Tags: Bank of Ireland, Dr. Dan McLaughlin, Economic Outlook, Economic Research Unit, The Bulletin

The consensus forecast for global growth in 2012 has moved down in recent months, reflecting weak manufacturing data over the autumn and an expectation that growth in Europe will be very weak amid signs that the final quarter of 2011 saw GDP contracting in both the euro area and the UK. Indeed, some forecasters foresee both experiencing a mild recession before recovering some ground in the second half of 2012, although the December data implies some stabilisation. The ECB has responded to what it now sees as downside risks to growth by cutting interest rates and we still expect further monetary easing, with the repo rate moving to 0.75% over the next few months. The Bank is also injecting huge sums into the money market, including the provision of 3 year funds, which may also ease government funding concerns as banks may well use this money, at least in pa  [...]
read more

Tags: Bank of Ireland, Dr. Dan McLaughlin, Economic Outlook, Economic Research Unit, The Bulletin

The ECB cut its repo rate by a quarter point in November and the market is generally expecting further easing. The Bank had raised rates earlier in the year, by a cumulative 0.5%, taking the repo rate to 1.5%, and most analysts had expected a straightforward reversal, implying that 1% would again be the floor for ECB rates in this cycle. That may not be the case and we expect rates to fall to at least 0.75% in the near term. This would still be above that of the UK (0.5%) and the US (0.25%) and a number of developments may persuade the Bank’s Governing Council that there is nothing sacred about 1%. The ECB already believes that the risks to growth in the euro zone are to the downside and the data of late certainly points to the possibility of at least one quarter of negative growth – the euro’s composite PMI index picked up marginally in November, but the 47.0 reading was the third consecutive month below 50 and hence implying contraction. Analysts have also cut thei  [...]
read more

Tags: Bank of Ireland, Dr. Dan McLaughlin, Economic Outlook, Economic Research Unit, The Bulletin

Executive Summary: The global economy slowed in the first half of 2011, with annual growth estimated at 3.8% in the second quarter from 4.4% in Q1 and over 5% in 2010. The limited data available for the third quarter implies a similar pace to Q2, although investor sentiment reflects a concern that the pace of expansion has slowed more sharply. Moreover, the rhetoric and actions of the major central banks also reveals fear that next year could see a much sharper slowdown. In the UK, for example, the Bank of England has announced further asset purchases – in effect more printing of money – in an attempt to counteract what it sees as substantial downside risks to growth, in part stemming from the turbulence engulfing the euro area. The Bank of Canada recently revised down its projections for global and Canadian growth and forecast a mild euro zone recession. In the US the Fed has also revised down growth projections and announced its intention to buy longer dated govern  [...]
read more

Tags: Bank of Ireland, Bank of Ireland Global Markets, Dr. Dan McLaughlin, Economic Outlook, Economic Research Unit

Executive Summary: The recent pronounced deceleration in growth across the major economies, allied to the ongoing concerns about a Greek sovereign debt default, have prompted investors to cut back on risk and fuelled a high degree of volatility in financial markets. The Swiss franc normally benefits from such an environment but it has fallen sharply, following the decision by the Swiss authorities to set a ceiling for the currency against the euro, in order to prevent further appreciation and hence further damage to Swiss competitiveness. This has left the Japanese yen and the US dollar as the winners in the currency markets over the past month, with the latter outperforming all the major currencies despite the Fed’s commitment to keeping rates extremely low for the next two years and in the wake of an S & P downgrade. Th  [...]
read more

Tags: Bank of Ireland, Bank of Ireland Global Markets, Dr. Dan McLaughlin, Economic Outlook, Economic Research Unit, irish debt risk, NTMA

Executive Summary:

August proved a turbulent month for financial markets across the globe. Investors pared risk in the face of a slowdown in global growth, notably in the major Western economies, and further uncertainty regarding sovereign debt in the euro area. Ireland proved an exception however, with strong foreign buying helping to push Irish sovereign bond yields sharply lower, both in absolute terms and relative to the rest of the euro area.

The yield on 2-year bonds is currently trading around 8%, having reached 22% in late July, and the 10-year benchmark yield is under 8.5% from 14%. The latter move has taken the spread over Germany to 650 basis points, from over 1100. Moreover, Irish 10-year yields are now well below that of Portugal, the other recipient of funds from the EFSF, having traded well above for most of the year.

A number of factors lie behind this implied reassessment of Irish risk