The Irish 2025 Budget was delivered against an unusual fiscal backdrop. Unlike virtually all its euro peers the Government is running a fiscal surplus and the debt ratio is low and falling, helping to make Irish 10yr bond yields the third lowest in the Euro Area.The economy is also around full employment, prompting some concerns ..read more

The Irish GDP data often surprises but the second quarter figure was unusual even by recent standards. The flash estimate,. produced in July, had projected a 1.2% quarterly rise but the national accounts revealed a 1% contraction in GDP. Yet this occurred despite a 12% quarterly increase in exports, which would normally translate into very ..read more

The market is giving a high probability to another ECB Deposit rate cut at its next meeting (12th September) , perhaps influenced by the previously announced decision to reduce the refinancing rate at that point, because there is nothing in the Central Bank’s decisions or messaging to support that view or indeed that rates will be a lot lower by this time next year. The ECB staff forecasts project inflation oscillating around the current 2.5% over the remainder of this year before falling slowly to 2% by the final quarter of next year and then marginally below target in 2026. Given the presume ..read more

The latest release of the CSO’s residential price index, for April, shows a further acceleration in annual house price inflation, to 7.9%. The index has risen by 144% from its 2013 low and is also 9.5% above the previous cycle high in 2007. The latest release is also notable in that Dublin prices (+8.3%) are now rising at a faster clip than in the rest of the country (+7.5%)for the first time in seven years. It is the case that house prices did fall in real terms in 2023 (i.e CPI inflation outstripped the rise in residential prices) but that followed a strong real rise in 2022 and real prices ..read more

The Irish economy grew by 0.9% in the first quarter of the year according to the CSO’s initial estimate , which followed five consecutive quarterly contractions. That decline reflected large falls in multinational manufactured exports and the recovery was also sparked by the multinational sector, albeit from service exports and such was the scale of the increase that it now looks more likely that the annual GDP figure for 2024 may show modest growth , having looked more like zero or even a further contraction such was the scale of the negative carryover from last year. Exports in total grew by ..read more

One of the legacy issues stemming from the ECB’s QE operations is that national central banks across the euro area are reporting annual losses in their 2023 accounts, and flagging further losses to come. The Dutch central bank figure of €3.5bn was dwarfed by the Bundesbank’s €21.6bn , which wiped out its reserves. Against that backdrop the recently reported Irish central bank’s loss of €132m appears a very good result, although there are a number of factors at work which imply that the 2024 figure will be much higher. In the ten years to 2023 the Central bank was recording large profits and tr ..read more

The Irish Government has just published its annual Stability Programme update(SPU), as mandated by the EU, setting out fiscal projections out to 2027, although this will be the last update in this form as revised fiscal rules will require the publication of a five-year fiscal Structural Plan (more on that below) For context, Ireland has been running very large current Budget surpluses , supported by substantial inflows in Corporation tax. In 2023 , for example, current revenue amounted to €90bn, against current spending of €73bn and if both are assumed to rise at broadly the same pace the abso ..read more

Residential property prices in Ireland have picked up markedly over the past few months, supported by rising real incomes (given the fall in CPI inflation) and the expectation that ECB rates will fall this year, with the June policy meeting likely to see the first cut . More mortgage borrowers are certainly of that view, with 26% opting for floating rates in January, a significant change from the 5% or so seen over recent years. The CSO’s house price index for January confirmed the more buoyant trend, with residential price inflation nationally accelerating to 5.4% from 4.1% in December. The n ..read more

Tracker rates in Ireland became the norm in the early noughties,linked to the ECB’s refinancing rate (refi rate) with a spread, which averaged around 1.1% . Consequently the ECB’s current refi rate of 4.5% translates to a Tracker rate of 5.6%, although for years borrowers paid only 1.1% given the refi rate was at or near zero from 2014 to July 2022. The refi rate is the rate banks pay to borrow from the ECB and used to be the main instrument used by the Bank to control short term interest rates in the euro area. However, that changed when the ECB started to flood the market with excess liquidi ..read more

The Irish economy, as measured by real GDP, contracted for four consecutive quarters last year, with the annual figure falling by 3.2% . Nominal GDP also declined, to €505bn from €506bn in 2022. The pace of decline accelerated through the second half of the year and real GDP fell by 3.4% in the final quarter, substantially worse than the initial -0.7% flash estimate. That left the annual change in the final quarter at -8.7%, which gives a very weak carry over into 2024, and the economy may well struggle to record positive growth even with a recovery in external trade. Exports have been the eng ..read more