Irish economy well placed to rebound from Covid-19 – Davy

A new report from stockbrokers Davy said that while the outbreak of Covid-19 presents significant challenges, Ireland’s economy should prove to be far more resilient relative to the rest of Europe than it did in the last downturn. 

The stockbrokers noted that recent years have been characterised by a lack of credit demand, mainly due to Brexit uncertainty. 

They noted that over half of Irish SMEs now have no bank debt whatsoever compared to 25% in 2012. Similarly, bank lending to SMEs has declined from €60 billion to €20 billion over the past ten years. 

Irish household debt has fallen from a peak of €203 billion in 2008 to €135 billion, while new mortgage lending has been held in check by the Central Bank’s lending rules. 

Davy said that while many Irish households and SMEs will find themselves in financial distress due to the coronavirus outbreak, fiscal and macroprudential policy should help support incomes.

These supports will limit the scarring effects from the Covid-19 business shutdowns.

The Government has already rolled out a wage subsidy scheme and enhanced social welfare supports for those hit by job losses due to the outbreak of the coronavirus, similar to measures in Europe. 

Davy noted that the 45,000 people who have applied for mortgage payment breaks so far account for a fraction of the 533,000 job losses.

It said this perhaps reflects the fact that employment cuts have been in sectors – hospitality, retail and tourism – where workers are less likely to have mortgage debt.

The stockbrokers also noted that Central Bank Governor Gabriel Makhlouf has said that work is underway on a credit guarantee scheme targeted at SMEs.

Davy said the hit to Irish GDP from Covid-19 looks set to be at the upper end of its estimates given the 533,000 unemployment claimants. 

But the stockbrokers said the bigger question, however, is how quickly activity can recover, depending on how long business and travel restrictions remain. 

“Ireland’s export-oriented economy will continue to provide flexibility as in the last recession, but fiscal and macroprudential policy will support the recovery this time around,” Davy said. 

“Also, after a decade of deleveraging, many indigenous sectors were still at an early stage in the housing, credit and investment cycle – pointing to a latent recovery going forward,” the stockbrokers added.

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NTMA sells €750m of Treasury Bills in new auction

The National Treasury Management Agency today completed an auction of Irish Treasury Bills, selling the target amount of €750m. 

The NTMA said that total bids received for the Treasury Bills amounted to €2.305 billion which was over three times the amount on offer. 

The Treasury Bills, which have a maturity of six months, were sold at a yield of -0.25%.

Last week, the NTMA raised €6 billion in its largest bond sale for a decade, as it moves to boost its finances to fund “significant deficits” caused by the coronavirus pandemic.  

The NTMA raised the funds through the syndicated sale of a new seven-year bond, which attracted more than €33 billion worth of demand from 250 accounts.

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Over half a million receive Covid Unemployment Support Payments

533,000 people have today been issued payments of the Covid-19 Pandemic Unemployment Support payment – up 26,000 on the figure a week ago, according to the Department of Employment Affairs and Social Protection.

Around 54,000 of those are receiving payments for the first time. 

These Covid Pandemic payments first introduced on 16 March are in addition to the 210,000 people on the live register receiving “normal” Jobseekers’ Benefit – an increase of 3,000 in the last seven days. 

The Pandemic Payment figures also exclude workers whose jobs are now being subsidised under the Temporary Wage Subsidy Scheme (TWSS), to which 42,100 employers have now signed up. 

A week ago, 130,000 workers were covered by the TWSS – but the Revenue Commissioners confirm that figure has risen to 219,400, with approximately 80% of those receiving a top-up from the employer.

According to the department, it has now processed 625,000 applications for the Covid-19 Pandemic Unemployment Payment or a jobseeker’s payment since 16 March – the equivalent of three years’ claims in a month.

That excludes duplicate claims made by some applicants.

However, around 40,000 have closed their applications for benefits – and its believed most of these are due to the employer in question signing up to the TWSS administered by the Revenue Commissioners to keep the worker in employment with a wage subsidy from the State. 

Minister for Employment Affairs and Social Protection Regina Doherty said that with just over 50,000 additional payments approved last week, it was possible that they were reaching a “plateau” in terms of those on the Covid-19 payment. 

