Weekly Market Insight

Latest Economic & Market Update 30th September 2020

30th September 2020

Good afternoon, it is September 30th 2020 and here is your economic and market update from BlackBee. 

Today’s focus:

  • Irish GDP finds support from multinationals but Irish employment set to fall by 13.8%
  • ERSI expresses concern for housing supply, recommends Government increase spending on social and affordable housing in short and medium-term
  • Energy stocks suffer as oil executives predict crude oil stuck near $40 a barrel

Ireland’s economic shock to GDP will not be as bad as first estimated, Minister for Finance Paschal Donohue announced yesterday. Year-on-Year GDP growth is projected to fall to -2.5% in 2020. However, the domestic economy is projected to suffer further damages, as the headline GDP figure is primarily supported by a strong export market, particularity in pharmaceuticals. Modified domestic demand is a proxy for the local economy and this is forecasted to fall by 6.5%. The spillover impacts from the stronger-than-expected export sector are limited. There are more people employed in the tourism and hospitality sectors and profitable pharmaceutical exports will not directly benefit these domestic areas of our economy. The government forecasts that employment is to drop by 13.8% this year but rebound somewhat by 7% in 2021. It should be noted that two prudent assumptions underpin the forecasts. Firstly that there will be a No-Deal Brexit and secondly that a widespread vaccination for Covid-19 will not be available in 2021. (Source: gov.ie)
The ERSI (Economic & Social Research Institute) recommends that the Government take short to medium-term action for social housing investment to avoid significant market imbalances post-Covid-19. The ERSI provides economic research to support policymaking process in Ireland. Pre-pandemic, the expected housing completion for 2020 was 24,500. The think-tank projects that due to Covid-19 revised housing completions could lie in a range between 15,000 and 16,000. Furthermore, the real impact to supply may not be recognised until 2021 as economic uncertainty is likely to stall private investment for new builds. The combination of current falling housing completions, short term price drops due to reduced incomes and credit access and an increased savings rate could lead to a “surge in demand” for social housing. In yesterday’s announcement of the Budget 2021 strategy, the annual government expenditure will be approximately €16 billion more than figure’s released in 2019. In order to meet the ERSI’s recommended policy response of “increase in the State provision of social and affordable housing over the short to medium term”, support from the private sector will be welcome. Refurbishments of already built homes provide earlier availability for social housing. These projects require less capital and time while allowing the Government to support the social housing landscape. Signing long term leases for privately refitted homes with the sole purpose for social housing will help the Government meet the short term investment recommendation. Blackbee’s Social Housing Series 1 2022 strategy aligns with the State’s goal to provide social housing opportunities in our communities.
Yesterday’s trading was a difficult day for the energy sector as oil executives do not see short or medium-term demand rebounding significantly. Senior oil trading executives and fund managers told the FT that oil would be stuck near $40 a barrel until a Covid-19 vaccine is found. The S&P 500 dropped by 0.5% and was weighed down by losses in ExxonMobil and Chevron. Shares in both companies retreated by more than 2%. (Source: FT)
The first US Presidential Debate took place on Tuesday evening, Wednesday’s full market reaction will be included in tomorrow’s note.