‘The financial system is stronger than a decade ago, but its resilience is not limitless’ – Donnery

The Deputy Governor of the Central Bank has said while the financial system is stronger than a decade ago, its resilience is not limitless.

Sharon Donnery made her comment as she addressed an online presentation hosted by the Institute of International and European Affairs.

She said she recognised the resilience of Irish households, businesses and the domestic banking system but said that only the initial economic effects of the Covid-19 pandemic have been seen so far.

“The full effects of this crisis will emerge over time as the damage and scarring to sectors is realised, and the extent depends on the path, persistence and waves of the virus and the necessary public health responses,” she said.

Comparing the impact of Covid-19 to previous economic shocks, Ms Donnery described the crisis as a truly global event, unprecedented in terms of size and speed, with uncertainty greater than that seen in 2008/2009.

“The OECD has warned of the worst peacetime recession in a century. Their latest numbers, in a single wave scenario, estimate global economic activity to fall 6% this year. In contrast, at the peak of the 2008/2009 financial crisis, global growth fell by 1.7%,” Ms Donnery continued.

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Property sales slow by 40% in April due to Covid-19 – CSO

The number of property transactions slowed dramatically in April, according to the latest figures from the Central Statistics Office.

House prices also fell last month but are marginally ahead of where they were a year ago, the CSO figures show.

The CSO’s Residential Property Price Index shows that house prices nationally were 0.5% higher in April compared to a year ago. However, they fell 0.2% compared to March.

The CSO noted that Covid-19 restrictions reduced the number of transactions available to include in its survey to approximately 1,200, down more than 40% on March.

It compared this level of transactions to the average 1,100 per month during 2010/2011, but noted that the April figure will rise as more stamp duty receipts are received by Revenue.

Household dwelling purchases filed with Revenue were down 28.9% compared to April last year and down 34.7% on the figures in March of this year.

The residential property increase nationally in the year to April of 0.5% compares to an increase of 2.9% the same time last year. The positive rate has also slowed from the 0.9% recorded in the year to March.

Prices in Dublin fell in the year to April by 0.1% while outside Dublin, prices were up by 1.1%.

Today’s figures show that sales of 1,914 existing dwellings made up 81.4% of transactions, down 29.2% compared to April last year.

There were 437 new dwellings sold, accounting for 18.6% of transactions. This was down 27.5% on a year ago.

The average price for a property nationally was €296,606.

A big disparity remains between prices in Dublin and the rest of the country.

The average price in Dublin was €438,554 with the average price in Dun Laoghaire-Rathdown €597,931.

The lowest priced region remains the Border area while the lowest average price is in Leitrim at €117,463.

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Just 12% of bosses predict all staff will be back in offices post Covid-19

A new survey has found that just 12% of business leaders believe all staff will be back in their companies’ office/workspace once the Covid-19 lockdown is lifted, while 40% predict an equal mix of staff working in the office and remotely.

31% of bosses are either planning to downsize their office space or having it under consideration, the snap poll survey by the Institute of Directors in Ireland shows. 

Nearly 30% of respondents also said that their current office space/working environment is not conducive to implementing Government-approved social distancing measures.  

But the survey also reveals that 75% of business leaders believe the Government’s phased plan to reopen the economy is either “well judged” or “adequate”. 

While 71% of business leaders acknowledged that a recession is imminent, they predicted that it will be a short-term one.

Today’s survey also showed that 37% of respondents’ businesses availed of the Government’s Temporary Wage Subsidy Scheme, while 54% said they did not, with 9% saying the scheme did not apply to them.

Maura Quinn, chief executive of the Institute of Directors in Ireland, said that rumours of the demise of what many people call “the office” have been grossly exaggerated, but opportunities as well as challenges now face business leaders and employees alike. 

“The future of workplaces and recruitment is being reconfigured. Business leaders will need to be agile to allow for these new changes, as well as showing clear leadership and guidance to help direct it,” Ms Quinn said. 

