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Consumer sentiment climbs to six-month high

Consumer sentiment hit a six-month high in January, buoyed by the reduced risk of a disorderly British exit from the European Union.

But sentiment was still sharply lower in January than it was a year ago.

Ireland has remained the European Union’s fastest growing economy during three years of Brexit talks, but consumer confidence faltered when it seemed that the UK could leave without agreeing to a withdrawal deal. 

KBC Bank Ireland’s consumer sentiment index increased to 85.5 in January from 81.4 in December, the third consecutive monthly rise. 

The index was significantly higher than the seven-year low of 69.5 in October but well below 98.8 a year ago. 

“While Brexit-related fears have eased somewhat in recent months, the January reading suggests that consumers remain nervous about the general economic outlook and their own financial prospects,” said Austin Hughes, chief economist at KBC Ireland. 

The recent uptick “looks to be a relief rally rather than a fundamental rethink of their circumstances by Irish consumers”, he said. 

All five elements of the index improved in January relative to December, with the largest gain in relation to jobs, the survey showed.

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US trade deficit falls in 2019 for first time in 6 years

The US trade deficit fell last year to $616.8 billion, the first time the gap has narrowed since 2013 as imports, particularly from China, declined more than exports, according to government data released today. 

As President Donald Trump’s trade confrontations escalated in 2019, the total trade gap shrunk by nearly $10 billion as exports fell by 0.1% and imports dropped 0.4%, the Commerce Department reported.

Excluding services, the US deficit in goods fell by nearly $20 billion to $866 billion last year, as imports of Chinese products hit by Trump’s punitive tariffs dropped 17.6%, according to the report. 

That decline was offset by big increases in imports from top US trading partners Canada, which surged 42%, and Mexico, which jumped 26%. 

The narrowing of the US trade gap comes after a year when the deficit reached its highest level in a decade. 

In addition to the trade conflicts, the strong US dollar put American exports at a disadvantage, while China’s slowing economy weakened the yuan and boosted exports from that country. 

And while that was the goal of Trump’s trade policy, it is not necessarily good news because a drop in exports often reflects a slowing economy. 

In fact, growth in the world’s largest economy slowed in 2019 to 2.3% compared to 2.9% in 2018, as business sharply curtailed investment due to the trade uncertainty.

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Economy off to strong start in 2020, services PMI shows

The country’s services sector grew at the fastest pace in seven months in January, a new survey today showed.

This was the second survey this week to suggest the euro zone’s fastest-growing economy made a strong start to the year. 

A slowdown in manufacturing activity in Ireland threatened to spread to the services sector as recently as October but some certainly around Brexit has helped solidify seven years of uninterrupted growth over the past three months. 

AIB’s IHS Markit Purchasing Managers’ Index (PMI) for services rose to 56.9 from 55.9 in December, well above the 50 mark that separates growth from contraction. 

The expansion was driven by the strongest growth in new orders since the end of 2018 and followed a PMI survey for manufacturers that showed a rebound in activity for just the second time in eight months. 

“This report, combined with the marked improvement in the manufacturing PMI in January, indicates that the Irish economy got off to a good start in 2020, helped by less uncertainty around Brexit,” AIB’s chief economist Oliver Mangan said.

The services sector covers areas as diverse as communication, financial and business services, IT and the tourism trade. 

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Euro zone factories still struggling but green shoots emerging – PMI

Euro zone factory activity contracted again in January but did so at its shallowest rate since mid-2019, according to a survey which suggested the worst may be over for the bloc’s battered manufacturing industry. 

IHS Markit’s final manufacturing Purchasing Managers’ Index rose to a nine-month high of 47.9 in January.

This was just above a preliminary reading of 47.8 and edging closer to the 50 mark that separates growth from contraction. It had stood 46.3 in December. 

An index measuring output that feeds into a Composite PMI, due on Wednesday and seen as a good guide of economic health, climbed to 48 from 46.1, its highest reading since June. 

“Euro zone manufacturing started 2020 with green shoots of recovery in sight,” said Chris Williamson, chief business economist at IHS Markit. 

