Amid all the talk of recovery and the size of budgetary pies to be sliced up, the past week brought a stark reminder of where the State has come from.
AIB and Bank of Ireland fared among the worst financial institutions in a European Banking Authority stress test of capital strength, which examined 51 institutions across 15 countries.
There was an immediate clamour to circle the wagons and both institutions issued statements to try to pre-empt any market jitters.
AIB said it was “well capitalised”, back “generating capital”, and that the tests were “point in time projections” based on its 2015 balance sheet strength. It added that it had undergone “fundamental restructuring” and was now “sustainably profitable”.
Bank of Ireland said its capital position was “strong” and that the group continued to organically generate capital. “The group expects to maintain sufficient capital to meet, at a minimum, applicable regulatory capital requirements,” it said.
The markets were sceptical and bank share prices dropped in the wake of the tests, though they did recover as the week went on. However the figures present a new barrier to plans to starting selling down the State’s stake in AIB next year.
Central Bank governor Philip Lane weighed in later in the week and said the banks were "adequately capitalised" but vulnerable to an economic downturn. In a nutshell, he said the trauma suffered by the banks during the crash means that poor test results are "inevitably more pronounced for Irish institutions" than for banks in other countries.
“[The two banks] are adequately capitalised but remain vulnerable to a downturn, especially in relation to the continued workout of problem loans and the sustainability under stress of current profitability levels,” he added.
The Department of Finance moved to dispel concerns the test would make it any harder for the State to sell its stake in the bank.
A spokesman said the test did not paint a full or accurate picture of AIB’s situation, and did not reflect the bank’s ability to pay €1.8 billion back to the State last week. “We do not believe the tests will have a significant bearing on when the bank will be sold,” he said.
“They do not include increased mortgage lending, the profits the bank has made since the 2015 balance sheet was locked in place. They do not even include the fact that the bank was able to give money back to the State.” So there.
The doom and gloom enveloping Britain since the vote to leave the EU grew deeper as more talk of recession was accompanied by a Bank of England rate cut and a downgraded growth forecast that exceeded anything seen during the financial crisis.
The UK central bank said it expected the economy to stagnate for the rest of 2016 and suffer weak growth throughout next year. The rate cut – the first since 2009 – brought the main lending rate to a record low of 0.25 per cent from 0.5 per cent.
In the half hour after the decision was announced, and as governor Mark Carney started speaking, sterling sank 1.5 per cent against the dollar – its biggest fall since the aftermath of June's vote.
The BoE left its forecast for growth this year steady at 2 per cent, but 2017 brings a sharp downgrade of just 0.8 per cent from a previous estimate of 2.3 per cent. The growth outlook for 2018 was cut to 1.8 per cent.
"Following the United Kingdom's vote to leave the European Union, the exchange rate has fallen and the outlook for growth in the short to medium term has weakened markedly," the bank said in its quarterly inflation report.
Carney also launched two new schemes to try and shore things up: one to buy £10 billion of high-grade corporate bonds, and another – potentially worth up to £100 billion – to ensure banks keep lending even after the cut in interest rates.
Britain’s woe is likely to permeate Irish borders, with Goodbody predicting its descent into recession will hit Irish exports and investment spending. “Ireland will not go unscathed in the short-term,” it said.
Goodbody also reduced its forecasts for the Republic’s core domestic demand for 2016 from 5 per cent to 4.2 per cent, and for 2017 from 4.4 per cent to 3.7 per cent.
Core domestic demand measures consumer spending, Government spending and investment excluding aircraft and research and development.
The employers’ group Ibec was equally pessimistic about the implications for the State, releasing a report which stated that Irish jobs are at immediate risk following the vote.
It pointed to a “full-blown currency crisis” and said “an urgent, targeted national response is essential”, adding that without such action, “hundreds of millions of euro worth of exports and thousands of Irish jobs will be lost”.
New figures also showed Irish manufacturing activity weakened in July in the wake of the referendum. It was the same story for the UK where manufacturing shrank at its fastest pace in more than three years in July.
PwC didn't get the memo and had some potentially positive fallout to report for the Republic. Dublin emerged as the second most attractive financial centre in Europe in its survey, and could stand to gain the most from Brexit.
It ranked particularly strongly for the strength of legal rights, its ease of doing business, and talent. However, it was below the average score of the other eight financial centres for the availability of domestic credit for the private sector.
After several months of pleasant surprises in the exchequer returns, Minister for Finance Michael Noonan had to contend with a surprise of the nasty variety for July. Tax revenues came in below target due to a shortfall in VAT receipts, while corporation taxes and excise duties also came in lower than expected.
The latest returns show tax revenue of €26.6 billion was collected in the first seven months of the year, up €2 billion or 8.5 per cent versus the same period in 2015 and €644 million or 2.5 per cent ahead of target.
However, total tax revenue for the month of July was down €98 million or 2.3 per cent below expectations as VAT receipts came in €61 million or 3.3 per cent below the €1.83 billion target.
In better news for the economy, new car sales to the end of July this year have already surpassed the total number of new cars registered for the whole of 2015. The total number so far is 131,264, a rise of 19.4 per cent on the same period last year.
That being said, Irish consumer sentiment declined in July, although the scale of the drop was relatively modest. The KBC Bank Ireland/ESRI consumer sentiment index fell by 3.8 per cent to 99.6, down from 103.4 in June, which was more muted than in either March or May.
The unemployment rate was unchanged at 7.8 per cent in July versus June, but was down from 9.2 per cent compared to the same month a year ago. The number of people unemployed last month was 169,000, a decline of 29,800 compared to July 2015. Youth unemployment however rose to 16 per cent from 15.4 per cent last month.
Speaking of employment, Lidl, the German discount supermarket chain, announced plans to grow its share of the Irish grocery market by hiring an extra 600 employees over the next two years.
Elsewhere, Australian company SiteMinder is to create 100 jobs in Galway as it opens a new office in the city, while Jazz Pharma is to create another 50 after officially opening a €50 million manufacturing plant near Athlone.
