Aib Group Plc · EURONEXT:A5G

Aib — The Irish Economic Update

20 slides from Aib's investor presentation, December 2019

  1. Slide 1: The Irish Economic Update

    The Irish Economic Update: Still good growth, though softening evident in business activity surveys December 2019 Oliver Mangan Chief Economist AIB 1

  2. Slide 2: Strong growth by Irish economy in 2013-2018 period

    Strong growth by Irish economy in 2013-2018 period  Irish economy boomed from 1993 to 2007 with GDP up by over 250% – Celtic Tiger  Very severe recession in Ireland in 2008-2009. GDP fell by 8.5% and GNP down 11%  Collapse in construction activity and banking system, severe fiscal tightening, hig

  3. Slide 3: Survey data weaken in 2019, but growth remains solid

    Survey data weaken in 2019, but growth remains solid Source: Refinitiv Modified Final Domestic Demand and Employment 3

  4. Slide 4: Real indicators hold up, despite weaker survey data

    Real indicators hold up, despite weaker survey data  Still strong jobs growth – employment rose by 2.4% yoy in Q3 2019, but slower than in previous years  Downtrend in unemployment rate continues, as it drops below 5% in H2 2019  Housing completions up strong 18% yoy to end Q3 2019, though slower

  5. Slide 5: Jobs growth still solid, unemployment rate drops below 5%

    Jobs growth still solid, unemployment rate drops below 5% Year Average 2016 2017 2018 2019(f) 2020(f) 2021(f) Unemployment Rate % 8.4 6.8 5.8 5.0 4.8 4.7 Labour Force Growth % 1.9 1.1 1.8 1.8 1.6 1.8 Employment Growth % 3.7 2.9 2.9 2.6 1.8 1.9 Net Migration : Year to April (‘000) 16.2 19.8 34.0 34.0

  6. Slide 6: Large Irish export base performing very well

    Large Irish export base performing very well  Ireland a very open economy – exports, driven by Exports as % of GDP enormous FDI, equate to well over 100% of GDP Finland UK  Major gains in Irish competitiveness earlier in Germany decade – though wage growth now picking up France  Exports rise stro

  7. Slide 7: FDI and the Irish economy

    FDI and the Irish economy WHAT ATTRACTS FDI TO IRELAND? KEY FDI IMPACTS ON THE IRISH ECONOMY - Access to European markets - Some 1,200 multinational companies - Low corporate tax rate of 12.5% - €189bn in Exports - English speaking country - 230,000 Jobs in FDI, 390,000 in total - Well educated, fle

  8. Slide 8: Domestic economy has rebounded strongly

    Domestic economy has rebounded strongly  Domestic economy contracted by 20% in period from 2008-2012, with particularly big fall in construction  Construction sees strong recovery since 2013. Output up nearly 12% on average in last three years  Output in construction rose 8.2 % yoy in H1 2019  B

  9. Slide 9: House building on the rise, but still at quite a low level

    House building on the rise, but still at quite a low level  Housing completions up 18% yoy in Q1-Q3 2019 - rose by 25% to over 18,000 in 2018  Housing commencements rose 25% yoy to end Q3 2019 after a 28% increase in 2018  Planning permissions up 18% in H1 2019, with 12 month running total now ab

  10. Slide 10: House price inflation slows sharply

    House price inflation slows sharply  House prices declined by a very sharp 55% between % 5 National House Price Inflation % 25 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 85

  11. Slide 11: AIB Model of Estimated Housing Demand

    AIB Model of Estimated Housing Demand  Rising headship rates added circa Calendar Year 2016 2017 2018 2019 2020 8,000 per year to housing demand in 2002-2011 period Household 26,500 26,500 26,500 27,500 27,500  Shortage of housing, high rents, Formation tighter lending rules saw average of which h

  12. Slide 12: Govt debt ratios fall, private sector deleverages

    Govt debt ratios fall, private sector deleverages % 10 Gov Debt Interest (% GDP) 8 6 4 2 0 1981 1986 1991 1996 2001 2006 2011 2016 2021 Source: NTMA; Dept of Finance % Irish Private Sector Credit (Inc Securitisations) as % GDP 250 200 150 100 50 12 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

  13. Slide 13: Government finances return to surplus in 2018/19

    Government finances return to surplus in 2018/19  Budget deficit has fallen sharply in past decade. Declined to 0.2% of GDP in 2017  A small surplus of €170m was recorded in 2018  Public finances ahead of target this year – strong tax receipts, up 6.7% yoy to end Nov  Budget surplus to exceed ta

  14. Slide 14: Difficult road still ahead on Brexit

    Difficult road still ahead on Brexit  EU and UK agree on revised Brexit deal at mid-October Heads of State Summit  NI to remain within Single Market for goods and have dual EU-UK customs system  Revised deal did not get through the UK Parliament  Further extension to Article 50 to 31 January 202

  15. Slide 15: Brexit expected to lower growth rate of Irish economy

    Brexit expected to lower growth rate of Irish economy  ESRI estimate that Irish output would be reduced over time by 2.6% under a benign ‘deal’ scenario in the long run (i.e. after 10 years). Unemployment rate is 1% higher  Multiple hits to the Irish economy from a no-deal Brexit: further collapse

  16. Slide 16: Agri. sector would be severely impacted by hard Brexit

    Agri. sector would be severely impacted by hard Brexit  Main EU tariffs relate to food Share of Exports by Industry Destined for the UK (ESRI) products, keeping prices high. 50% UK may also impose tariffs on 45 % all food imports post Brexit 40%  Food and Beverages account 35% for 25% of total Iri

  17. Slide 17: AIB Brexit Sentiment Index – Q3 2019

    AIB Brexit Sentiment Index – Q3 2019  A total of 700 SME’s (with up to 250 employees) across the island of Ireland  Headline index weak again in Q3. One of the most notable features of the survey this year is the number of firms that say Brexit is having a negative impact on their business now  M

  18. Slide 18: Good Irish growth can continue if external risks avoided

    Good Irish growth can continue if external risks avoided  Irish economy should continue to grow at impressive pace, but not as strongly as in recent years  House building picking up from still low output levels  Public spending on the rise  Activity supported by low interest rate environment  S

  19. Slide 19: AIB Irish Economic Forecasts

    AIB Irish Economic Forecasts % change in real terms unless 2017 2018 2019 (f) 2020 (f) 2021 (f) stated GDP 8.1 8.2 5.0 3.25 3.0 GNP 5.1 6.5 3.0 3.0 2.75 Personal Consumption 3.0 3.4 3.0 2.5 2.2 Government Spending 3.9 4.4 4.0 3.0 3.0 Fixed Investment -6.6 -21.1 51.5 6.0 5.0 Core Fixed Investment* 4.

  20. Slide 20: Risks to the Irish economy

    Risks to the Irish economy  Main near-term risks to the Irish economy are external  Brexit major issue for Ireland given its strong trading links with UK and impact on sterling  Slowing external environment, with growing downside risks to global growth from increasing protectionism/tariffs, decli

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