Monday, September 09 09:03:40
The ISEQ is steady this morning at 4,230, up 5 points as markets start the week with positivity coming from every direction.
Goodbody Stockbrokers looks at the projections for the October budget:
It appears that the Irish government will go against the wishes of the Troika in next month's budget by targeting a lower consolidation than the E3.1bn previously laid out.
Yesterday's Sunday Business Post revealed that while the final amount is not yet finalised, both parties within government have agreed that the scale of austerity to be introduced in 2014 will be less than previously set out. Fine Gael has laid out a preference for an adjustment of E2.8bn, while Labour is pushing for E2.5bn. Given how politics work, it is likely to be somewhere in between the two.
While the Troika would have preferred Ireland to stick to its original targets, we doubt that a change of E400m or so will cause too much consternation. In our view, the decision to ease the amount of austerity for 2014 is the correct one. Our forecasts put the deficit at 4.3pc of GDP if the government went ahead with the E3.1bn adjustment, giving E1.3bn of headroom to the 5.1pc of GDP Troika target for next year.
From a market point of view, there are important milestones to reach next year. Hitting a budget deficit target of 5.1pc of GDP is not one of them. However, a headline deficit of below 5pc should be set: (i) getting below that psychological level is important, and;(ii) such an achievement would mean that Ireland moves into a primary surplus.
There is likely to be much more speculation on the budget over the coming weeks. The debate now will move on to the make-up of the adjustment. As we laid out in our Q3 Health Check, an increase in capital spending would be welcomed, especially in light of the persistent underspend in this area in the year to date according to Goodbody Stockbrokers.