The Minister for Finance, Paschal Donohoe, has said recent currency fluctuations will be taken into account when he is framing Budget 2018. The euro soared to its highest point against the pound in eight years this week, hitting 93 pence sterling on Tuesday.
Conall Mac Coille, chief economist with Davy, said that if there was any doubt about UK market access as Brexit negotiations ensue, sterling will weaken further. "In order for it go go to parity, we'd have to see a deterioration in the negotiations and in the UK economy. The really big issue for the Government, as we go in to 2018, if there's no progress and the prospect of a cliff-edge Brexit becomes more real, small companies may put off investment decisions and hiring. The uncertainty could slow Irish economic activity so the growth rates of 3-4% that the budget is predicated on could slow down making budget calculations that bit more difficult," he explained.
Mr Mac Coille said there was very little the Government could do to offset a cliff-edge Brexit. "We could try a fiscal stimulus, but as Ireland is such an open economy, it would have a temporary impact. The best strategy is to ensure that a cliff edge doesn't happen and that we move to a transitional period where the UK stays within the customs union or the single market," he said.
The economist said the upside to sterling weakness was that our UK imports are comparatively cheaper. "Our CPI (consumer price inflation) is still in negative territory which is good for consumers and should be good for the retail sector. For exporters, profit margins are being squeezed. You'd hope that over time they could renegotiate with retailers in the UK and get margins back, even by putting up prices in sterling but that could take time. But with margins squeezed, they may put off investing in their business," he concluded.
MORNING BRIEFS - The latest monthly reading on the manufacturing sector from Investec Bank showed that conditions improved during August - driving the PMI to its highest point in over two years amid stronger demand from clients at home and overseas. The rate of growth in new orders quickened to its fastest pace since January and new export orders were up, mainly due to the securing of new customers in overseas markets.
*** Finance Minister Paschal Donohoe has addressed the issue of bankers' pay. Bloomberg had reported in recent days that the Government was considering loosening restrictions around the remuneration of senior bankers if the economy continues performing the way it is. A salary cap of €0.5m was imposed on CEOs of the country's bailed out banks during the financial crisis. The Minister said he had made no decision on the matter but that the policy would be monitored as part of efforts to strengthen our financial services offering in light of Brexit.
*** Volkswagen is introducing a scrappage scheme of up to €6,500 for anyone trading in an older diesel car for one of its new models across its brands. It is part of efforts by the group to undo the damage of the diesel emissions scandal. The move comes as tougher emissions-testing regulations come into force in the European Union from today.