ECONOMIC TRENDS
APRIL 2008
New Minister for Finance must keep Industrial output
firm hand on current expenditure Annual % change
Jan - Feb 08
Food & beverages -5.6
Overall, revenue receipts in 2008 are going to be well below forecast and the exchequer
COMMENT
deficit will be larger than that expected on Budget Day. The real challenge for the new Textiles/clothing -2.5
Minister for Finance will be to ensure that current expenditure does not exceed budgets. Leather products +79.3
Wood products -20.2
Despite the headline shortfall in the exchequer returns in the first quarter of the year, Pulp and paper -0.9
there are positives to be taken from the performance of a number of tax heads in what Publish/print/
has been a challenging few months for the economy. An exchequer deficit of €354 million record media -6.6
was recorded in the January to March period, with total tax revenue €600 million below Chemicals +5.7
the Department of Finance forecast. The main culprit has been capital gains tax (CGT). Rubber & plastics -5.1
Although this is a relatively small tax head – accounting for less than 10% of total tax revenue – the
Other non metallic -7.1
shortfall of 40% in the year to date has been a major drag on revenues. The payment deadlines for CGT are
Metals/metal products +1.2
February and October and it is unlikely therefore that the February weakness can be recovered before the
end of the year. The weakening property market and collapse in share prices are the obvious causes for this Machinery & equipment -6.7
revenue collapse. Electrical/optical +5.4
Office mach/computer +5.9
The other main weakness in the exchequer finances has been VAT receipts. This is the largest tax head, Transport equipment -0.1
accounting for about 40% of total revenue. In the first quarter of this year, total VAT receipts were flat on the Unclassified +0.5
same period last year but were €250 million below the Department’s forecast. Core retail sales have All manufacturing +1.6
probably slowed a little but would still have grown by about 4% in the first quarter. The main weakness for Table 1
VAT receipts has most likely occurred in relation to the sale of new houses and probably cars. Unfortunately
the outlook for housing for this year and next is weaker than the Department would have thought on
Budget Day so VAT receipts are likely to remain under pressure for some time yet. Order books
The main positive in the exchequer returns so far this year has been the performance of taxes on income –
Survey balance – 3mma
both personal and corporate. Combined they yielded €75 million more than expected, with income tax
revenues up 5.1% on last year’s level. This is somewhat surprising given that the labour market has been
20
much weaker in recent months than would have been expected. The number on the Live Register increased
by 16% in the quarter but encouragingly this has not yet resulted in lower income tax receipts. 15
10
Manufacturing output Industrial adjusted basis, output fell 5
month-on-month by 0.8%
output following a January fall of 1.2%.
0
Annual % change -5
Total manufacturing output
All manufacturing
growth in the first two months -10
Other of 2008 slowed to an annual
30 Modern -15
1.6%. This slowdown clearly
04 05 06 07 08
reflects the deceleration in
20 Data on manufacturing output global demand and the pressure
for the first two months of the on competitiveness resulting Figure 2
10 year record a marked slowdown from the continued strength of
in industrial sector activity the euro against the dollar and
compared with 2007. sterling. In particular, the sharp
0
Manufacturing output figures fall in the value of sterling is manufacturing sector had
for the month of February especially damaging to the staged a comeback in 2007 and
-10 recorded an annual increase of traditional sectors. The timing of growth had outpaced any
02 03 04 05 06 07 08 only 1%, compared with 2.3% in theses adverse trading recorded since 2002. With
January and 10.8% in the last developments is unfortunate as construction activity slowing
Figure 1
quarter of 2007. On a seasonally the performance of the down in 2007, the resurgence of
IN THIS ISSUE:
• Manufacturing output up • Inflation reaches 5% in March; Further information: Fergal O’Brien, senior economist
1.6% in first two months; • Retail sales up 3.1% in January; David Croughan, chief economist Email: fergal.o’brien@ibec.ie
• Live Register increases by • Euro hits £0.80 mid-April. Email: david.croughan.ibec.ie Reetta Suonperä, economist
12,000 in March; Email: reetta.suonpera@ibec.ie
01
the industrial sector was
IBEC/ESRI monthly industrial survey Production expectations
playing an important part in
the rebalancing of the economy
away from over-reliance on Average balance for 3 months ending Survey balance – 3mma
domestic demand to a higher Manufact. Consumer Capital Intermed.
