economy Archives - Devine Accountants

Euro zone economy accelerates in Q1 as Germany rebounds

Euro zone economy accelerates in Q1 as Germany rebounds

The euro zone economy accelerated quarter-on-quarter in the first three months of the year, the EU’s statistics office confirmed today.

This was thanks to a rebound in the biggest economy Germany and the end of a technical recession in Italy.

Eurostat said the economy of the 19 countries sharing the euro expanded by 0.4% quarter-on-quarter in the three months from January to March, the same as its initial estimate, after 0.2% growth in the last three months of 2018.

Year-on-year, the euro zone grew by 1.2% in the first quarter, also as previously estimated, the same rate as at the end of last year.

The quarterly acceleration was mainly thanks to Germany, which rebounded to 0.4% growth from zero growth in the previous three months.

Italy also helped as it rallied from a technical recession of two consecutive quarters, when its economy contracted each time by 0.1%. It expanded by 0.2% in the first quarter of 2019.

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UK economy expands on Brexit stockpiling

UK economy expands on Brexit stockpiling

The UK economy grew by 0.5% in the first quarter, boosted by companies stockpiling ahead of Brexit, official data showed today.

British gross domestic product expansion outpaced the 0.2% seen in the final three months of 2018, the Office for National Statistics said in a statement.

The ONS added that UK manufacturing jumped 2.2% in the first quarter with recent surveys showing Brexit-facing companies building inventories, said to include key car parts and medicines.

The first-quarter growth figure was meanwhile in line with market expectations.

The strong manufacturing performance offset a slowdown in services output to 0.3%, the ONS data showed.

The Bank of England last week raised its forecast for UK economic growth this year, as stockpiling offsets lower business investment elsewhere ahead of Britain’s departure from the European Union.

UK economic activity was given a temporary boost as companies rushed to build up stocks of components and goods before the original March 29 Brexit deadline, the Bank of England said.

The Bank of England is predicting UK GDP expansion of 1.5% this year, up from its previous growth estimate of 1.2%.

Following today’s data, the pound was little changed as first-quarter output of 0.5% had been widely forecast following the recent BoE update, analysts said.

Britain is due to leave the EU by October 31 after two delays this year triggered by MPs rejecting a divorce deal Prime Minister Theresa May had struck with the bloc.

The Centre for Economics and Business Research said that businesses in the first quarter had purchased more goods to keep in storage in the event of a no-deal Brexit affecting supply chains and the ability for businesses to the buy goods they need for production.

The Bank of England, meanwhile, sees the boost to growth from stockpiling as only temporary, forecasting that UK GDP would slow to about 0.2% output in the second quarter of this year.

Many analysts agreed with Joshua Mahony, senior market analyst at IG trading group, who said that “while manufacturing is enjoying a bullish moment, there is a strong chance that such strength could be short-term given its reliance upon Brexit stockpiling”.

Reacting to the latest GDP data, British finance minister Philip Hammond described the UK economy as “robust”.

“The economy has grown for nine consecutive years, debt is falling, employment is at a record high and wages are rising at their fastest pace in over a decade,” the minister said.

The Treasury said that the UK economy was forecast to grow faster than Germany, Italy and Japan in 2019.

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Booming economy sees incomes soar to record levels

Booming economy sees incomes soar to record levels

Household income is at a record high and continuing to grow sharply, underpinned by jobs and investment, according to a new report.

In contrast to the Celtic Tiger, when notional wealth was linked in many cases to debt-funded property assets, rising incomes are underpinned by what are described as “exceptional levels” of business investment and related employment effects, in the new research from employers’ group Ibec.

In its latest ‘Quarterly Economic Outlook Q1 2019’, Ibec says per-person household income is at a record high and growing 6pc annually. That trend has been flattered by low inflation boosting the impact of wage growth.

“Since 2015, Irish households have seen growth of real income, per person, of just over 11pc cumulatively. UK households on the other hand saw their incomes fall by 1.2pc over the same period,” the Ibec report said.

However, it said the pace of growth will not last indefinitely as the global economy shows signs of slowing.

A no-deal Brexit would also be expected to have a significant impact including cancelled investment, falling consumer confidence, rising prices, and trade disruption.

For now, however, disposable income per person is now back above pre-crash levels for the first time, according to Ibec, driven by the drop in unemployment levels and labour market participation of 83.5pc for prime-age workers (25-54 years), which has never been higher.

Those figures may be the reason consumer spending held up last year despite a drop in consumer sentiment linked to fears over the risks of a no-deal Brexit in particular.

“The Irish economy is in a sweet spot, with growth in employment and wages both hitting close to 3pc in 2018,” the report said.

Meanwhile, Finance Minister Paschal Donohoe claimed spending has been brought under control and promised there will not be a repeat of last year’s €600m Department of Health spending overrun.

Mr Donohoe published a Stability Programme Update 2019 yesterday, effectively kick-starting the Budget 2020 process.

He said he will deliver a budget surplus both this year and in 2020 helped by strong corporation tax receipts already forecast to come in €500m above expectations this year.

“We are aiming to deliver a significant improvement in performance on health expenditure for this year,” Minister Donohoe said on Tuesday.

Spending

The first quarter exchequer receipts showed net Government spending of €12bn was up 7.2pc on the year but 2.6pc below plan.

“But given the experience that I had last year, I am not at all being complacent this year,” Mr Donohoe said.

The number of people working for the Government last year hit almost 400,000, driving a surge in the public wages bill to €22.2bn.

Pressures on the budget are growing, from overruns on the new children’s hospital to expensive drugs and the now rising cost of paying for the Fair Deal for nursing home care schemes.

However, surging corporation tax receipts enabled the Government to eke out a modest budget surplus last year and are already running ahead of budgeted spending increases, creating extra wriggle room this year and for Budget 2020.

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