It was meant to be the week that we got the first signs of a Brexit hit on the British economy, with the first key pieces of economic data for July being published. But it didn’t quite work out like that.
True, July inflation figures at 0.6 per cent were a touch higher than the markets had expected. With separate data showing a rise in producer import prices, there are signs that a weaker sterling is starting to feed through to prices.
However, the latest employment and unemployment data was reasonably positive – even though much of it predated the Brexit vote. And then on Thursday came news that July retail sales had risen by 1.4 percent on a monthly basis and were 5.9 per cent higher than a year earlier, way ahead of market expectations.
If British consumers are worried about Brexit, they certainly aren’t showing it. There was some speculation that the good weather had boosted business on the High Street, particularly clothing and footwear sales. And it seems that weak sterling is encouraging tourists to spend more on luxury items. But even so the figures were surprisingly strong.
The question now is whether the initial Brexit hit will be more limited than had been expected, or whether we just need to wait a few months for the evidence to show up in the figures. This, in turn, will have a vital impact on the value of sterling against the euro, a key variable for Irish exporters to the UK and to those competing with UK products on the Irish market. At one stage during the week, sterling was trading at more than 87p to the euro before falling back a bit after the retail figures. But, to use the old cliche, a rollercoaster ride for the currency appears in prospect.
Meanwhile, the markets and the rest of us continue to try to make sense of a world where interest rates are now near to zero. The latest impact of this was the decision by Bank of Ireland to charge big corporate customers for placing deposits with it, a reaction to the fact that banks are being charged to leave money overnight by the Central Bank. Next thing they will be paying us all to take on loans . . . or maybe not.
Alarm at ‘leprechaun’ economics
The dramatic upward revision last month to Ireland’s economic growth to 26 per cent for 2015 set off alarm bells from Washington to Luxembourg, according to documents released during the week to The Irish Times.
The head of International Monetary Fund’s mission to Ireland sought an urgent conference call with officials in Dublin within days of the news amid fears the figures would have an impact on the findings of the fund’s annual review of Ireland.
In the event, the IMF published a supplementary note to its report in July, saying the fund’s recommendations for Ireland had not been not impacted by the revision, which had been driven by the activities of multinationals and had distorted the true standing of the economy.
It also emerged in records, released under the Freedom of Information Act, that the EU’s statistics arm, Eurostat, is set to send a mission to Ireland next month to examine the Central Statistics Offices sums, even though the initial explanations provided by Ireland “look plausible”.
Sports boost for Glanbia
The global slump in dairy prices has not held back Dublin-listed food group Glanbia. Its move into sports nutrition has paid off handsomely with the company now commanding 12-13 per cent of the global market, which is estimated to be worth €10 billion.
Pretax earnings from the group’s performance nutrition division rose 35 per cent to €81.7 million in the first half, helping to offset weaker earnings in other segments. Nutrition-related revenue jumped 12 per cent to €505.3 million on an 8 per cent rise in volume growth. Dairy-related revenue, meanwhile, was down 1.7 per cent to €1.84 billion.
The company’s latest numbers show overall pretax earnings increased 11 per cent to €176.5 million in the first six months as the group reiterated its full-year forecast of 8-10 per cent earnings-per-share growth.
With dairy markets likely to remain weak, the performance nutrition business, which is based on the once-discarded by-product of cheesemaking, whey, is expected to remain the group’s most profitable segment for the foreseeable future.
Ryanair looks beyond UK for growth
Given its heavy exposure to the UK market, it’s not surprising to see Ryanair shifting its focus elsewhere in Europe following the Brexit vote. Earlier this week the airline announced plans to spend $1 billion (€887 million) growing its market share in Italy.
Ryanair said it intended to allocate 10 aircraft to the Italian market, open 44 new routes and grow traffic locally by 10 per cent to 35 million passengers next year.
While chief executive Michael O’Leary claimed the Italian government’s decision to reverse a planned tax hike was the reason for the airline’s planned investment, Ryanair has increasingly been looking beyond its core market of the UK for growth. While expansion in mainland Europe remains likely, the airline is also seen to be weighing up moves further afield.
Such a move might be wise. Nadejda Popova, senior travel analyst at Euromonitor International, warned this week that the airline was “overly reliant” on eastern and western Europe, regions she said were “beset by maturity, persistent economic difficulties, geopolitical tensions and terror threats”.
