AIB Group plc · EURONEXT:A5G

AIB — The Irish Economic June 2020

20 slides from AIB's investor presentation, June 2020

  1. Slide 1: The Irish Economic Update: Deep COVID-19 recession, but resilient

    The Irish Economic Update: Deep COVID-19 recession, but resilient Irish economy can bounce back June 2020 Oliver Mangan Chief Economist AIB 1

  2. Slide 2: Coronavirus pandemic triggers deep H1 2020 recession

    Coronavirus pandemic triggers deep H1 2020 recession  Ireland hit by deep recession in H1 2020 as economy put into lockdown to contain coronavirus  Some 1.25 million or 50% of labour force enrolled on various State income support schemes  Jobless rate soars in March-April; COVID-19 adjusted unemp

  3. Slide 3: Data slump as COVID-19 lockdown restrictions bite hard

    Data slump as COVID-19 lockdown restrictions bite hard 70 AIB Irish Mfg and Services PMIs Consumer Confidence (ESRI - KBC) 120 Services 60 100 50 Manufacturing 40 80 30 60 20 10 40 Apr-13 Apr-14 Apr-15 Apr-16 Apr-17 Apr-18 Apr-19 Apr-20 May-13 May-14 May-15 May-16 May-17 May-18 May-19 May-20 Source:

  4. Slide 4: Activity data weaken sharply with economy in cold-storage

    Activity data weaken sharply with economy in cold-storage  Unemployment rate spikes from 4.8% in Feb to COVID-19 adjusted figure of 28.2% in April  Some 1.25 million workers either in receipt of Pandemic Unemployment Benefit / standard unemployment benefit or enrolled on State’s temporary wage sub

  5. Slide 5: But Ireland's Pharma exports surge on COVID-19 outbreak

    But Ireland’s Pharma exports surge on COVID-19 outbreak Exports as % of GDP  Ireland a very open economy – exports, driven Finland by large scale FDI, are a huge part of economy UK  Exports rise strongly in recent years, helped by Germany France large FDI inflows Italy  Total exports rose by 10.4

  6. Slide 6: COVID recession comes after strong growth in 2013-2019

    COVID recession comes after strong growth in 2013-2019  Previous Irish recession of 2008-2009 also severe. GDP fell 9.5%, with GNP down 12%  Collapse in construction activity and banking system, severe fiscal tightening, high unemployment  GDP at end of 2008-09 recession was still almost 25% high

  7. Slide 7: Economy was performing very well before virus struck

    Economy was performing very well before virus struck % Retail Sales (ex-autos) - Volume, YoY, % Modified Final Domestic Demand and Employment 8 % % 7.00 5.0 7 6.00 4.0 5.00 6 4.00 3.0 5 3.00 2.0 4 2.00 1.00 1.0 3 0.00 2 -1.00 0.0 -2.00 1 -1.0 -3.00 0 -4.00 -2.0 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1 201

  8. Slide 8: Domestic demand solid ahead of the pandemic

    Domestic demand solid ahead of the pandemic  Construction sees strong recovery since 2013. % Construction Output (Volume, 3 Qtr Moving Average, YoY% Change) Output up nearly 12% on average in 2016-18 period 20  Slowdown in non-residential construction activity 16 last year – construction output up

  9. Slide 9: House building on steady rise before virus halted activity

    House building on steady rise before virus halted activity  Housing completions up 18% yoy to over 21,000 units 40,000 Irish Housing Activity in 2019, a moderation on 2018’s 25% growth rate 35,000  Housing commencements increase by further 17% in 30,000 25,000 2019 to 26,000 units 20,000  Plannin

  10. Slide 10: House price inflation slows sharply

    House price inflation slows sharply  House prices declined by a very sharp 55% % 5 National House Price Inflation % 25 between their peak in late 2007 and early 2013 4 20  House prices have since rebounded as big housing 3 15 shortage emerged after 90% fall in home building 2 10 1 5  Prices up 83

