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News : Irish Last Updated: Nov 15, 2012 - 9:31 AM

Thursday Newspaper Review - Irish Business News and International Stories - - November 15, 2012
By Finfacts Team
Nov 15, 2012 - 9:26 AM

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The Irish Independent reports that the Government has said there is no need for a tougher Budget, despite slower growth than previously forecast.

But more than half of the €3.5bn austerity measures in next month’s Budget will be needed to pay off debt at the failed Anglo Irish Bank, unless there is a last-minute deal on the so-called promissory notes.

The slower rate of growth means fewer jobs will be created over the next three years than previously predicted, latest estimates from the Department of Finance say.

“Perhaps the most significant feature of (this) statement was the focus on benefits, suggesting that the Government has identified better-targeted social spending as the most opportune way to implement this year's expenditure cuts,” said Conall MacCoille, chief economist at Davy stockbrokers.

The Government believes it can meet the troika targets by using extra revenues generated this year and cutting back on reserves. “It can be done, but it will be tight,” a spokesman said.

This means the department has succeeded in its desire to maintain the targets – as recently explained by Secretary General John Moran – but without having to add extra austerity.

The Government is also depending on inflation being somewhat higher, which will help achieve the targets.

Higher prices mean that the department now expects the value of next year’s national output (GDP) to be €168bn, rather than the previous €164bn.

This may help achieve the bailout target of a deficit of 7.5pc of GDP next year, but the slower growth will hit jobs. The slowdown in major economies is the main reason the department expects output – mainly exports – to grow by 1.5pc next year, instead of the original 2.4pc.

Although it sees 18,000 extra jobs by 2015, this will not be enough to match the growth in the numbers seeking work.

The unemployment rate, now at almost 15pc, will fall only to 13.5pc, instead of the hoped-for reduction to 11pc in three years' time, with damaging social consequences.

"Unemployment of over two years' duration is now at 39pc and over three years' duration is 23pc. This level of persistence suggests that unemployment is becoming increasingly structural in nature," the document says.

Next year is the first in which the Government will have to pay interest on the €30bn borrowed to cover losses at Anglo (now IBRC).

Unless there is a last-minute deal with the European Central Bank, the €1.9bn payment will represent a "significant additional item".

Without this, next year's deficit would tumble to 6.4pc of GDP, instead of the tiny one percentage point improvement in the Budget plan.

Things could change again if tax revenues this month fall short of expectations. November is the month for self-assessed income tax payments.

The department expects €5.7bn – almost 16pc of total tax revenue for the year – to be collected this month.

The document gives some of the clearest hints yet on the contents of next month's Budget, when €1bn will be raised in new tax revenues and day-to-day spending cut by €1.7bn.

"It will be necessary to examine the full range of social transfers," the document says, including universal payments such as child benefit.

The Government remains committed to leaving income tax rates and bands unchanged – although most of the increase in revenues so far has come from other income tax changes.

It is expected to concentrate on reducing tax reliefs – including mortgage interest relief – and broadening the base for PRSI by applying it to areas like rental income and dividends.

The Irish Independent also reports that Ireland received a significant boost last night after ratings agency Fitch said the outlook for the national finances has improved to "stable" from "negative". Earlier, rival agency Moody's also issued a broadly supportive assessment of Ireland's financial progress.

Fitch left its BBB+ rating for Ireland unchanged but said it has changed its outlook for the country to a higher "stable" ranking because the risks surrounding the Irish financial adjustment path have "narrowed and become more balanced".

The boost comes as the National Treasury Management Agency (NTMA) is due to raise €500m on the bond markets later today. Bank of Ireland borrowed €1bn on the markets without a government guarantee earlier in the week.

"It is encouraging that Fitch acknowledges the continued progress Ireland is making on the fiscal side and the improved access to capital markets as reflected in our bond market engagements this year," the NTMA said last night.

Moody's held back from upgrading Ireland's debt ranking in a separate report published yesterday, but was also positive about how the financial crisis has been tackled.

A deal on the Anglo promissory notes, or a real pick-up in economic growth, could help catapult Ireland back into the coveted "investment grade" rating territory, a Moody's analyst told the Irish Independent.