“The improvement adds to our view that the euro zone economy could see growth strengthen in the coming months, meaning the European Central Bank will hold off with any policy changes and instead focus on its strategic review,” he added. 

Last month the European Central Bank left policy unchanged but launched a broad review of its policy that is likely to see new President Christine Lagarde redefine the ECB’s main goal of price stability and how to achieve it. 

The ECB has struggled for years to get inflation anywhere near its just below 2% target and factories again cut prices last month. The output prices index fell to 48.6 from December’s 48.9. 

Forward looking indicators like new orders, quantity of purchases, employment and future output all improved last month.

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Businesses experiencing significant skills shortage

New research reveals that Irish businesses are experiencing the worst talent shortage since 2006, with three-quarters unable to fill vacant roles.

The latest survey by the Manpower Group says the skills gap increased more than five times over the past decade, jumping from 5 per cent in 2009 to 27 per cent now.

The survey of over 1,000 employers across Ireland finds that the Skilled Trades sector – such as electricians, welders & mechanics – is suffering the most acute talent shortage.

It also shows that organisations with over 250 employees are experiencing the most notable skills deficits.

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Unemployment edges up in January – CSO

The unemployment rate rose slightly in January, according to the Central Statistics Office, but continues to fall on an annual basis.

The seasonally-adjusted rate stood at 4.8% last month – up 0.1 percentage points compared to December.

However it is 0.3 percentage points lower than the rate recorded in January 2019.

Last month the seasonally-adjusted number of people unemployed was 120,200, which is 3,300 higher month-on-month but 4,000 lower over the year.

Meanwhile there were 36,200 under 24s unemployed in January, giving a youth unemployment rate of 11.8% in the month.

That is up 2,800 (0.7 percentage points) on December but 500 (0.6 percentage points) lower year-on-year.

According to the CSO the unemployment rate for males was 5% in January, while the female rate stood at 4.6%.

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Lending to households rises for third year in a row – Central Bank

Lending to households grew for the third year in row last year, mainly on the back of growth in home mortgages, new figures from the Central Bank show today.

The Central Bank said that household lending rose by 2.1%, or by €1.9 billion, in 2019.

The annual growth rate in lending to buy a home stood at 1.9%, or €1.4 billion, in the year to the end of December, up from growth of of €1.1 billion, or 1.4% in 2018. 

During the month of December alone, net lending to Irish households reached €360m. 

Today’s figures also showed that consumer lending increased by €16m in December.  

On an annual basis, new lending exceeded repayments by €571m, or 4.3%. 

The Central Bank noted that loans terms between one and five years continued to drive consumer-related lending.

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Manufacturing grows for just second time in 8 months – PMI

Manufacturing activity grew for just the second time in eight months in January amid greater certainty around Brexit and signs that a slowdown in euro zone economic activity may be bottoming out.

Six years of unbroken manufacturing growth came to an end in June as a slowdown in global trade and uncertainty over Britain’s departure from the European Union finally caught up with manufacturers here.

After briefly rebounding in October, the AIB IHS Markit manufacturing Purchasing Managers’ Index (PMI) climbed to 51.4 from 49.5 in December. 

The pick up in output was even stronger, with the sub index expanding to 51.7 from 48.7 a month earlier. 

The corresponding flash PMI survey for the euro zone as a whole rose to 47.5 from 46.1, its highest since August, data showed last month. 

AIB’s chief economist Oliver Mangan said the positive data, coming the week of the general election, appeared to reflect the good gains both in the euro zone and Britain, as well as certainty around Brexit after Britain left the bloc on Friday. 

“Furthermore, firms believe that the prospects for the coming year are also improving. However, difficult EU-UK trade talks this year could test this greater optimism, as may the continuing subdued growth prospects for the global economy,” the economist said.

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Bank regulator launches toughest ever bank stress tests

The European Union’s banking watchdog has launched its toughest stress test of lenders to check on their resilience to very low interest rates, trade tensions and Britain failing to get an EU trade deal after Brexit.

