Good afternoon, it is January 6th 2021 and here is your economic and market update from BlackBee.
- Ireland’s public finances in a better position than European Counterparts.
- Eurozone service activity contracts more than expected in December with Ireland one of the few Eurozone countries to show an expansion.
The latest exchequer return is pointing to a €19 billion budget deficit for 2020. In 2019, there was a surplus of €1.4 billion meaning there is a year on year deterioration of €20.4 billion. Following the financial crisis in 2008 and years of austerity, it took public finances until 2018 to start running a budget surplus. Ireland ran budget surpluses in both 2018 and 2019. Although 2020 led to a big deterioration in public finances, if we consider this in context to our European counterparts, Ireland is in a much better financial position. Ireland is the best of any euro area country and puts the country in a strong position to maintain financial supports for workers and businesses. The budget deficit equates to 5.5% of GDP, the average of the euro area is 8.8% and countries such as the UK and Spain experienced much bigger financial effects. In April, the Governments Stability Programme forecast a deficit of €23 billion which could rise to €30 billion. (Source: Irish Times).
As countries stepped up efforts to combat the spread of the coronavirus, services activity in the Eurozone suffered a sharper contraction than expected in December. The IHS Markit eurozone purchasing managers index for services showed a reading of 46.4 in December. The estimate for December was 47.3. Although the December reading is higher than the 41.7 figure recorded in November, it still means business activity is contracting as the figure remains below 50. Markit noted a large difference between countries as activity in Ireland and Germany increased in December. With countries struggling to contain the fresh wave of coronavirus cases and stricter lockdown measures being imposed, it is expected that business activity will be further hampered. (Source: FT).