After the European Central Bank said yesterday it was to inject more than €1.1 trillion into the stagnant euro zone economy the euro dropped to its lowest point against the dollar in more than ten years and stock markets rallied. The quantitative easing has both positives and potential negatives for Irish business.
John Finn of Treasury Solutions says two factors will determine how long it will take before the euro zone's banks will pass on the benefits of the ECB's QE programme to businesses. He says the first is the desire of the banks to make money, which means that they will want to lend more - assuming that the economic environment is OK. However, Mr Finn says he does not think that interest rates will fall for SMEs in the short term because there is not enough competition in the market yet. The second factor which may affect the success of the ECB plan is how governments can create a situation where demand improves and more jobs are created. That in turn will help SMEs, which then allows the banks to lend more to them. He describes the situation as a "bit of a chicken and egg" scenario.
On the positive side, Mr Finn says that anyone who exports from Ireland to countries which are US dollar dominated are 14% better off today than they were this time last year. He explains that a company which exports $1m worth of goods to the US would add €125,000 to their profits alone if they fixed their exchange rates today. While sterling is not quite as strong, exports to the UK would also result in higher profits for the Irish exporter. Tourists from the UK and US are also getting far more bang for their buck, which should boost the tourism industry here, he adds.
But sounding a note of caution, Mr Finn says we are seeing parallels with the early 2000s as the Irish economy is again outstripping average euro zone growth and unemployment, while interest rates are extremely low. We still have not got the definitive view of what happened in the last crisis and so there is a fear we will fall into the same traps again in terms of making political decisions as opposed to rational long term economic decisions. The analyst also says that wages are key to tackling the current low rate of inflation.
MORNING BRIEFs - Retail figures for the last three months of 2014 show that there was sales growth of 4.22% - the biggest quarterly gain recorded in the Irish retail sector since the middle of 2007. According to Retail Excellence Ireland most sectors recorded strong gains with the Jewellery sector being the outstanding performer. Another strong area was all fashion and footwear sectors, but the worst performing sectors were photo and pharmacy.
*** The price of US oil was up nearly 2% to $47.19 a barrel in after-hours trade, while Brent crude rose 2% to $49.58, following news of the death of Saudi Arabia's King Abdullah. Saudi is the country widely seen as the leader of OPEC and has a big influence on energy prices and political stability in the Middle East. It has 16% of the world's known oil reserves, and King Abdullah's strategy had been to keep production high and force out smaller players instead of cutting production.