ECB keeps the taps flowing as it braces itself for Deflation

 The European Central Bank left interest rates unchanged, while ECB President Mario Draghi said monetary authorities will not consider loosening policy to stave off deflationary pressures for now.

 The ECB voted to leave interest rates across the eurozone unchanged at a record-low 0.25%, but the common currency strengthened after ECB President Mario Draghi did not outline any new measures to shore up slowing inflation.

Draghi said the ECB sees a protracted period of low inflation, not full blown deflation, and reiterated that the bank is “monitoring developments closely" and won't likely make any decisions until the bank reviews more economic indicators, which markets interpreted as March at the earliest.

Deflationary concerns arose last week after data revealed that the annual rate of inflation slowed to 0.7% in January.

Irish Unemployment down

On a seasonally adjusted basis the Live Register total recorded a monthly decrease of 2,300 in January 2014, reducing the seasonally adjusted total to 400,700. 

The standardised unemployment rate (SUR) in January 2014 was 12.3%, down from 12.4% in December 2013.  

Irish Unemployment 13-14

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Irish government tax take down-they blame SEPA

The Irish  Government’s first set of exchequer returns for 2014 are sharply down on last year because of the switchover to the new European electronic payments system.

The latest returns showed the State collected nearly €650 million less than expected in tax last month.

The anomaly was blamed on the introduction of SEPA (Single Euro Payments Area) system which slowed down the Revenue Commissioners’ collection of VAT, corporation tax and employers’ PAYE and PRSI.

Instead of payments being processed within two or three banking days it will now take seven banking days.

The department insisted the fall-off in tax was a “ technical timing issue” and did not alter the tax forecast for the year.

The figures showed the exchequer deficit at the end of January stood at €1.14 billion, compared with a surplus of €704 million at the same stage last year.

Net voted expenditure for January was €4.1 billion, representing a year-on-year increase of 3.8 per cent or €152 million.

	January 2013	January 2014
Overall Tax Revenue	€3.7 billion	€3.1 billion
Income Tax	€1.38 billion	€1.2 billion
Vat receipts	€1.74 billion	€1.37 billion
Corporation tax	€11 million	€7 million
Excise duties	€318 million	€342 million

UK manufacturing improving and demand up

The UK manufacturing sector made a positive start to 2014.

 Rates of expansion in output and new orders remained well above their respective long-run trends, supporting a solid increase in payroll numbers.

The seasonally adjusted Markit/CIPS purchasing manager’s index (PMI) posted 56.7 in January, down from December’s 57.2.

 Although the PMI currently stands at its lowest level in three months, it is still well above the series average of 51.3. The headline index has signalled an improvement in operating conditions in each of the past ten months.

The strong upturn in manufacturing production was maintained in January, as companies scaled up output in response to stronger inflows of new orders. There were reports of improved demand from the domestic market and rising levels of new business from overseas.

The latest expansion in new export orders was broad-based by source, with UK manufacturers mentioning improved demand from North America, mainland Europe, Asia, Brazil, Scandinavia and the Middle-East.              

Moreover, the ongoing improvement in global market conditions drove the rate of increase in new export business to a near three-year record.

The ongoing rebound in the sector led to further job creation at the start of the year.

January saw employment increase for the ninth successive month, with the rate of jobs growth remaining close to November’s two-and-a-half year high.

Deflation looms as unemployment remains high

Euro zone consumer price inflation dropped in January, bucking market expectations for a rise and providing a possible trigger for further easing by the European Central Bank to sustain a fragile recovery and ward against deflation.

Mario Draghi

Consumer price inflation in the 18-country bloc fell to 0.7 percent year-on-year in the first month of 2014, down from 0.8 percent in December, data from the EU's statistics office Eurostat showed on Friday.

Inflation last touched the 0.7 percent level in October, which was the lowest inflation reading for the single currency area in nearly four years.

