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Leinster Society of Chartered Accountants Seminar. Jim Power Nov 4 th 2013. Global Policy Response- Strong & Unorthodox. 6 th anniversary of enormous global crisis Strong response – signs that it is working

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Leinster society of chartered accountants seminar

Leinster Society of Chartered Accountants Seminar

Jim Power

Nov 4th 2013

Global policy response strong unorthodox
Global Policy Response- Strong & Unorthodox

  • 6th anniversary of enormous global crisis

  • Strong response – signs that it is working

  • Quantitative easing of Money Supply – bond buying programme US & UK, more sterilised in Euro Area

  • Federal Reserve buying $85 billion per month in bonds to keep long-term interest rates down & provide more liquidity to banking system

  • Fiscal easing in US, Japan & fiscal tightening in Euro Zone & UK

  • Interest Rates 0.5% in Euro Zone & UK, zero rates in US & Japan

  • Policy makers will continue to do whatever it takes

International overview
International Overview

  • Euro Zone economy in recession for 6 quarters, positive growth in Q2 2013, continued in Q3

  • UK economy surprising on upside – Q3 strongest in 3 years

  • US doing reasonably well, but not well enough

  • Chinese economy has lost some momentum

  • ECB will continue with accommodative stance – some concerns about bank liquidity – more LTROs

  • Federal Reserve concerned about impact of higher bond yields on ‘moderate’ pace of growth – withdrawal of stimulus will be tricky for markets

  • Official interest rates under no pressure – will require clear evidence of sustainable recovery everywhere

  • Inflation not a problem anywhere

Irish economy so far in 2013

Economy technically out of recession Q2 2013

H1 GDP -1.1% YoY

Retail Sales (J-S) Volume +0.4%, Value -0.2%

Excluding Car sales Volume +0.5% Value +0.1%

Merchandise Exports (J-A) -7.3% (Patent Issue) Food +8.1% Chemicals -9.8%

+33,800 jobs in year to Q2, 64% full-time jobs

Live register trending downwards

Deficit falling gradually – tax take in line with expectations

Credit conditions still very difficult

Housing activity stabilising, Dublin market showing strong signs of life

Overall, light appearing,but challenges remain

Mortgage arrears
Mortgage Arrears

  • 770,610 private residential mortgages with €109.1 bln in loans outstanding

  • 148,529 buy to let mortgages with €30.6 bln in loans outstanding

  • 97,874 private residential mortgage in arrears over 90 days end-June (12.7% of total) €18.6 bln outstanding balances on these mortgages in arrears

  • 30,326 buy to let residential mortgages arrears over 90 days (20.4%) with €8.7 bln outstanding balances on these mortgages in arrears

  • 79,357 PDH mortgages re-structured end-June 76.5% meeting new terms

  • Major issue over next couple of years – no simple solution!

Key elements of budget 2014
Key Elements of Budget 2014

  • €2.5 bln adjustment

  • €0.9 bln Revenue, €1.6 bln Expenditure

  • Stimulus for property &construction sector

  • Stimulus for tourism sector

  • Further attach on private pension funds & savings

  • Concept of universality still dominates expenditure – economically inefficient

General gov balance gdp
General Gov Balance (% GDP)

General gov debt gdp
General Gov Debt (%GDP)

Key conclusions on budget 2014
Key Conclusions on Budget 2014

  • Budget as expected – not easy to take €2.5 bln out of economy struggling to emerge from recession

  • Budget targets on track for IMF bailout Dec 15th

  • Economic forecasts look realistic, but obvious risks

  • Too early to make any comments on Budget 2015

  • Tourism and Property & Construction the main beneficiaries

  • Attack on savings & pensions short-term thinking, not positive for long-term

  • Relatively favourable for SME sector

  • Approaching the end of very tough budgets, but debt levels still very high, so expansionary budgets not on the agenda, but good to have survived thus far!

Key economic issues for ireland
Key Economic Issues for Ireland

External environment getting somewhat better

Dangerous levels of sovereign debt

Return to market funding in December 2013

NAMA impact on property market

Personal Debt & Insolvency Bill

Restoration of a functioning banking system

Issues for equity markets
Issues for Equity Markets

  • Economic recovery story becoming more real

  • Corporate earnings healthy

  • Lot of good news built in

  • Tapering of Federal Reserve support

  • Health of European banks

  • Can current momentum be maintained?