The new year has kicked off with a range of indicators pointing to a fairly robust outlook for the Irish economy as we head into 2017. And today the latest Investec Services Purchasing Managers' Index improved to a five-month high of 59.1 in December from 56 in November.
Philip O'Sullivan, chief economist with Investec Bank Ireland, said the latest indicator - the monthly check on the country's services sector - added to the positive outlook. "Today's PMI does show activity has strengthened with growth at its highest rate in 4 months. It has bounced back from the soft patch hit in the wake of the Brexit vote. It's a similar picture to what we saw in the manufacturing PMI earlier in the week which reached a 17 month high after enduring a bit of a soft patch after the June vote," he explained.
Mr O'Sullivan said the manufacturing figures were supported by strong domestic growth, but also by the US dollar which is at its highest level in over a decade against the single currency, helping to underpin the positive outlook for many Irish firms.
Looking to yesterday's Exchequer Returns for the month of December and the full year, Philip O'Sullivan likened them to the proverbial curate's egg. "They were good in parts. The overall performance for the year was good but we would be a little bit concerned about the December figures. The headline tax receipts were about 5% lower than expected for the month. Some of that would be explained by one off items related to corporation tax," he stated.
But the economist also said he would also be concerned about the weakening in some consumption taxes. "These figures do not directly relate to the crucial Christmas period - we won't get the full picture until a few months into the new year - but one concern is that, with weakness in sterling, there may be some leakage of sales into Northern Ireland and to online retailers," he said.
Mr O'Sullivan cautioned that there were a number of geopolitical risks ahead which may destabilise the outlook for the Irish economy with several crucial votes in Euroland, the lack of clarity on the policies of the incoming Trump administration and further bouts of volatility as Brexit talks commence.
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MORNING BRIEFS - The US Federal Reserve opened the books on its December policy meeting last night, which gave some insight into the thinking of the board of the American central bank. There was considerable interest in this set of minutes given that the Fed opted to hike rates at this meeting by a 0.25%. Indeed there were some interesting opinions expressed on expectations from the incoming Trump administration with many officials expressing the view that they might have to increase rates quicker than they had planned if Congress passes pro-growth measures. The Fed has signalled three rate hikes in the course of 2017. But it had signalled four hikes last year and delivered just one in the end.
*** On the subject of interest rates closer to home, Germany wants the ECB to start increasing rates across the euro zone again. It follows the publication of inflation figures yesterday which pointed to a significant uplift in consumer prices in the month of December. Higher energy and food costs drove the annualised inflation rate to just over 1% - its highest level in three years. The ECB has a mandate to keep inflation at close to, but not more than, 2%. Mario Draghi has indicated that it could be next year or the following year before inflation is back at that level.