She also noted that increasing numbers of employers were participating in the TWSS, while approximately 1.4 million people are still in full time work. 

However, she acknowledged the scale of the challenge, saying: “Never before has there been such a need for welfare support from workers and employers, with more than three years’ worth of claims being processed in less than a month”.

She went on to say: “As we reach the plateau of those on income support, we hope to bend and lower that curve also – getting as many back to work as soon as possible as and when the health environment permits”. 

Around 68,000 payments have been withheld from claimants for a number of reasons, including the fact that they were still in employment, were not in employment prior to claiming, were not resident in the State, were outside the relevant ages of 18-66, or had submitted incorrect details of PPS numbers or bank accounts. 

The department is contacting claimants directly to try to resolve any issues.

According to the statistics, the labour sector with the highest number of people receiving the Pandemic Support Payment is Accommodation and Food Services (115,500), followed by Wholesale and Retail Trade (81,400) and Construction (71,000).

The department has also published the number of Covid-19 Pandemic Support claims on a county by county basis.

Dublin accounts for the biggest number of claims, at 152,700.

Cork is in second place, with 55,600, and Galway coming third with 29,100.

The lowest number of applications was from Leitrim, with 3,700.

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IMF: Irish economy set to return to growth next year

The International Monetary Fund is forecasting that Ireland’s economy will decline by 6.8% in Gross Domestic Product (GDP) terms this year, as a result of the impact of the Covid-19 pandemic.

The figure is contained in the IMF’s World Economic Outlook, published today.

The IMF believes that unemployment in Ireland will average 12.1% this year and 7.9% in 2021.

It predicts that the economy will return to growth in 2021.

Globally, the IMF is forecasting that the economy will shrink by 3% this year as a result of Covid-19.

It predicts the Eurozone will contract by 7.5%.

In its World Economic Outlook, the IMF describes the ‘Great Lockdown’ as a “rare disaster”.

It says the magnitude and speed of collapse in activity is “unlike anything experienced in our lifetime”.

IMF Chief Economist, Gita Gopinath, says the cumulative loss in the value of world output could be £9 trillion, more than the combined economies of Japan and Germany.

The IMF says economies most reliant on tourism and travel will be the worst affected.

Emerging economies will be impacted too as investors will be less likely to want to risk their money.

It says this recession will be far worse than the 2007-08 global financial crisis as both advanced and developing economies will be in recession at the same time.

The IMF repeats its description of the ‘Great Lockdown’ as the worst recession since the Great Depression.

It advises policymakers to plan for recovery, which it thinks will come next year.

It says as containment measures are lifted, policies should shift towards supporting demand and incentives to get people back to work.

The IMF says fiscal stimulus that is co-ordinated will magnify the benefit for all economies. In other words, big spending programmes by governments would have a bigger impact, if planned in some way together with other countries.

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Measures announced to ensure delivery of capital projects

The government has announced measures to ensure the delivery of Exchequer-funded capital projects under Project Ireland 2040.

The public health measures, introduced at the end of March to halt the progress of Covid-19, imposed restrictions on many areas of the economy including the construction sector. 

In a statement this evening, Minister for Finance Paschal Donohoe, said, mindful that a sustainable and flexible construction sector is crucial to the delivery of Project Ireland 2040 and the continued contribution of public investment to our economic well-being, the government is conscious of the need to proactively manage risks that arise from these necessary impositions.

The Minister announced measures to manage these risks in the short term, safeguarding the integrity of Project Ireland 2040 and providing for a timely restart to construction, when circumstances and public health measures allow.

The measures include:

  • Detailed consideration by the Project Ireland 2040 Delivery Board and key delivery agencies as to how a phased and orderly restart can best be achieved.
  • Continuation of the planning and preparation of projects in the Project Ireland 2040 pipeline by Departments to facilitate a timely restart and acceleration of certain projects to support construction activity as the sector recovers.
  • Extending the tender deadlines by 6 weeks for all tenders associated with construction and construction services contracts, giving businesses an opportunity to assess the impact of restrictions on their tender.
  • Deferring the award of contracts for construction and construction services contracts unless there are compelling reasons to do so.
  • Ensuring that pre-construction design work continues up to a state of pre-tender readiness so that projects are ready to go to tender once the Public Health Measures are relaxed.
  • Extending ex gratia interim payments to contractors on public works contracts to cover certain non-pay fixed costs associated with site closures from 12 April 2020 until midnight on 4 May 2020 and subject to further extension should the current restrictions continue.

