Business Week: Brexit mating dance well under way
Also in the news this week was housing, corporation tax, Aer Lingus and Ryanair
Frankfurt in Germany. “Frankfurt is a love at second sight,” gushed Thomas Steffen, the state secretary at the German federal ministry of finance. “But a love that lasts all the longer.” Photograph: EPA/Boris Roessler
Not one to play the part of the scorned lover, German finance official Thomas Steffen could have had a box of chocolates under one arm and flowers in the other as he attempted to woo financial institutions from Britain during a conference this week.
“Frankfurt is a love at second sight,” gushed the state secretary at the federal ministry of finance. “But a love that lasts all the longer.” Despite having Dublin as a love rival, Steffen said Frankfurt was getting “an increasing number of requests” for courtship.
“And we are very, very open to such discussions,” he added, with a number of decisions to be taken early next year.
The Government here, meanwhile, is working alongside IDA Ireland to ensure the Republic sees its fair share of the action following Britain’s vote to leave the EU.
Minister for Finance Michael Noonan was in the United States all week to meet with a range of companies and investors in a visit that included trips to Washington DC and Silicon Valley in California.
While the mating dance takes place officials and other stakeholders are focused on containing the inevitable fallout.
A board member of Fáilte Ireland called on the State’s tourism agencies to shift focus from the UK to mainland Europe in terms of attracting visitors. “We should be devoting proportionately more resources to mainland Europe than to Britain,” he argued.
“I am not saying that we should be turning our back on Britain, but we should be turning our faces more towards the European market.”
While the shape of the post-Brexit financial landscape remains unknown, Irish businesses are said to be considerably more pessimistic about it than their UK counterparts. According to a PwC survey, 82 per cent of Irish family-run firms expect it to have a negative impact on their business compared with just 38 per cent in Britain.
There was also reason to believe such pessimism has permeated the pre-Christmas shopping mood as employers’ group Ibec expressed concern that Brexit was causing a softening of consumer demand and retail sales in the run-up to Christmas.
The organisation’s statement came as its retail arm released fresh figures pointing to a further slowing of growth in the retail sector. According to Retail Ireland, the third quarter of 2016 has seen the slowest rate of growth recorded this year.
The value of retail sales grew 1.1 per cent compared with the same period last year. The report said the value of sterling had adversely affected UK tourism sales as well as driven Irish shoppers across the Border and online to UK-based websites.
At least Noonan’s economic headaches may have been soothed somewhat by the reassuring words of US president-elect Donald Trump’s economic adviser Stephen Moore.
Clarifying comments from last week when he said a “flood” of companies would be attracted back to the US from the Republic, Moore said Trump’s plans to overhaul the US corporate tax system would not lead to a “mass exodus” of American multinationals.
He said he was hopeful the US corporate tax rate would fall to somewhere between 15 and 20 per cent from the current 35 per cent, but pointed out Ireland would still have “a tax advantage” with its 12.5 per cent rate.
“When American companies leave we would sure like to see as many of them come back as we can possibly get, but I don’t think you are going to see a mass exodus from Ireland.”
Worryingly for Merrion Street, though, Hungary said it would cut its corporate tax rate to 9 per cent – the lowest in the EU – as it seeks to boost growth ahead of parliamentary elections.
Meanwhile, Moore wasn’t the only one rowing back on post-election comments. Economist Paul Krugman toned down earlier remarks that Trump’s accession to the presidency would lead to a global recession, but still warned of “dire effects”.
“Trumpism will have dire effects, but they will take time to become manifest,” he said. “In fact, don’t be surprised if economic growth actually accelerates for a couple of years.”
Another potentially positive by-product of Trump’s election is that it could lead to an era of fiscal spending that could lift growth in the United States and spur European governments to follow suit.
That’s according to John Woods, Asia Pacific chief investment officer at Credit Suisse, who said “a much higher degree of fiscal activism” being discussed meant it was “not beyond the realm of possibility that we start to see also fiscal activism in the EU”.
Separately, in what were her first comments since the US elected Trump, Federal Reserve chair Janet Yellen said it could raise US interest rates “relatively soon” if economic data keeps pointing to an improving labour market and rising inflation.
Back home and there was a stark warning from Bank of Ireland chief executive Richie Boucher. He said the level of repossessions “is likely to increase” next year. “There is a regrettable inevitability about that.”
Boucher, addressing the Oireachtas finance committee, also refused to rule out selling distressed loans to vulture funds, and said the bank was deliberately keeping variable rates high to encourage customers to switch to fixed-rate mortgages.
Despite all that, he said the bank would utilise any extra lending capacity it could in the event current rules on mortgage lending were relaxed by the Central Bank.
Ratings agency Moody’s said the large stock of problem loans that remained to be worked through by Irish banks remained the “most critical issue” for the sector and would continue to slow recovery. Problem loans for rated Irish banks totalled €41.5 billion as the end of 2015, down from €67 billion a year earlier.
Boucher’s remarks came as the EBS DKM housing affordability index indicated first-time buyers needed to spend over a fifth of their combined after-tax income to pay the mortgage on a home.
For its part, the Central Statistics Office said residential property prices have continued to increase, rising 7.3 per cent in the latest figures for the year to September. Overall, the national price index is now 33.1 per cent lower than its highest level in 2007.
So, more supply is needed to meet demand, and the Ulster Bank Construction Purchasing Managers’ Index suggested there may be cause for optimism there. It said the construction sector in the Republic recorded a strong start to the final quarter of the year, with activity, new orders and employment all increasing at faster rates in October.
Bitter rivals Aer Lingus and Ryanair could soon be sharing passengers, it emerged. Aer Lingus chief executive Stephen Kavanagh said the two companies could agree a deal by next year as long as it benefitted his company commercially.
The two airlines have been in talks for some time on the possibility of an agreement that would see Ryanair feeding passengers from its European services into the Aer Lingus network.
In the UK, budget carrier EasyJet is understood to be considering applying for an Irish airline licence to ensure full access to EU countries following Brexit.
The airline’s chief executive Carolyn McCall said it was likely to apply for an air operator’s certificate in “another EU country” next year so it would be able to fly freely in the bloc after the UK’s departure.
The Republic is believed to be one of the countries under consideration, although it has also been suggested EasyJet is considering applying to the Dutch or Cypriot authorities.