quarter of 2020, is equivalent to the loss of 130 million full time jobs.

It forecasts that the second quarter of this year could see the equivalent loss of 300 million full time jobs.

The IMF said it believes that around 80% of the estimated 2 billion casually employed people around the world will have been affected.

The impact will be most severe on low skilled and low income households who do not have the option of working from home, it added.

In countries where recovery has begun, the IMF still expects a negative economic impact with continued social distancing and lower productivity from new health and safety practices in workplaces.

The IMF said the coronavirus pandemic is taking a severe toll on Europe, with the euro area economy set to plunge by 10.2% this year. 

The updated World Economic Outlook was dramatically worse than the April forecasts, and shows that even Germany will contract by 7.8% while other countries fare much worse.

France’s GDP is expected to plunge 12.5% while Italy and Spain could shrink by 12.8%. 

Britain also is likely to see a double-digit decline, with its economy contracting by 10.2%, the IMF said.

Today’s outlook from the IMF also predicts that the US economy will contract 8% in 2020, but China will eke out 1% growth.

The IMF also said that key emerging market economies are taking a severe hit to GDP amid the coronavirus pandemic, with India seeing the first contraction in decades. 

Its updated World Economic Outlook shows India’s GDP will fall 4.5% this year, far worse than expected in April just after the pandemic first took hold outside of China.

Mexico will see a double digit decline of 10.5% while Brazil just misses that mark with a drop of 9.1%. 

Argentina is projected to fall 9.9%, with the country already in the middle of a massive debt crunch on top of the health and economic crises after once again defaulting on its foreign obligations.

During the global financial crisis in 2009, these emerging markets, along with China, were booming, supporting the global economy even as advanced nations faced severe recessions.

Meanwhile, South Africa’s GDP is seen dropping 8%, while oil-producer Nigeria falls 5.4%, the IMF said today.
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Banks to extend mortgage breaks to homeowners

Banks to extend mortgage breaks to homeowners

The country’s five retail banks are likely to extend a six-month break on loan repayments so that they can help homeowners cope with financial difficulty caused by the coronavirus. This will be a shift from a three-month mortgage break that borrowers had been given by the banks before the COVID-19 impact.
According to the Banking and Payments Federation Ireland (BPFI), banks were in the final stages of completing 45,000 mortgage breaks. Out of the applicants for mortgage breaks, one-in-eight borrowers had previously restructured loan repayments owing to the financial crisis ten years ago. Also, 14,000 breaks and $ 3,200 working capital facilities for SMEs have been set aside to help businesses.
The five Irish banks are in discussion with the regulator, the Irish Central Bank so that they can come up with a regulatory framework. These regulations will help banks manage the extended loan repayments offered to homeowners because mortgage costs are likely to increase.
As a result of the COVID-19 impact and the extended loan repayments, it is expected that some loans will perform badly and losses are likely to occur across all sectors.
To lessen the impact of the coronavirus, banks are in the process of completing mortgage breaks for homeowners and SMEs. They’re working hand in hand with the Irish Central Bank so that they can formulate a regulatory framework to manage the new loan repayment facility. Click here for more information.