Minister Donohoe said, “Public investment will continue to play an important role as the economy recovers. Accelerating the delivery of key projects will ensure that construction activity is stimulated, as well as delivering the homes, schools, liveable places and other infrastructure our people will need.

“The planned continuity in public investment under Project Ireland 2040 will act as an economic stabiliser while continuing to address the well-established demand for public infrastructure.”

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Consumer sentiment suffers largest ever monthly drop

Consumer sentiment suffered its largest monthly drop on record in April, a survey showed today, demonstrating the scale and speed of the economic collapse unleashed by the coronavirus pandemic. 

Restaurants, bars and non-essential retail outlets have been closed in stay-at-home restrictions put in place on March 29. 

These restrictions are due to run until at least May 5 and the closures, as well as the closing down of construction sites, have already more than trebled the unemployment rate to 16.5%. 

KBC Bank Ireland’s consumer sentiment index nosedived to 42.6 from 77.3 in the previous survey conducted from March 3 to 10, before the gradual shutdown of the country began. 

It was the sharpest month-on-month decline in the survey’s 24-year history. 

It was also the second survey this month to show a record monthly fall after a collapse in activity reported by the services sector. 

The sentiment reading was slightly above the series’ lowest mark of 39.6 recorded in July 2008 when Ireland was among the countries hardest hit by the global financial crisis that pushed it into a three-year international bailout two years later. 

The scale of the drop this time around suggested the capacity of consumer spending to move back to a positive path “may depend critically on the scale, scope and speed of policy actions to re-start economic activity”, Austin Hughes, chief economist at KBC Ireland, said. 

“Expectations are still slightly above the low point of the previous crisis, presumably reflecting a judgment that the current crisis is finite in nature,” Mr Hughes said. 

“The details of the sentiment survey underline the scale of difficulties now being felt. Only one in 20 see their financial circumstances on an improving trend at present compared to one in five at the start of the year,” the economist added.

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Banks may extend mortgage breaks to six months – BPFI

The country’s five retail banks may extend loan repayment breaks to help homeowners cope with the impact of the coronavirus to six months from the three months currently in place, the head of their representative body has said. 

The banks agreed the measure in the middle of last month and had granted or were close to completing 45,000 mortgage breaks by the end of last week, Banking and Payments Federation Ireland (BPFI) said. 

Almost 14,000 breaks and 3,200 working capital facilities have also been put in place for businesses. 

“There is an expectation, because this has happened in other European countries, that the potential of a six-month break may well apply,” BPFI’s chief executive Brian Hayes told an Irish Times podcast. 

“We’re in discussions right now with our regulator, the Irish Central Bank, and with the industry to see how that might work because if you don’t pay for six months that is a pretty large amount of money you owe across the term of your mortgage,” Mr Hayes added. 

The talks with the Central Bank centre around the regulatory treatment of those who would continue to receive breaks, Brian Hayes said. 

The three-month breaks do not impact customers’ credit record, and the banks reporting of the facilities. 

Brian Hayes added that some of the mortgage holders who had sought a break were among the almost one-in-eight borrowers whose loans have already been restructured, mostly as a result of the financial crisis a decade ago. 

“Some people won’t get through this, and that’s the reality we face. Inevitably it will lead to more non-performing loans, but we need to minimise that in terms of the regulatory treatment, if the length of time is six months,” he said. 

“Losses will emerge right the way across the sector and that’s just the inevitability of the recession we’re facing,” he stated.

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Former IMF boss predicts quick economic rebound once Covid-19 crisis is over

Former IMF deputy director general Donal Donovan said he believes it is possible for a “fairly quick rebound” once the coronavirus crisis passes and confidence returns to the Irish economy. 

Mr Donavan said that this crisis is quite unlike the situation in 2008/2009, when banks went bust, the construction industry collapsed and there was huge household debt. 

Now the Irish economy is strong and resilient, he stated. 

He said that people are keeping their money for a rainy day but he believes that when this stops, people will want to return to shops and restaurants. 