contribution from the Jan Feb Jan Feb Jan Feb Jan Feb
36
traded sectors. Production expectations -2 +5 +1 +8 +3 +9 -16 -11
31
Order books +1 +6 +16 +19 -10 -7 -26 -17
26
Output growth of the modern Domestic sales expectations -9 -10 -10 -10 -3 -2 -16 -18
21
sector was a solid 8.7% in 2007 Export expectations +10 +12 +18 +17 +10 +13 -10 -5
and revised figures show that Employment expectations -8 -1 -2 +5 -2 +8 -27 -29 16
the traditional sector output Capacity utilisation +76 +77 +72 +74 +84 +83 +77 +78 11
increased by 3.7%, which was Selling prices +11 +10 +7 +6 -3 -3 +32 +29 6
the fastest growth since 2000. Table 2 1
However, despite the very strong -4
growth of 14.5% in the modern 04 05 06 07 08
sector in the final quarter of first two months of 2008, output declined by 1.6%.
2007, signs of slowing growth output in the modern sector Electrical and optical equipment Figure 3
were emerging in December as recorded a modest annual output grew by 5.4% with the
annual growth slowed to 6.1% growth of 3.6%. The total strongest sub-sector, medical, 3.2%, with output of food
and final quarter seasonally chemicals sector grew by an precision and optical equipment, recording only a 0.4% increase,
adjusted figures recorded a annual 5.7% in the first two growing by 9.9% and computers and beverages a decline of
sharp quarterly deceleration months, with pharmaceuticals by 5.9%. Recorded media output 23.7%. Wood output, affected by
from 7.1% in the third quarter to maintaining a very rapid growth fell by 8%. Output in the the construction slowdown
2.8% in the fourth quarter. In the of 28.5%, while basic chemicals traditional sector declined by declined by 20.2%.
Labour Employment Unemployment
market Sector Sept - Sept - % % of Labour force
Nov 06 Nov 07 change
Agriculture 115.0 118.9 +3.4
5.0
Production industries 296.5 292.5 -1.3
Construction 283.3 277.8 -1.9
Wholesale/retail 288.5 312.3 +8.2
4.5
The data in the most recent Hotels/restaurants 125.2 133.7 +6.8
Quarterly National Household Transport/storage/communications 117.1 121.3 +3.6
Survey from the Central Financial/other business services 277.3 298.3 +7.6
4.0
Statistics Office, discussed in last Public administration 103.0 105.5 +2.4
month’s Economic Trends, refer Education 137.0 138.1 +0.8
to the period September- Health 211.2 221.8 +5.0
3.5
November 2007. The Live Other services 120.5 122.0 +1.2
01 02 03 04 05 06 07
Register and the FÁS/ESRI Total 2073.1 2140.9 +3.3
Figure 4
vacancies report are more Table 3
timely indicators of the state
of the labour market. Both
reinforce the decelerating trend to that recorded over the
Average weekly earnings
that was evident in the QNHS. previous two months but job
The seasonally adjusted Live Sector Period Annual % change losses for females have surged
Register jumped by 12,000 in from just 3,000 over the
Business services Sept 07 4.4
March, to a total of 199,900. previous 12 months to 6,000 in
Distribution Sept 07 3.9
This compares with an increase the month of March alone. Since
Public sector (excl. health) Sept 07 4.0
of 8,500 in February and is the the March redundancy figures
Industry June 07 4.9
largest monthly increase on did not indicate a slowdown of
Banking and insurance June 07 6.9
record. While we expect the the labour market of this kind, it
Construction Sept 07 7.2
absolute changes in Live is likely that those most affected
Register figures to increase in Table 4 to date are self-employed, part-
magnitude as the labour force time and temporary workers.
grows, the 27% annual increase
in March was exceptional even Up until last month, most of the February, males accounted for The FÁS/ESRI vacancies report
in relative terms. The last similar rise in claimants could be 82% of the rise in claimants. This for February 2008 also indicates
annual percentage increase explained by housebuilders is clearly an indication that the that the labour market is
occurred in 1983; moreover, on a being made redundant. That contraction in the construction cooling. The percentage of firms
quarterly basis, the percentage may no longer be the case. The sector is having an impact on reporting vacancies fell by four
increase was the greatest since March increase was split evenly related businesses across the percentage points, to 10%. The
January 1975. between males and females, economy. The pace of job losses vacancy rate in February last
while between December and for males in March was similar year was 12%.
