Aib Group Plc · EURONEXT:A5G
Aib — Corporate Update (June 2018)
22 slides from Aib's corporate update, June 2018
Slide 1: The Irish Economic Update: Growth Remains Strong
The Irish Economic Update Growth Remains Strong June 2018 Oliver Mangan Chief Economist AIB 1
Slide 2: Strong recovery by Irish economy since 2013
Strong recovery by Irish economy since 2013 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, high unemploymen
Slide 3: Economic indicators remain upbeat in early 2018
Economic indicators remain upbeat in early 2018 65.0 Ireland Mfg and Services PMIs Consumer Confidence (ESRI - KBC) 120 Services 60.0 100 55.0 80 Manufacturing 50.0 60 45.0 40 Apr-11 Apr-12 Apr-13 Apr-14 Apr-15 Apr-16 Apr-17 Apr-18 Apr-11 Apr-12 Apr-13 Apr-14 Apr-15 Apr-16 Apr-17 Apr-18 Source: ESRI
Slide 4: Economy continues to perform strongly in 2018
Economy continues to perform strongly in 2018 Modified final domestic demand grew by 4.1% in 2017 after 4.6% growth in 2016 Mfg PMI remains high in 2018 - averaged 55.8 in Jan-April period Services PMI also very strong to date in 2018 - averaged 58 in year to April Continuing very high construction
Slide 5: Robust jobs growth; unemployment falls sharply
Robust jobs growth; unemployment falls sharply Year Average 2015 2016 2017 2018(f) 2019(f) 2020(f) Unemployment Rate % 10.0 8.4 6.8 5.8 5.3 4.9 Labour Force Growth % 1.2 1.9 1.1 1.5 1.6 1.6 Employment Growth % 3.5 3.7 2.9 2.5 2.2 2.0 Net Migration : Year to April (‘000) 5.9 16.2 19.8 25.0 30.0 33.0
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 huge FDI, equate to well over 100% of GDP Finland UK Major gains in Irish competitiveness in past Germany decade - weakening of euro in 2014/15 helpful France Exports have risen strongly
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 - 1,200 multinational companies - Low corporate tax rate of 12.5% - €150bn Exports (64% of Irish exports) - English speaking country - 200,000 Jobs in FDI, 340,000 in total - Wel
Slide 8: Many top global companies have big operations in Ireland
Many top global companies have big operations in Ireland 8
Slide 9: Strong recovery by domestic economy in place since 2013
Strong recovery by domestic economy in place since 2013 Construction Investment % Domestic economy contracted by 20% in period from 40 (Volume, 3 Qtr Moving Average, YoY% Change) 2008-2012, with particularly big fall in construction 30 20 Construction has seen good recovery since 2013, with 10 outpu
Slide 10: House prices rebound as big housing shortage emerges
House prices rebound as big housing shortage emerges House prices declined by a very sharp 55% between % National House Price Inflation % 5 25 their peak in late 2007 and early 2013 4 20 House prices have since rebounded as big housing 3 2 15 10 shortage emerged after 90% fall in house building 1 5
Slide 11: House building rising slowly from very low levels
House building rising slowly from very low levels Housing completions (new electricity connections) 100,000 Housing Completions* increased by 29% to 19,300 in 2017 90,000 Housing commencements rose by 33% in 2017 to 80,000 70,000 17,500, pointing to continuing rising supply 60,000 50,000 Completions
Slide 12: 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 house
Slide 13: Govt debt ratios fall, private sector deleverages
Govt debt ratios fall, private sector deleverages % Government Debt Ratios (%) % Gov Debt Interest (% GDP) 130 10 120 8 110 Net Gov Debt (i.e. ex cash & liquid assets) /modified Gross National Income Ratio 100 6 90 80 4 Gross General Gov Debt/GDP Ratio 70 2 60 50 0 2010 2011 2012 2013 2014 2015 2016
Slide 14: Budget deficit falls sharply – now close to balance
Budget deficit falls sharply – now close to balance Some €30bn (18% of GDP) of fiscal tightening 2 General Government Balance* (% GDP) implemented in 2008-2014 period 0 Budget deficit has fallen sharply over the -2 course of this decade -4 The deficit fell to 0.3% of GDP in 2017 and is -6 -8 forecas
Slide 15: Brexit expected to lower growth rate of Irish economy
Brexit expected to lower growth rate of Irish economy Impact of Brexit on Output (% deviation from base) ESRI estimate that Irish output would be reduced by 2-2.5% on a soft Brexit Sharp fall-off in trade with UK likely on a hard Brexit Output almost 4.0 % lower over time if there is hard Brexit and
Slide 16: Agri. sector would be severely impacted by hard Brexit
Agri. sector would be severely impacted by hard Brexit Share of Exports by Industry Destined for the UK (ESRI) Main EU tariffs relate to food 50% products, keeping prices up. 45 % UK may not maintain these 40% post-Brexit 35% Food and Beverages account 30 % for 25% of total Irish exports 25 % to UK
Slide 17: AIB Brexit Sentiment Index – Q1 2018
AIB Brexit Sentiment Index – Q1 2018 A total of 700 SME’s (with up to 250 employees) across the island of Ireland Fieldwork (W3) took place between 6th-26th March 2018. Brexit is having little impact on businesses now SMEs surveyed more concerned about its impact on the future, both on their own bus
Slide 18: Customs arrangements difficult Brexit issue
Customs arrangements difficult Brexit issue UK to leave EU, Single Market and Customs Union in March 2019 EU and UK agree on a transition period to end 2020 that will avoid disruption while EU/UK free trade deal is being negotiated. No change in current trading arrangements during this period. A wit
Slide 19: Talks on trade to determine final shape of Brexit
Talks on trade to determine final shape of Brexit Good progress to date in Brexit negotiations but some thorny issues still to be resolved Could prove difficult to get a withdrawal agreement through UK parliament, given it’s a minority government with deep divisions still on Brexit. Will be hard to
Slide 20: Irish growth expected to remain strong
Irish growth expected to remain strong Irish, Eurozone & UK Inflation (HICP Rates) Strong growth by Irish economy continuing in 2018 6 Construction picking up from still low output levels 4 UK Budgetary policy turns mildly expansionary Eurozone Activity supported by low interest rate environment 2 F
Slide 21: AIB Irish Economic Forecasts
AIB Irish Economic Forecasts % change in real terms unless 2016 2017 2018 (f) 2019 (f) 2020 (f) stated GDP 5.1 7.8 4.5 4.0 3.5 GNP 9.6 6.6 4.2 3.7 3.2 Personal Consumption 3.3 1.9 2.7 2.5 2.5 Government Spending 5.3 1.8 2.0 2.0 2.0 Fixed Investment 61.2 -22.3 8.0 7.0 6.0 Core Fixed Investment* 13.6
Slide 22: Risks to the Irish economic recovery
Risks to the Irish economic recovery Main risks to Irish recovery no longer internal but external, in particular Brexit Brexit major issue for Ireland given its strong trading links with UK and sharp fall by sterling Questions around Irish corporation tax regime (Apple ruling, moves on tax harmonisa