In this week’s bulletin read about the Irish Government’s policy statement on security of electricity supply as energy prices continue to rise. Also covered is Ireland’s labour market recovery and a dip in business and consumer confidence; concerns about budgeting for climate action and pensions; inflation; and the EU’s Semester Autumn Package and its €300bn international development fund for major investment in infrastructure development.
New Policy Statement on Security of Electricity Supply publishes
The Department of the Environment, Climate and Communications has this week published a Policy Statement on Security of Electricity Supply, which, among other updates to national policy, sets out that existing conventional electricity generation capacity should be retained until the new conventional capacity is developed.
Speaking about the statement, Minister for the Environment, Climate and Communications, Eamon Ryan T.D., commented: “Secure supplies of electricity are vital for our economy and society as we increase the share of renewable electricity to up to 80% by 2030. They are also vital to attract new investment into Ireland and for people and businesses to have complete confidence when purchasing electric vehicles and installing heat pumps. This new gas-fired capacity will be flexible enough to balance our national grid as we expand solar energy and onshore and offshore wind, and will be more efficient than our older oil and coal-fired power stations.”
Elsewhere, European energy prices continue to rise to record highs, as tight gas supplies combine with high demand in economies recovering from the Covid-19 pandemic.
Business and consumer confidence dip while labour market recovers
The Bank of Ireland Economic Pulse, which combines the results of the Consumer and Business Pulses dropped in November, standing at 83.2. The index was down 4.4 on last month. However the figure was 16.2 up on the same time in 2020. Dr Loretta O’Sullivan, Group Chief Economist at Bank of Ireland, commented that the reduction was due to “consumer and business sentiment both souring”, primarily due to concerns over COVID and Brexit.
This news issued shortly after the Government welcomed figures published Central Statistics Office which show a continued recovery from the pandemic in Ireland’s labour market, with employment standing at 2.47 million. This is almost a 10 percent increase on the same quarter in 2020. The Government’s Economic Recovery Plan’s overarching target is to have 2.5 million in employment by 2024, in excess of pre-pandemic levels.
IFAC expresses concern around Irish Government’s budgeting for climate action and also urges action on pensions
The chair of the Irish Fiscal Advisory Authority (IFACA), Sebastian Barnes, has this week advised the Irish Government to clarify how the costs of the new climate action plan will be funded sustainably, raising the question as to whether sufficient resources have been allocated for the work.
The Government’s budgetary forecasts out to 2025 suggest it will have approximately €1.6 billion per year for additional spending measures. As €1.1 billion of this will be needed to maintain the existing level of services and benefits. This leaves just €500 million for climate change and healthcare reform.
The Council also noted that the Government will have to consider its policy on pensions given Ireland’s rapidly ageing population. The report said that a Government response is needed to the proposals put forward by the Commission on Pensions and said “the recommendations postpone increases in the pension age and imply a significant increase in PRSI contributions. While legitimate, this option raises questions about the willingness of governments to impose these measures. Setting out a plan to 10 of 135 phase in any PRSI increases over the coming years could make these measure more credible.”
You can read the full report here.
Euro area annual inflation expected to reach 4.9 percent
A flash estimate from Eurostat, the statistical office of the EU, has revealed that Euro area annual inflation is expected to rise to 4.9 percent in November, up from 4.1 percent in October, and well above what most analysts had expected. In Ireland inflation rose to an estimated 5.4 percent in November, compared to 5.1 percent recorded in October.
A major cause for the increase is energy prices, which increased by an estimated 27 percent. Core inflation, which excludes volatile factors like food and energy prices as rose from 2 percent to 2.6 percent. Consumer price growth in the 19 countries sharing the euro reportedly accelerated to 4.9 percent in November.
In an interview last week, Christine Lagarde, President of the ECB stated that the ECB will not tighten its monetary policy strategy, explaining: “If we were to tighten monetary policy now, we would expect it to have an impact in 18 months. That is the extent of the time lag before our monetary policy measures take effect. According to our forecasts, however, inflation would have fallen back again by then. We would cause unemployment and high adjustment costs and would nonetheless not have countered the current high level of inflation.”
In its latest economic outlook, Organisation for Economic Cooperation and Development (OECD), reportedly stated that the main risk to an otherwise ‘upbeat global economic outlook’ would be the current inflation spike proving longer and rising further than currently expected. However, it too said that the spike was expected to be transitory and fade as demand and production returned to normal.
EU Developments
The European Commission has launched its 2022 European Semester cycle of economic policy coordination.
The European Semester Autumn Package includes the Annual Sustainable Growth Survey, Opinions on Euro Area Draft Budgetary Plans for 2022, policy recommendations for the Euro Area, and the Commission's proposal for a Joint Employment Report (which confirms that the labour market is recovering, though employment is not yet back to pre-crisis levels).
Among the policy recommendations for the Euro Area – which presents tailored advice to euro area Member States on topics that affect the functioning of the euro area as a whole – is included ‘the Alert Mechanism Report (AMR)’. This is a screening measure to detect potential macroeconomic imbalances. This year's AMR concludes that in-depth reviews (IDRs) are warranted for 12 Member States, including Ireland. These IDRs will assess how previously macroeconomic imbalances detected in previous surveillance cycles have developed so as assess possible remaining policy needs. However, post-programme surveillance reports for Spain, Portugal, Cyprus and Ireland have that all four Member States retain their capacity to service their outstanding debt.
The Eurogroup and the Council will now discuss the package with a view to endorsing its guidance.
The European Commission this week also announced a plan to mobilise €300 billion in public and private infrastructure investment around the world. ‘The Global Gateway Strategy’ plan was described by President of the European Commission, Ursula von der Leyen, “a template for how Europe can build more resilient connections with the world,” and will support smart investments in quality infrastructure. You can read more here.
You can find information, guidance and supports to help members understand sustainability and meet the challenges it presents in our Sustainability Centre.
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