The European Banking Authority (EBA) said its fifth test since the aftermath of the financial crisis a decade ago, when governments bailed out lenders, covers 51 banks, including four from Britain even though the country leaves the bloc on Friday.

The “scenarios” of theoretical shocks being tested include for the first time interest rates remaining at ultra-low levels, with accompanying poor economic growth, weak inflation and crashes in markets for assets like real estate.

Banks have long complained about ultra low central bank rates introduced after the financial crisis hitting profitability.

Trade tensions between the United States and China have rattled markets in recent months.

Bank by bank results for the test, which the EBA says is the toughest yet, will be published by July 31, though with no pass or fail mark.

Earlier tests sought to bolster capital levels across the sector and with this task largely accomplished, the exercise is used by regulators to decide if capital “add ons” are needed to cover vulnerabilities and risks specific to each bank.

The EBA was under pressure to toughen up the 2020 test after the European Court of Auditors, responsible for evaluating EU policy, said last year that the previous exercise in 2018 was too mild, spared economically weaker countries, and saw no lender failing.

The 4.3% theoretical fall in EU economic growth over two years is still less than the drop in U.S. growth seen in the harshest scenario used by the Federal Reserve in its test of American banks.

UK lenders Barclays, HSBC, Lloyds and Royal Bank of Scotland are included because Britain has an 11-month business-as-usual transition period after Brexit Day on Friday until December, during which all EU rules continue to apply.

The Bank of England will conduct its own test of UK lenders this year and has said the banking sector already holds enough capital.

Britain and the EU will use the transition period to try and negotiate a trade deal by January 2021, with the bloc saying on Friday the talks would be tough.

“The adverse scenario encompasses a wide range of macroeconomic risks potentially stemming from Brexit,” the EBA said.

The test does not cover the impact of climate change on banks, but the EBA will separately collect data on climate-related exposures from a group of lenders and disclose aggregated findings in its regular reports on risks in the sector.

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Household wealth soars by 80% since 2013 on rising property prices – CSO

Household wealth has recovered by over 80% since 2013, mainly due to the recovery in the property market. 

The finding is contained in the Household Finance and Consumption Survey published by the Central Statistics Office today.   

The survey also finds a wide disparity in wealth between the top 10% and bottom 10% of households. 

There are 1.8 million households in Ireland and this major survey of 5,000 households paints a picture of how wealth is distributed across our society. 

The wealthiest 10% have a net wealth of greater than €835,000, while the least wealthy 10% have a net wealth of less than €1,000.

The CSO said 69.5% of households own their own homes. 

It said that the median, or mid-point, of the value of households’ main property has risen from €150,000 in 2013 to €250,000 in 2018.

This has led to an overall 80.2% increase in median net household wealth – on paper at least.

The CSO explained that the median value is obtained by arranging all households in ascending order from the smallest to the largest value and then selecting the middle value. 

In terms of wealth, the median provides a truer reflection of the average household as it is not influenced by extreme values, it added. 

The net wealth of households that own their own home is €287,300 compared to renters’ whose net wealth averages just €5,900.

The survey found that households with the highest net wealth are found in the eastern and midlands region. 

It also found that just over two-thirds (67.6%) of the wealthiest households received a substantial gift or inheritance while just over 10% of the poorest households did. 

Today’s survey also reveals that 31.9% of all homeowners with a mortgage were in negative equity in 2013, but that rate fell substantially to stand at 3.9% in 2018.

But 51.5% of all households had some form of debt in 2018, a slight decrease from 56.8% in 2013. 

Overall, the median value of debt for households with any form of debt is €42,300, down over €20,000 from the 2013 value of €63,000.

The CSO also said that the proportion of “credit constrained households” dropped from 14.7% to 7.9% between 2013 and 2018. 

A credit-constrained household is one that applied for credit and was turned down or received less credit than the amount applied for.

It also includes households that had considered applying for credit but did not do so due to the perception that the application would be turned down.

And more than nine out of every ten households (94.3%) own some form of financial asset, including savings, shares and voluntary pensions). 

For households that own financial assets the median value is €7,900 up from €6,300 in 2013, the CSO said.

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