The IoD CEO said the country is exiting the coping stage of Covid-19 in terms of how businesses operate and a substantial majority of business leaders believe a short-term recession is looming. 

“There is no avoiding the stark reality of that happening. We are an open economy and our overseas markets have been similarly impacted,” she stated. 

“For this reason, we call on the Government to ensure continued business support measures are being put in place which, in turn, will help kick-start the economy,” Ms Quinn added.
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European new car sales fall 56.8% in May – ACEA

European passenger car sales slumped in May but the drop was not as sharp as in the previous month because of an easing of restrictions imposed to contain the coronavirus pandemic, industry data showed today. 

In May, new car registrations dropped by 56.8% to 623,812 vehicles in the European Union, Britain and the European Free Trade Association (EFTA) countries.

This is according to statistics from the European Auto Industry Association (ACEA). 

The drop was less pronounced than a 78.3% plunge in April. 

Sales recorded double-digit declines in all EU markets, with Croatia, Portugal and Spain reporting the biggest drops of 76.2%, 74.7% and 72.7%, respectively.

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Central Bank warns of unprecedented economic shock due to Covid-19

The Central Bank has warned that the scale of the economic shock due to Covid-19 is “unprecedented” and will create pressure on the financial position of both borrowers and banks.  

Central Bank Governor Gabriel Makhlouf said governments are facing “fantastic levels of uncertainty” over the future and warned that while the financial system is resilient, that resilience is not infinite. 

He was speaking after the publication of the Central Bank’s Financial Stability Review today.

In its Financial Stability Review, the Central Bank estimated that 80% of businesses covering almost 70% of all employment are affected either directly or indirectly by the containment measures through loss of sales, disruption in supply chains and physical distancing.  

The Central Bank pointed out that half of small and medium sized businesses hold less than 5% of their annual sales in cash reserves. 

Even when it comes to big companies, the Central Bank estimates that half of firms hold less than 8% of annual turnover in cash. 

It warned the longer containment measures last, the greater the risk more companies will become insolvent.

It also warned that relying too much on debt might hamper a company’s ability to survive by using debt to finance “pandemic-related losses”.

The Central Bank said that while multinationals based here have been more resilient, they are not immune from developments in the global economy.  

Describing global financial market conditions as “fragile”, the Central Bank noted that Irish banks are in a much better position now than they were during the financial crisis.

The same goes for households. Tighter lending rules have lowered levels of indebtedness and exposure to falls in house prices, the bank said.

Today’s report also included the results of a survey of property market professionals carried out in April. 

It predicted a 5% fall in house prices this year and an expectation that national house prices will be just 2% higher in March 2023 than they were at the end of March this year. 

As of 29 May, a total of 74,900 mortgage payment breaks were in place across the banking sector representing 11% of the mortgage market. 

The Central Bank warns that some of the payment breaks “may ultimately require further restructuring or resolution”. 

It also warned that banks will face further pressure because less money is being borrowed and interest rates are lower, squeezing their profit margins. 

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78% of CFOs see more remote working and work flexibility in future plans

A new survey shows that 76% of Ireland’s chief financial officers expect a decrease in their company’s revenues and profits this year as a result of Covid-19.

28% of CFOs expect this decrease to be 25% or more, the latest PwC CFO Pulse survey shows. 

PwC said that fewer global companies – 20% – expect this level of revenue and profit reduction.  

But the survey also shows that despite the Covid-19 pandemic, 15% of Irish companies either expect no impact on revenues and/or profits or actually expect an increase. 

According to the survey, which was conducted last week, more Irish finance leaders believe that it will take more than a year to recover from the pandemic than any other country participating in the survey. 

Over a quarter now believe that if Covid-19 were to end today, it would take their business more than a year to get back to “business as usual”. 
This was up from 17% two months ago and just 11% globally

A further 40% believe it will take between one and six months compared to 50% globally.