02
Inflation and cannot be immune from
Consumer prices (CPI) Output prices
international price pressures,
which are generally manifested
in goods sector inflation. Annual % change Annual % change
Total Goods Total Home
Services Export
There is a significant feature of 10
10
recent trends in Irish inflation 9
which is worthy of comment. 8
7 5
There was a disappointing Irish harmonised inflation was 6
acceleration in inflation in 2.7% in 2006 and 2.8% in 2007 5 0
March to 5%. Inflation started and in the first quarter of 2008 4
3
the year at 4.3% but rose in has accelerated to 3.4%. In 2006, -5
2
February to 4.8%. This was goods sector inflation was a 1
higher than the consensus modest 1.1% while service sector 0 -10
forecast of 4.7%. Average inflation was 3.5%. In 2007, -1
-2
inflation in the first quarter goods sector inflation -15
02 03 04 05 06 07 08
averaged 4.7%. The EU decelerated slightly to 1% while 02 03 04 05 06 07 08
Harmonised Index, which omits service sector inflation Figure 5 Figure 6
interest rates, some insurance accelerated sharply to 4.8%. In
products and some building the first quarter of 2008, goods EU harmonised price index
CPI commodity groups
products, rose from 3.1% in sector inflation accelerated
January to 3.5% in February and sharply to 3.8% while service
Annual % change – Mar 2008 Annual % change – Feb 2008
3.7% in March. The preliminary sector inflation decelerated to
Belgium +3.6
flash estimate for March 3.1%. Indeed service sector
Food/beverages +9.3 Germany +2.9
inflation in the euro area was inflation peaked in March 2007
Alcohol/tobacco +3.9 Greece +4.5
3.5%. The gap between Irish at 5.6% decelerating throughout
Clothing/footwear -3.6 Spain +4.4
inflation and euro area inflation the year to 3% in December. This
Housing & energy +12.3 France +3.2
has closed from 1% in March suggests that domestically Ireland +3.5
2007 to 0.2% in March 2008. It is generated inflation was Furnishings, house equip. -1.3
Italy +3.1
imperative for competitiveness gradually becoming more Health +5.7
Luxembourg +4.2
reasons that Irish inflation is not contained throughout 2007. The Transport +5.6
Netherlands +2.0
higher than euro area inflation recent surge in inflation in 2008 Communications +1.0
Austria +3.1
and therefore a closing of the primarily reflects the surge in Recreation +1.2
Portugal +2.9
gap is welcome. It is little global goods inflation Education +5.9
Finland +3.3
comfort from an inflation particularly that of food Catering +3.2
Denmark +3.3
management perspective that commodities and energy. Food Miscellaneous +1.9 Sweden +2.9
the gap has been closed because inflation in March was 9.3% and All items +5.0 United Kingdom +2.5
of an acceleration in euro area the price of petrol and diesel Table 5 Euro-zone +3.3
inflation. It does, however, increased by an annual 12.3% EU27 +3.4
demonstrates that Ireland is not and 17.3% respectively. Table 6
External Trade Trade
trade
Annual % value change: Jan - Dec 2007/2006 % vol. change – 3mma
Imports Exports Imports Exports
Food +11.5 +4.8 20
Beverages and tobacco +12.6 +5.7
10
Crude materials +2.4 +1.5
The Quarterly National Mineral fuels +3.7 +22.9 0
Accounts, released by the CSO, Chemicals +2.7 +7.5
show that exports of goods and -10
Manufactured goods +8.5 +5.4
services grew by 8.2% in 2007. -20
Machinery & transport equipment -2.2 -6.2
The aggregate, however, hides
Miscellaneous manufactured articles +1.4 -2.6
differing performances between -30
the goods and services sectors. Total +2.2 +2.1 02 03 04 05 06 07
Goods exports in 2007 grew by Table 7 Figure 7
4%, while services exports
increased by 15%. This highlights
the relative strength of the economy and the strong on goods exports show that and professional and
services sector, more so than a euro exchange rate against organic chemicals grew by 14% scientific apparatus all declined
weakness in the goods sector; in sterling and dollar. Imports grew in 2007, but pharmaceuticals slightly in 2007. Food and
fact, goods exports grew at the by 6.4% in 2007. The strong euro exports increased by only 2.5%. beverages exports were
fastest pace for some years. This should help moderate the The value of exports in office stronger, however, growing by
is a solid performance in the impact of rising global machines and data processing 4.8% and 5.6%, respectively.