  11. Slide 11: AIB Model of Estimated Housing Demand

    AIB Model of Estimated Housing Demand  Rising headship rates added circa Calendar Year 2017 2018 2019 2020 2021 8,000 per year to housing demand in 2002-2011 period Household 28,000 28,500 28,000 26,500 25,000  Shortage of housing, high rents, Formation tighter lending rules saw average of which h

  12. Slide 12: Govt. debt ratios had fallen, private sector deleverages

    Govt. debt ratios had fallen, private sector deleverages Government Debt Ratios (%) % 130 % 10 Gov Debt Interest (% GDP) 120 Gen Gov Net Debt /Modified Gross National Income Ratio 8 110 100 6 90 80 4 70 General Gov Gross Debt/GDP Ratio 60 2 50 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020(f) 202

  13. Slide 13: Large budget deficit in 2020, but bond yields stay very low

    Large budget deficit in 2020, but bond yields stay very low  Budget deficit declined sharply over last decade, 2 General Government Balance* (% GDP) with small surpluses recorded in 2018 and 2019 0  Primary budget surplus (i.e. excluding debt -2 interest) of near 2% of GDP in 2019 -4  Debt intere

  14. Slide 14: Brexit: EU-UK trade talks making little progress

    Brexit: EU-UK trade talks making little progress  EU and UK agreed on revised Withdrawal Agreement at last October’s Heads of State Summit  NI to remain within Single Market for goods and have dual EU-UK customs system  UK left the EU on Jan 31st 2020 in orderly exit. Transition period in place u

  15. Slide 15: Key points about any EU-UK Free Trade Agreement

    Key points about any EU-UK Free Trade Agreement  Any FTA will be much inferior to the EU Single Market, involve extra large admin costs  Significant restrictions on trade will come into play in a FTA– new customs procedures, compliance with onerous rules of origin requirements, more regulations et

  16. Slide 16: Food industry is very dependent on UK market

    Food industry is very dependent on UK market Share of Exports by Industry Destined for the UK (ESRI)  Food and Beverages account for 25% of Irish exports to UK 50%  Around 40% of Irish food 45 % 40% exports go to the UK – key 35% market for beef and cheese 30 %  UK could impose tariffs on EU 25 %

  17. Slide 17: Brexit to lower growth rate of Irish economy

    Brexit to lower growth rate of Irish economy  Multiple hits to the Irish economy if there is a no EU-UK Trade deal at end of transition period: further sharp fall in sterling, weak UK economy, disruption to trade/supply lines, tariffs, new administrative and regulatory costs etc.  Sharp fall-off i

  18. Slide 18: Key medium-term Irish growth drivers remain in place

    Key medium-term Irish growth drivers remain in place  Favourable medium-term drivers of strong Irish growth remain in place Irish GDP Forecasts  House building picking up from still low output % Vol 2020 2021 levels – big focus of next government IMF -6.8 6.3  Government spending supportive of gr

  19. Slide 19: AIB Irish Economic Forecasts

    AIB Irish Economic Forecasts % change in real terms unless 2018 2019 2020 (f) 2021 (f) 2022 (f) stated GDP 8.2 5.5 -7.5 6.3 3.5 GNP 6.5 3.3 -6.5 5.5 3.0 Personal Consumption 3.4 2.8 -8.0 5.0 3.0 Government Spending 4.4 5.6 12.0 -5.0 2.0 Fixed Investment* -21.1 94.1 -8.0 4.8 4.0 Exports 10.4 11.1 -6.

  20. Slide 20: Risks to the Irish economy

    Risks to the Irish economy  Main risk is obviously the coronavirus – will weigh heavily on growth this year  Persistence of virus or fresh outbreak could delay global/Irish recoveries  Highly open nature of Irish economy means it is quite exposed to global recession  Brexit remains a challenge g

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