But the survey showed evidence to suggest that some aspects of the current situation will make business better in the long run and therefore may be here to stay. 

Respondents said these included greater remote working and work flexibility (78%), better resilience (68%), leaner operations (49%), automation and technology investments (43%) and new ways to serve customers (42%). 

A significant proportion of Irish CFOs – 80% – also said they were “very confident” when it comes to their ability to provide a safe working environment.

77% of CFOs also said they are confident of providing a clear response and shut-down protocols if there is a second wave of infection.

Today’s survey also shows that Irish finance leaders are much more concerned about the impact of the pandemic on their workforce (28%) than global peers (13%). 

With lockdown easing, companies are accelerating their plans to be safe as they transition back to on-site working.

 88% of respondents now plan to reconfigure work sites to promote physical distancing compared to 76% a month ago, while 72% now plan to change workplace safety requirements (wearing masks and offering testing to workers), up from 59% last month.

28% also said they now plan to reduce their real-estate footprint, up from 12% a month ago. 

David McGee, Strategy & Markets Partner at PwC Ireland, said that companies are clearly concerned about a new wave of infection and the impact on their financial position. 

“There is a need to remain focused on adjusting to this new normal, protecting your people and re-engaging your customers while at the same time pursuing new revenue streams through product and service innovation,” Mr McGee said. 

“Companies need to continue to do their scenario planning, and in particular, now in light of a no-deal Brexit on the cards,” he added.

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NTMA chief warns on longer term borrowing

The head of the National Treasury Management Agency said he is not worried about the next four years from a borrowing perspective but that the state needs to prepare for the decade after that due to an increase in already high debt levels. 

“While addressing Covid-19 is today’s urgent priority, Ireland should prepare for dealing with a higher debt burden and the risks that this entails. 

“It’s possible the tailwinds that exist today will be replaced with headwinds in the future,” Conor O’Kelly said as he published the NTMA’s midyear update.

“From a borrowing perspective, because of our current credit rating, because of our current refinancing requirements, and because of the current interest rate environment, we are not worried about the next four years.

“It’s the 10 years after that we need to keep an eye on and begin planning for,” he stated. 

The NTMA has stepped up its borrowing activity in response to Covid-19 and has taken advantage of favourable market conditions to raise €18.5 billion so far in 2020. This represents 84% of the mid-range of its revised €20-€24 billion full-year target. 

This debt was raised at an average yield of less than 0.3% and an average maturity of 11 years.

The debt agency said the benefits in terms of interest savings are significant.

In the past five years Ireland’s interest bill has fallen from €7.5 billion to about €4 billion for this year, giving savings of over €3.5 billion a year or €35 billion over ten years. 

But Conor O’Kelly said it was important to remember that these exceptionally favourable borrowing conditions are unlikely to last forever, adding that debt taken on at near-zero rates today will need to be refinanced in the future and potentially at a higher cost.

He said that Ireland is a small, open economy with substantial borrowings that relies on international investors to buy over 90% of its marketable debt.

“This means Ireland always needs a contingency plan to be prepared for economic shocks, market volatility and events outside our control,” he added.

The NTMA was not planning to go beyond its €20-24 billion borrowing target for 2020, he said.

The NTMA oversees Ireland’s investment-focused sovereign wealth fund which the state has mandated to invest €2 billion directly into larger firms in need of funding due to the shutdown of the economy that is being slowly unwound. 

Some 30 firms, which the NTMA said included many “critical employers” in hospitality, tourism, retail and transport have enquired about funding. 

Conor O’Kelly said it was encouraging that not many had been so hard hit that they needed funding urgently.

The NTMA raised a total of €15 billion in long-term debt during 2019 by way of syndications and auctions at a weighted average yield of 0.9% and average maturity of 10.7 years. 

The Minister for Finance Paschal Donohoe has said it was a “deliberate choice to be very sparing about figures, costs and commitments” in the Programme for Government published this afternoon.  