Mr Donovan said it is hard to predict how the economic decline will impact on individual households but it will mean that Ireland will have to borrow large sums of money, which will have a detrimental effect on other initiatives and projects down the road.  

He also warned the IMF projections are based on the assumption that the virus will fade in the second half of next year, which he admitted is “a pretty big assumption”. 

Mr Donovan said there is a risk that people will be concerned about importing goods once this crisis has passed and there will possibly be an anti-China sentiment. 

He added that this could lead to economic nationalism and a longer slow down in recovery in world trade. 

Donal Donovan also said there will be an enormous problem in developing countries once this crisis has passed and this is where a co-ordinated response will be needed. 

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Covid-19 unemployment payments to cost Exchequer €5bn for three months

The Covid-19 unemployment payments will cost the Government just under €5bn for three months, according to an analysis by the Economic and Social Research Institute. 

The ESRI also warns that the cap on higher earners in the wage subsidy scheme may encourage firms to lay off those employees rather than retaining them. 

The Government has introduced a range of social welfare supports including the Covid-19 Pandemic Unemployment Payment and the Temporary Wage Subsidy Scheme. 

This week the Department of Social Protection said 507,000 people have already received the Pandemic Unemployment Payment. 

The ESRI has examined the cost and benefit of the schemes. 

Under a medium unemployment scenario, the ESRI forecasts that 600,000 jobs could be lost. This, it believes, will cost the Government €4.9bn for three months under the current schemes.

It finds the schemes will cushion the impact on the incomes of lower earners but less so for higher earners. 

It warns that excluding higher earners from the Wage Subsidy Scheme may lead to firms laying off these workers, which would go against the purpose of the scheme.

Conversely, it also points out that some lower paid and temporary workers would be better off unemployed than remaining in subsidised but lower paid employment.

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IMF approves debt relief for 25 poor countries over Covid-19

The International Monetary Fund has announced immediate debt relief for 25 poor countries to help them free up funds to fight the coronavirus pandemic.

“This provides grants to our poorest and most vulnerable members to cover their IMF debt obligations for an initial phase over the next six months and will help them channel more of their scarce financial resources towards vital emergency medical and other relief efforts,” IMF Managing Director Kristalina Georgieva said in a statement.

The countries are nearly all in Africa, but Afghanistan, Yemen, Nepal and Haiti are also on the list.

The debt relief will be funded by the IMF’s Catastrophe Containment and Relief Trust, which was first set up to combat the West Africa Ebola outbreak in 2015 and has been repurposed to help countries fend off Covid-19.

The fund currently has $500m, with Japan, Britain, China and the Netherlands among its main contributors.

“I urge other donors to help us replenish the trust’s resources and boost further our ability to provide additional debt service relief for a full two years to our poorest member countries,” Ms Georgieva said.

The IMF has also approved $1bn in emergency funding for Ghana and $442m for Senegal to enable both countries to respond to the rapidly-spreading coronavirus pandemic.

The IMF and the World Bank have called for rich nations to stop collecting debt payments from poor countries from 1 May until June 2021.

Last week, the World Bank said it would roll out $160bn in emergency aid over 15 months to help countries stricken by the virus, including $14bn in debt repayments from 76 poor countries to other governments.

It comes as the head of monitoring and evaluation at Irish aid agency, GOAL, has said the poor capacity in many African countries to respond to the Covid-19 crisis should not be underestimated.

Dr Enida Friel said there are cases of Covid-19 in nearly every African country now with around 10,000 confirmed cases and 500 deaths.

Speaking on RTÉ’s Morning Ireland she said the lack of water and sanitation in Africa is of huge concern and GOAL is ensuring access to water and soap in all of the countries it works in.

In addition to that, the agency is also distributing information on infection prevention and identifying symptoms.

Dr Friel pointed out that a few countries in West Africa dealt with Ebola and as a result of this, skills have being gained.

In Sierra Leone, she said, all the protocols of Ebola have now kicked in but this is not the case for the rest of the continent where their health systems are weak or non-existent.

Dr Friel said Uganda, with a population of 45 million, had 65 ICU beds, while Malawi , with a population of 17 million, had just 25 ICU beds. Even Sierra Leone, she said, had just 18 ventilators.

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