Economics: Ireland facing opening General Government Surplus of €640m for 2019

Figures released by the Department of Finance in its latest White Paper on Receipts & Expenditure at the weekend, show that the Government is facing an opening General Government Surplus of €640m (0.2% of GDP) for 2019 before Paschal Donohoe announces new fiscal measures tomorrow in the Budget.

The Minister has said that there will be no deficit in Budget 2019. This is a departure from the Summer Economic Statement, when a deficit of 0.1% of GDP (roughly €380m) was pencilled in for next year.

By saying the Budget will be balanced, is the Minster is indicating he means to spend most or all of that €640m in Tuesday’s Budget statement? Or will it be saved to make the public finances more robust in the face of the next downturn?

The spending and tax cuts package on Tuesday will almost certainly be bigger than the €800m previously announced. And that extra spending will be paid for largely by raising taxes, notably VAT in the hospitality sector, and carbon tax on fossil fuels.

How the changes affect the budget surplus will be worth watching. Keeping as much surplus as possible would be a good thing economically, as it starts the process of rebuilding buffers – vital as we get closer to “Brexit”, trade wars and global corporate tax changes – as well as the expected downturn in the business cycles, particularly in the US.

But it is a well-observed phenomenon that moving to and maintaining a budget surplus is politically very tricky. How do you defend it in public when there are hospital waiting lists and a housing crisis?

However, at this point in the economic cycle – with very strong growth and rapidly falling unemployment – the Government should in our view be running a small budget surplus (as a number of other EU states are doing), to pay down some debt and create space to borrow again when the next downturn comes.

Economics: Irish construction PMI falls to 56.2 in September from 58.3 in August

Activity in Ireland’s construction sector eased to an 11-month low in September but was still expanding, according to Ulster Bank’s latest Construction Purchasing Managers’ Index (PMI).

The bank’s seasonally-adjusted gauge sank to 56.2 last month, down from 58.3 in August, but remained significantly above the 50-mark that separates expansion from contraction.

Activity has risen continuously on a monthly basis since September 2013. Commercial activity rose sharply, and at a faster pace than in August. The rate of growth in activity on housing projects remained marked, but slowed for the second month running. Civil engineering activity, meanwhile, decreased modestly, the first fall in three months.

New orders increased at a sharp and accelerated pace in September amid reports of improving customer demand, the survey suggested. Construction firms responded to higher new orders by taking on extra staff, the 61st successive month in which a rise in employment has been registered.

Alan McQuaid (8/10/18)
Economist