Mr Donohoe said he was “optimistic about recovery but also realistic” about the prospects for recovery in the economy. 

It was for that reason figures have not been put on the planned Recovery Fund. He said how the economy develops over 2020 would need to be closely watched first. 

When asked if he was staying on as Minister for Finance, Paschal Donohoe replied that was one question that was “above my pay grade today”.

The Minister was speaking at the publication of the NTMA’s report today. 

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Stimulus plan for economy to be published in July

The draft Programme for Government includes details of a stimulus plan for the economy to be published in July. 

It also outlines the parameters of a National Economic Plan which will be published alongside Budget 2021.  

At that time, a “medium term roadmap” will be set out to plan a reduction in the budget deficit and a “return to a broadly balanced budget”. 

The document noted that taxation as well as expenditure measures will be used to close the deficit and fund public services if required. 

It said that any tax rises would be focused on taxes like the carbon tax, sugar tax and a possible plastics tax. 

The document commits to maintaining the 12.5% corporation tax and to continue co-operation on tax reform with the OECD. 

Meanwhile, the draft programme also said the state should not sell its shares in the country’s banks until it is likely to recoup a significant portion, if not all, of its investment. 

The Government continues to hold a majority stake in AIB and Permanent TSB, and a minority holding in Bank of Ireland, the three domestically owned lenders to survive a banking crash a decade ago. 

The value of the banks’ shares have fallen significantly in the past two years.

Small and medium-sized enterprises (SME) will form a major part of the economic stimulus package, including a new SME taskforce to help small firms recover from the crisis brought on by the Covid-19 pandemic.

There will also be sector specific responses to help businesses get back on their feet, as well as moves to make the public procurement process more accessible for SMEs.

Building on the forced move to working from home during the pandemic restrictions, the document contains a big focus on enabling remote working in a way that would support balanced development.

The development of stronger links between third-level education and SMEs is also a part of the programme, as are supports for the digitalisation of small firms.

Enacting legislation immediately to help SMEs get access to cheaper finance would also be an urgent priority of the plan, if the other outstanding elements of the negotiations can be agreed.

On the economy, negotiators have agreed to establish a Commission on Welfare and Taxation that would independently consider how best the tax system can support economic activity and promote increased employment, while at the same time ensuring there are enough resources available to meet the costs of public services and welfare supports in the medium and longer term.

The document also contains a commitment to review capital gains tax rates in each budget over the next five-years. 

Encouragement of a greater take-up of the R&D tax credit by small domestic companies is also part of the plan.

An economist from University College Cork has said that as the public health crisis abates, the expectation is that government borrowing will reduce and the shift will turn towards stimulating economic growth.

Seamus Coffey, a lecturer in economics at University College Cork and a former chair of the Irish Fiscal Advisory Council, told Morning Ireland that once a growth pattern slowly returns to the economy there will be scope to do implement some of the new measures in the expected document from Government Buildings. 

Mr Coffey said that the deficit faced by the new government is linked to the current shock in the economy and will reduce as emergency measures are scaled back. 

He said there will be concerns about the increase in debt and as long as the emergency measures are temporary the borrowings can be managed. 

Mr Coffey said that any decisions about measures to be introduced on a permanent basis will need to be backed up by funding in the medium term to fund them on an “every year basis”. 

SMEs will be supported for now with emergency measures and cash grants but over the next few years Mr Coffey said a stimulus package could be front loaded to boost businesses. 

Mr Coffey said investment could be targeted at sectors such as the construction industry, while a rise in household savings could lead to a consumption boom.

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Retail outlets in shopping centres reopen

Retail outlets in shopping centres around the country are reopening for the first time since they were forced to close due to Covid-19 restrictions nearly three months ago.

However, the shopping centres and shops must adhere to guidelines around social distancing and hygiene, while also taking steps to ensure customers do not congregate in malls.

