AIB Group plc · EURONEXT:A5G
AIB — The Irish Economic March 2017
20 slides from AIB's investor presentation, March 2017
Slide 1: The Irish Economic Update
The Irish Economic Update Economy Continues To Perform Well Despite Concerns Over Brexit March 2017 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% and GNP down 10% Collapse in construction activity and banking system, severe fiscal tightening, high unemployment.
Slide 3: UK Brexit vote had limited impact on Irish data
UK Brexit vote had limited impact on Irish data 70 Ireland Mfg and Services PMIs % Irish Retail Sales (ex-autos) - Volume, YoY, % 10 65 8 Services 6 60 4 55 2 Manufacturing 50 0 45 -2 -4 40 -6 35 -8 30 -10 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17 Q4 2007 Q4 2008 Q4 2009 Q4 2010 Q4 2011 Q4 2012 Q4 2
Slide 4: Strong start by economy to 2017
Strong start by economy to 2017 GDP growth averaged strong 4.5% year-on-year in Q1-Q3 2016 Slower growth in service exports of 6.5% yoy in Q1-Q3 2016 after a big rise in 2015 Mfg PMI weakened after Brexit vote before rebounding strongly. At 55.5 in January Strong rebound by services PMI after marked
Slide 5: Robust jobs growth; unemployment falls sharply
Robust jobs growth; unemployment falls sharply Year Average 2014 2015 2016 2017(f) 2018(f) 2019(f) Unemployment Rate % 11.3 9.5 7.9 6.5 5.7 5.5 Labour Force Growth % -0.3 0.5 1.2 1.2 1.2 1.2 Employment Growth % 1.7 2.6 2.9 2.7 2.0 1.5 Net Migration : Year to April (‘000) -21.4 -11.6 3.0 10.0 15.0 15
Slide 6: Large Irish export base performs well
Large Irish export base performs 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 since 2009, Germany with weakening of euro also helpful France Italy Exports have risen strongly, helpe
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: Ongoing recovery by domestic economy
Ongoing recovery by domestic economy Domestic economy contracted by 20% from 2008-12 % Construction Investment (3 Qtr MA, % YoY) Collapse in construction was big drag on GDP - fell 20 from 13.5% of GDP in 2005-07 to 5.3% by 2012 10 Construction has seen steady growth since 2013 of 0 -10 circa 10% pe
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% % 5 National House Price Inflation % 25 between their peak in late 2007 and early 2013 4 20 3 15 House prices then rebounded as big housing 2 10 shortage emerges after 90% fall in house building 1 5 0 0 Su
Slide 11: House building rising only slowly from very low levels
House building rising only slowly from very low levels Housing Completions Housing completions at 12,700 in 2015, up from 100,000 90,000 11,000 in 2014 and 8,300 in 2013 80,000 Completions rose by 18% to 15,000 in 2016 but still 70,000 60,000 at low level. Forecast at 18,000-19,000 in 2017 50,000 An
Slide 12: AIB Model of Potential Housing Demand
AIB Model of Potential Housing Demand Calendar Year 2012 2013 2014 2015 2016 2017 2018 Household 14,000 15,000 16,500 19,500 21,500 22,000 23,000 Formation of which Indigenous 20,000 17,500 17,000 17,500 17,000 16,000 15,500 Population Growth Migration Flows -9,000 -5,500 -3,500 -1,500 1,000 2,500 3
Slide 13: Gov debt ratio falling, private sector deleveraging
Gov debt ratio falling, private sector deleveraging Gross Gen Gov Debt (% GDP) % 10 Gov Debt Interest (% GDP) 140 120 8 100 6 80 60 4 40 2 20 0 0 2008 2009 2010 2011 2012 2013 2014 2015 2016(f)2017(f)2018(f)2019(f)2020(f) 1980 1985 1990 1995 2000 2005 2010 2015 2020 Source: Dept of Finance. (Note In
Slide 14: Budget deficit falls to very low level
Budget deficit falls to very low level Some €30bn (18% of GDP) of fiscal tightening 2 General Government Balance* (% GDP) implemented in 2008-2014 period 0 Budget deficit falls sharply to very low levels -2 Deficit down to 1% of GDP in 2016 -4 -6 Budget deficit forecast at below 0.5% of GDP -8 for 2
Slide 15: Brexit is a major headache for Ireland
Brexit is a major headache for Ireland • Brexit has serious implications given • Sterling has fallen sharply on Brexit • Higher trading costs from more close economic/trade links with concerns, which hits exports to UK administration, differing trade rules Trade with UK equates toUK 35% and regulati
Slide 16: Ireland will be impacted by a hard Brexit
Ireland will be impacted by a hard Brexit Unclear what trade arrangements will be put in place between EU and UK post Brexit UK to leave Single Market and possibly Customs Union – does not want common external tariffs Ireland and UK want to preserve common travel area but need will EU agreement on t
Slide 17: Brexit expected to lower growth of Irish economy
Brexit expected to lower growth of Irish economy ESRI-D/Finance estimate Irish output would be reduced by over 2% 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 a fall back on WTO rules Employment 2% lower and
Slide 18: Solid Irish growth still likely ahead of Brexit
Solid Irish growth still likely ahead of Brexit Irish, Eurozone & UK Inflation (HICP Rates) Rebound by Irish economy should continue 6 Construction picking up from still low output levels 4 UK Budgetary policy turns mildly expansionary 2 Activity supported by low interest rate environment 0 FDI stro
Slide 19: AIB Irish Economic Forecasts
AIB Irish Economic Forecasts % change in real terms unless 2013 2014 2015 2016 (e) 2017 (f) 2018 (f) stated GDP 1.1 8.5 26.3 4.5 3.5 3.0 GNP 4.7 9.2 18.7 8.0 3.5 3.0 Personal Consumption -0.8 1.7 4.5 3.2 3.0 2.5 Government Spending 0.1 5.4 1.1 4.5 1.5 1.5 Fixed Investment -5.4 18.2 32.7 6.0 6.0 5.5
Slide 20: 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 Possibility of reduced FDI from US if Trump administration slashes corporate taxes