Moody's kept its 'Ba1' credit rating for the country unchanged yesterday when it published an annual report on the state finances.

It still regards the rating outlook as negative.

Despite leaving the rating unchanged, the report paints a highly favourable picture of efforts to restore Ireland's financial health.


It cites high institutional strength, a "relatively predictable policy framework, commitment to fiscal consolidation and structural reforms", among the country's strengths.

It noted that Ireland is meeting all the targets set under the EU/IMF bailout programme.

The Republic benefits from a business-friendly tax environment and a flexible workforce that have helped regain lost competitiveness, Moody's said.

While the country is seen to be making progress, there are still significant risks, according to Dietmar Hornung, who wrote the report.

That includes the problems of the wider euro area, which are a drag on the economy here.

On the upside, there is now a potential path back to a higher "investment grade" rating, he told the Irish Independent.

That could happen if growth resumes at any kind of significant pace; if a deal is done to cut the €3.1bn-a-year cost of the Anglo promissory notes, or even if there are no new surprises from the banks, he said.

The path back to "investment grade" will be damaged and Ireland's rating could fall further if figures for economic growth disappoint again, if there is evidence of a worsening of the mortgage crisis and if the Government fails to secure a restructuring of the €30bn bill for Anglo, he said.

Moody's no longer sees any risk of "Greek-style" losses for holders of Irish government bonds.

However, the agency has not lifted its Irish rating back above so-called junk status and says the outlook is still negative.

That negative outlook reflects the risk that austerity measures may not be fully followed through, especially because of the weakness in the Irish economy. It is also driven by the continuing "debt crisis" in the wider euro area.

The Irish Times reports that outsourcing of services provided by the Civil Service and State agencies could begin from the second quarter of next year.

A draft reform plan drawn up in accordance with the Croke Park agreement also states the Government will consider a business case for shared services to administering payroll early next year.

The draft plan envisages longer opening hours for some State services as well as further cuts to the number of court venues and other office accommodation. It says the first wave of projects that could be outsourced are to be identified this month and the process could begin by the second quarter of next year. Further projects would be considered for outsourcing later next year, and implemented, if warranted, from the third quarter.

Printing of summonses

The plan states the Courts Service is examining the case for outsourcing the printing of summonses. It also says that the Department of Communications, Energy and Natural Resources is tendering for a range of services where savings of up to 10 per cent have been targeted.

The draft plan says the Road Safety Authority is to pilot the introduction of driving tests early in the morning and at weekends as parts of reforms dealing with staff attendance patterns.

It says the Department of Foreign Affairs is to pilot the introduction of longer opening hours and a new appointment system in the Passport Office.

“The Probation Service is to establish systems to extend the hours of service delivery where there is a need including weekend and evening working arrangements.”

The draft report also says that following the review of allowances for staff in the public service, the Department of Public Expenditure and Reform will look at the pay structure for service officer grades. There is also to be a review of the allowances paid to staff who act as private secretaries to ministers.

Private sector 

The plan provides for a scheme next year to allow the placement of Civil Service staff in private companies and the executives of private sector firms in Government departments and offices for a 12-month period.

The draft also says departments, offices and agencies will continue to pursue organisational reconfiguration. Examples include the expansion of a programme by the Irish Naturalisation and Immigration Service at Dublin Airport to have civilians rather than gardaí carry out certain port of entry duties on a phased basis to the end of 2014.

The draft plan also says departments and agencies will seek to reduce their office and accommodation requirements. “The Department of Social Protection will review accommodation with a view to minimising costs (for example by co-location in towns with more than one office following the transfer of services from Fás and HSE, new accommodation approaches etc).”

“The Courts Service is considering the future of a number of standalone district court offices, the programme to rationalise the number of court venues will continue.”

The document will be considered further by management and unions in the weeks ahead.

The Irish Times also reports that Glanbia plc’s plan to set up a joint venture with its co-op has cleared the first hurdle, with 71 per cent of co-op members voting to take majority ownership in the new entity – Glanbia Ingredients Ireland.