Under the original Government plan for reopening the economy, enclosed shopping centres were not supposed to reopen before 10 August.

But just over a week ago, the Government decided to speed up the reopening phases, including allowing retail outlets in shopping centres to reopen on 15 June, once measures were put in place to make centres safer.

The guidelines, published by the National Standards Authority of Ireland last week, include limiting the number of shoppers inside centres.

They also say that consideration should be given to limiting access for children and adjusting opening hours to lessen crowding at any one time.

The rules also state that visitors entering a shopping centre should be encouraged to wear face coverings and that appropriate signage be used to communicate this to customers.

Special access times should also be allocated for those at high risk from Covid-19 or those who have been cocooning, carers, frontline staff and people with disabilities, they suggest.

While customer parking spaces should also be limited to comply with physical distancing requirements, with shopping trolley access only being given to those going to a grocery store, they say.

The protocols also suggest that non-essential facilities, such as playgrounds, pray areas and play equipment, be either closed or controlled to ensure physical distancing can be maintained.

WiFi in public areas should be blocked to discourage non-essential use of the centre and consideration should be given to the removal of massage chairs, product carriers, decorations and seating areas, apart from those needed by people with disabilities.

The reopening will mean a welcome return to work for thousands more retail workers and will provide an additional boost to the economy.

However, restaurants based in shopping centres will still not be able to reopen for eat-in meals until 29 June, while at present hairdressers remain closed until 20 July, although that sector hopes the Government may yet allow it to open earlier.

The NSAI guidelines also say there should be an assigned area in shopping centres to isolate people with Covid-19 symptoms if they present to a manager, customer services desk or centre personnel.

They state that where possible, video surveillance should be used with a footfall counting system and direct contact with security personnel if available to monitor compliance with rules.

The Covid-19 centre management team should organise personnel to patrol the centre at all times to aid in managing physical distancing measures, the document says.

The implementation of strict physical distancing measures across all spaces are also outlined, and where that cannot be achieved, then engineering controls, such as physical barriers and clear plastic sneeze guards between workers, should be used.

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Exports fall by 32% in April amid Covid-19 shutdowns – CSO

Seasonally adjusted exports decreased by 32% to €11.613 billion in April from March, according to preliminary figures from the Central Statistics Office, as Covid-19 shutdowns hit the trade sector. 

This marked the biggest one month contraction on record.

The CSO said that seasonally adjusted goods imports decreased by 11% to €5.834 billion. 

This resulted in a decrease of 45% in the seasonally adjusted trade surplus to €5.779 billion in April compared with the previous month.

Today’s CSO figures show that the value of exports for April fell by 10% compared to the same time last year. 

Exports of organic chemicals decreased by 14% to €1.66 billion in April compared with the same time last year, while exports of professional, scientific and controlling apparatus decreased by 22% to €446m. 

But exports of medical and pharmaceutical products increased by 6% to €4.872 billion – accounting for 42% of total exports.

Eexports of electrical machinery, apparatus and appliances also increased by 33% to €738m over the same time last year.

Meanwhile, the value of imports for April fell by 21% to €5.795 billion.

The CSO said that imports of other transport equipment, including aircraft slumped by 76% to €432m in April of this year compared to the same month last year, amid the Covid-19 outbreak. 

Imports of petroleum sank by 54% to €211m, while imports of professional, scientific and controlling apparatus increased by 51% to €247m.

Today’s CSO figures also revealed that the EU accounted for 36% of total goods exports in April of which €1.310 billion went to Belgium and €1.092 billion went to Germany. 

Total EU exports in April decreased by 3% compared with April 2019. 

The US was the main non-EU destination accounting for 33% of total exports in April. 

Meanwhile, the EU accounted for 33% of total goods imports in April, which the CSO said was a decrease of 29% on the same time last year. 

The US with 14%, China with 7% and Switzerland with 3% were the other main non-EU sources of imports.

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