The euro, reacting to the data, fell to a 10-day low of $1.35175 from around $1.3540. It fell more sharply against the yen, dropping to a two-month low of 138.53 yen, down from 138.88.

The drop in January was prompted by a 1.2 percent fall in the highly volatile price of energy, which was flat in the previous month. The cost of food, alcohol and tobacco products were up by 1.7 percent on the year.

Although ECB President Mario Draghi said in January deflation was not threatening the euro zone, a number of countries are already suffering deflation and the International Monetary Fund warned deflation was a potential risk.

The ECB, which cut its key interest rate to a record low of 0.25 percent in November, is expected to stay put until mid-2015 unless money market rates rise and the euro strengthens.

In Germany, Europe's largest economy, consumer prices fell by 0.7 percent on the month, keeping the annual inflation rate steady at 1.2 percent, with both figures coming below expectations.

A separate Eurostat data release showed on Friday that the unemployment rate in the euro zone was stuck near a record high at 12 percent for the third month running. It is widely expected to ease only very modestly in the coming quarters.

Some 19 million people are out of work in the euro zone, slowing the uneven recovery as Europeans remains cautious and thrifty, proving only a limited boost to economic growth.

American Property buying slows as Fed turn off the taps

Fewer Americans signed contracts in December to buy previously occupied homes, suggesting a slowdown in real estate according to the The National Association of Realtor(USA)

 Pending home sales fell to the lowest point since October 2011. 

The NAR's  seasonally adjusted pending home sales index dropped 8.7 percent last month to 92.4. 

That's the seventh straight monthly decline for the index, which previews upcoming sales.

 Rising mortgage rates and price increases crimped sales in recent months.

 Cold weather in December also stalled home purchases.

 Sales of previously occupied homes totaled 5.1 million in 2013

That's the highest in 7 years, but it's still below the 5.5 million that is consistent with a healthy housing market. 

The average interest rate on a 30-year mortgage dropped to 4.32 percent this week from 4.39 percent the previous week. Rates surged about 1.25 percentage points from May through September, peaking at 4.6 percent. 

That increase occurred after Federal Reserve Chairman Ben Bernanke indicated that the Fed would start to slow its bond-buying program before the end of the year. The Fed has reduced its monthly bond purchases from $85 billion to $65 billion in its last two policy meetings. The program is intended to push down longer-term interest rates and encourage more borrowing, spending and hiring.

Irelands growth modest but further looks bright

According to the Central Bank of Ireland's Quarterly Bulletin 1 2014.

Ireland has emerged from the EU/IMF Programme against a background of increased market confidence in the outlook for the country’s economic performance and policy prospects. 

This has been reflected in an improvement in the market’s assessment of Ireland’s credit worthiness, helping the Sovereign and domestic banks to regain access to market funding at, increasingly, more favourable rates. 

General Government Deficit is on track to fall below 3 per cent of GDP by 2015 once there is continued adherence to the policies that were in place during the Programme.

This is also true for returning the banking system to a position where it can support the economy with adequate lending, and getting the rate of employment well up from the low level to which it had fallen in the crisis.

 The public finances, the latest estimates suggest that the General Government Deficit for 2013 should come in below the 7.5 per cent of GDP target under the Excessive Deficit Procedure.

Projections indicate that the debt-to-GDP ratio has peaked and at a slightly lower level than previously expected.

The Irish economy is forecast to grow by 2.1 per cent this year as consumer spending and business investment increases.

In the banking sector, while liquidity and funding conditions have improved, the key issues revolve around the need for further progress in dealing with the resolution of impaired loan.

In accordance with the mortgage arrears resolution strategy and targets, the Central Bank has continued to require the banks to accelerate their work to ensure the conclusion of sustainable long-term arrangements.

 The Bank is also monitoring ongoing steps to cure and resolve legacy debt problems of small firms.

Moderate wage growth and reductions to the cost base of the economy have helped restore some of the competitiveness lost during the boom.

 The most recent data indicate that employment has grown strongly over the past year