Their vote also means co-op members have reduced their share in the plc by 3 per cent, to 51 per cent. Some 77 per cent of members – or 5,931 farmers – voted on Tuesday. The result was described by Glanbia chief executive John Moloney as “an historic outcome” that would place the milk processing assets back under farmers’ control.

“In any walk of life today, even if we judge recent events in Ireland, to get 71 per cent endorsement of a 77 per cent turnout for any proposition to an electorate is hugely significant. It’s an unequivocal, strong, democratic decision.”

The votes were counted by the Irish Co-operative Organisation Society in Kilkenny yesterday morning.

The result gives the co-op a 60 per cent share in Glanbia’s dairy ingredients business, which will be known as Glanbia Ingredients Ireland. This includes cream, cheese, butter for the Kerrygold brand and ingredients such as whey and lactose. The joint venture will involve the building of a new €180 million plant at Belview, on the Waterford-Kilkenny border.

What happens next 

The next step in the complex process involves two more votes to allow the co-op’s share in the plc to go under 50 per cent. It will fall to 41 per cent if the votes are carried, with the shareholding going to co-op members and the co-op.

Yesterday’s result needed a 50 per cent majority, but that threshold increases to 75 per cent in the next two votes.

Mr Moloney said 75 per cent was “a high hurdle” to cross but was necessary under co-op rules. By agreeing to drop their share in the plc to 41 per cent, co-op members will get a spin-out of 7 per cent of shares, worth about €165 million, while the co-op will get shares worth about €70 million.

Asked if he had expected the run-up to the vote to be as divisive as it was, Mr Moloney said: “It depends on how you define divisiveness; we had very good debates at all the meetings.”

There was “a minor level of scaremongering but apart from that, the debates were very good and when you get a turnout of 77 per cent it means the people entitled to vote were massively engaged by the process and voted overwhelmingly in favour of it”.

Glanbia co-op’s chairman Liam Herlihy said the outcome was “a significant milestone for dairying in Ireland”. IFA president John Bryan said the strength of the Yes vote reflected the fact that the proposal was balanced and fair.

The Irish Examiner reports that Ireland’s seasonally adjusted trade surplus fell by 41%, to €2.9bn, in September — marking the first time the monthly surplus has been below the €3bn mark since last December.

The surplus had reached a high of €4.88bn in August.

Preliminary figures, published yesterday by the CSO, indicate that the value of Irish exports dipped by nearly €1.8bn — or 19% — to €7.31bn during September. This compared to a monthly high value of almost €9.1bn in August. Helping to drive down the trade surplus was a 5% monthly increase in import value to €4.41bn.

On a year-on-year basis, September’s export value fell by 6%, while imports grew 8%. The export fall — the first marked decrease since last April — was driven by a €1bn decline in chemical and pharmaceutical products, as had been anticipated following unusually strong growth figures in August.

Commentators anticipate a certain level of volatility in trade data over the coming months as an increasing number of pharmaceutical products lose their exclusive patents, but expect limited impact on multinational investment and job numbers.

The CSO data also showed that while the EU remains Ireland’s main trading region, the US and China are our main non-EU trade partners, particularly in terms of imports.

Reaction to the figures was relatively benign — with a near 10.5% increase in services exports also noted.

Chief economist at NCB Stockbrokers, Philip O’Sullivan, said: "In all, the year-to-date trade surplus stands at €32.5bn, up 2.2% on the same period in 2011, which represents a solid performance in light of both the well-documented problems being experienced by a number of Ireland’s key trading partners and input price pressures on the import side."

Merrion Capital’s Alan McQuaid said that whether the weak September performance was a one-off remains to be seen, but if it’s not then it’s a serious cause for concern, significantly denting export growth and impacting negatively on GDP.

"Irish export growth, in 2012, looks set to be weaker than in 2011. We are currently forecasting a volume rise of 4.5% in goods and services — down from 5.1% in 2011, but pushing back up again to 5% in 2013 and 5.6% in 2014 all things being equal."

Foreign news reviews and more comprehensive coverage of Irish news is available in our Daily News Digest in the Global category on Finfacts Premium.

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