context of a slowing world commodity prices. Detailed data equipment; electrical machinery;
03
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Retail clothing and footwear sales
Retail sales Retail sales
were the only strongly upbeat
sales sectors. Car sales up only 0.7%
Annual % change: Jan 08
% vol. change – 3mma
may have been affected by the
Motor trades +0.7
change in taxation to favour
All Excl. Motor Non-specialised stores +4.6
more energy efficient vehicles to 10
Department stores +10.5
be introduced in the second half
8 Food/beverages/tobacco +1.4
of the year. Revised retail sales
Pharmacies +4.4
data record that total sales grew
6 Textiles and clothing +7.4
Latest retail sales data record by 6.4% in 2007. Sales were very
Footwear and leather +9.2
that annual sales growth slowed strong in the first half of the 4 Furniture and lighting -1.1
to a modest at 3.1% in January year growing by an annual
Electrical goods +1.5
2008, though excluding motor 7.4%; in the third quarter, 2
Hardware +1.9
trades the growth was a more growth slowed a little to 6.5%
Books/news/ stationery -0.4
buoyant 4.8%. Motor trade sales, and further in the final quarter 0
Other retail +4.0
furniture and lighting, electrical to 4.5%. Excluding motor trades,
-2 Bars -5.0
goods and hardware, glass and first half year annual growth of
02 03 04 05 06 07 Excl. motor trades +4.8
paint were all weak with growth 6.9% slowed to 6.5% in the
All businesses +3.1
rates ranging from -1% to under third quarter and 5.7% in the
Figure 8 Table 8
2%. Department store and final quarter.
Financial Exchange rates – monthly averages Domestic credit
USD/EUR GBP/EUR Private sector credit
(Left-hand axis) (Right-hand axis) Residential mortgages
Annual % change
35
1.6
0.75
1.5 30
0.73
1.4
0.71
The response from the central 1.3 0.69
25
banks to the financial crisis has 1.2 0.67 20
continued to follow a familiar 1.1 0.65
pattern. The US Federal Reserve 1 0.63 15
cut interest rates by 75 basis 0.9 0.61
10
points to 2.25% on 18 March. The 0.8 0.59
02 03 04 05 06 07 08
next scheduled meeting is at the 02 03 04 05 06 07 08
end of April, when further cuts Figure 9 Figure 10
are expected. The Bank of
England cut rates by a more Despite his hawkish tone over the euro against sterling and the looks increasingly likely to reach
modest 25 basis points on 10 inflationary pressures in the dollar. The euro has continued to $1.60 in the near future. This,
April, to 5%. On the same day, euro area, ECB President Jean- strengthen against both the coupled with a gradual
the European Central Bank held Claude Trichet admitted concern dollar and sterling. The pound slowdown in growth, is likely to
the interest rate at 4% for the about the recent ‘excessive’ broke through the £0.80 barrier force the ECB to cut rates later in
tenth consecutive month. exchange rate movements of on 10 April. The dollar at $1.58 the year.
Economic indicators – Ireland Economic indicators – Ireland
Annual % change Annual % change
2005 2006 2007 2008 2009 2005 2006 2007 2008 2009
GDP 5.9 5.7 4.9 3.5 3.8 Employment 4.7 4.3 3.3 1.3 1.5
GNI 5.7 7.0 4.4 2.8 3.8 Unemployment (%) 4.3 4.4 4.5 5.3 5.5
Personal consumption 7.3 5.7 6.6 3.4 3.7 Consumer prices (HICP) 2.2 2.7 2.8 2.2 2.0
Public consumption 4.0 5.3 5.0 3.5 3.0 General gov't balance (% GDP) 1.2 2.9 0.9 -0.2 -0.6
Gross Fixed Capital Formation 11.8 3.1 0.6 -0.5 2.6 Exports of goods and services 5.2 4.4 7 5.8 6.2
Final demand 6.5 5.1 5.3 4 4.6 Imports of goods and services 7.7 4.4 6 4.7 5.9
Compensation per employee 5.0 4.5 5.2 4 4.0 Trade balance (% of GDP) 17.5 14.5 13.3 13.2 13.3
(Source: European Commission Forecast, Autumn 2007) (Source: European Commission Forecast, Autumn 2007)
04