The latest exchequer returns along with the results of the latest bank stress tests have sparked some concern.
First, we have the less-than-stellar performance of our banks in an exercise designed to assess the resilience of our financial institutions in an economic downturn.
Then, last week, we received what amounts to a warning shot from the Department of Finance. Tax receipts had come in under target for the first time in several months.
So is a ‘Brexit’ effect kicking in?
The Central Bank governor, Philip Lane has warned about the impact of a ‘hard’ form of British EU exit, involving tight restrictions on both trade and migration, while insisting that Ireland is still “on track for a broad-based recovery.”
The University of Limerick economist Stephen Kinsella has pointed out that monthly exchequer data can be volatile. State receipts over the seven months to August are still 7% up on the same period last year.
Irish PMI data looks a lot more healthy. This offers an important signal as to economic activity in the short to medium term.
In Ireland, the key services sector data shows a modest easing in the rate of expansion.
Contrast this with Britain where services sector activity contracted in July, dropping sharply from a reading of 52.3 in June to just 47.4, last month. Similar falls have taken place in construction and manufacturing.
This acute softness has pushed the Bank of England into a decision to cut interest rates by 0.25% to just a quarter point.
The move sparked another drop in the value of sterling as markets contemplated the prospect of negative interest rates.
The mood music was not helped by a statement by the Renault-Nissan boss, Carlos Ghosn, that plans for investment at its large plant in Sunderland would be put on hold until the actual terms of the post-exit trade arrangements between Britain and the EU became clear.
Bank of England governor Mark Carney has unveiled a £720bn plan aimed at boosting activity through cheap loans.
He is aiming to assist the real economy while avoiding the pitfalls of previous attempts at quantitative easing which boosted asset prices, aiding the well-off primarily.
Some of the impacts are being felt this side of the Irish Sea, with the sterling/euro rate plunging close to 85c.
Clearly a weaker sterling spells trouble, at least in the short run, for Irish companies engaged in trade or exposed to overseas competition. A town like Dundalk is where the pressure will be felt most sharply.
There are reports of bulk purchases north of the border as people move to take advantage of a weakening currency.
Paddy Malone, spokesman for the local Chamber of Commerce is certainly being kept busy. He has been fielding calls from media across the world, including ABC, the Washington Post, the New York Times, Finland, “practically every developed country.” His stance is upbeat.
“We had our best Christmas in eight years. The recent drop in the currency is from a high point. It has a long way to fall before it damages us.”
So far, he insists, the reaction has been ‘muted’, though another 4%-5% drop would be ‘serious’. Sterling fell around 1.5 cents following our conversation.
Interestingly, the Dundalk Chamber is working closely with its sister Chamber in Newry to develop a strategy to cope with the effects of the likely British EU exit.
While the two compete fiercely, at times, for the business of shoppers, retailers in Newry have been asked not to advertise too heavily as this will merely “aggravate” the situation.
The benefits of currency weakness can be short term. Both towns have reason to fear a return to the bad old days.
“The border has distorted the physical, economic and cultural development of the town. There was no significant IDA investment between 1970 and 2000, apart from the Heinz factory which was mainly due to Tony O’Reilly. “
The impact of long-term neglect has endured. Along with Letterkenny, Dundalk has the highest levels of social deprivation among Irish towns of its size.
The fear is that funds to tackle deprivation will be cut when the current round ends in 2018. A second worry relates to transport. Greater delays at the border would hit many ordinary people.
“One of my staff lives in the North. She has two children in creches there. Will she be delayed at checkpoints?”
“You could have perishable goods sitting by the side of the road for three hours.”
Truckers crossing several frontiers remain at particular risk, particularly if delays continue at the channel ports.
Some transport firms may shift the carriage of their goods to long sea routes.
The local Institute of Technology is also faced with serious issues. It has close links with Queens University.
Some European universities are considering a withdrawal from joint research projects involving Dundalk and Queens because of Brexit. Investment plans, unsurprisingly, are on hold.
But Paddy Malone is also keen to accentuate the positives, pointing to the presence of eBay and Pay Pal, now entirely separate entities, not to mention homegrown regional success stories including Kingspan, Glen Dimplex, AIBP, Fyffes and Horseware, the equine clothing company which now employs 120 near Dundalk and enjoys a turnover of €33m.
Mr Malone is keen to point to the area’s strength in broadband which means that the IDA is now “knocking on doors.”
He will be hoping that ambitious plans for the development of a Dundalk-Newry economic hub as a counterweight to the Dublin and Belfast regions will not be knocked sideways.
Much will depend on the political skills of the new British prime minister, Theresa May and her ability to rein in the ‘eurosceptics’ in her party. Much, too, will depend on the economic strategy that is put in place.
The Bank of England Governor, Mark Carney, has warned that monetary policy can only achieve so much and that what is really required in the longer term is a well-developed fiscal strategy, including an ambitious plan for the country’s overstretched infrastructure.
The successful implementation of such a plan would assist suppliers on this island and help to address some of the uncertainties that have arisen in the wake of the June vote.
Dundalk FC, with which the Malone family has been involved for generations, has shown the way. The area’s hardened businesspeople, too, seem to be up for the fight.
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