Slide 1: The Irish Economic Update
The Irish Economic Update Growth Slowing as Brexit Looms December 2016 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 unemplo
Slide 3: Huge distortions inflate Irish GDP/GNP figures
Huge distortions inflate Irish GDP/GNP figures GDP/GNP no longer reliable measures of output in Economic Growth (% YoY) 30 Ireland. Review underway of National A\Cs 25 Exports, imports, industrial production, investment, 20 15 Real GDP BoP distorted by activities of some multi-nationals 10 Real
Slide 4: Signs that Irish economy slowed during 2016
Signs that Irish economy slowed during 2016 Ireland Mfg and Services PMIs % Core Domestic Spending* (3 Qtr MA, % Yr-on-Yr) 70 8.0 65 Services 6.0 60 4.0 55 2.0 Manufacturing 50 0.0 45 -2.0 40 -4.0 35 -6.0 30 Q3 2010 Q3 2011 Q3 2012 Q3 2013 Q3 2014 Q3 2015 Q3 2016 Nov-06 Nov-08 Nov-10 Nov-12 Nov-14 N
Slide 5: Mixed tone to recent data
Mixed tone to recent data GDP growth averages strong 4.5% year-on-year in Q1-Q3 2016 Good manufacturing PMI data in Q1 2016 but at lower levels in Q2/Q3. Picks up again in Q4 Very robust services PMI in H1 2016 but falls sharply in H2 – hits 4 year low in October Slower growth in service exp
Slide 6: Strong jobs growth continues; unemployment falls
Strong jobs growth continues; unemployment falls Year Average 2013 2014 2015 2016(f) 2017(f) 2018(f) Unemployment Rate % 13.1 11.3 9.5 8.1 7.2 6.6 Labour Force Growth % 0.4 -0.3 0.5 1.2 1.2 1.1 Employment Growth % 2.4* 1.7 2.6 2.8 2.1 1.7 Net Migration : Year to April (‘000) -33.1 -21.4 -11.6 3.0 10
Slide 7: Large Irish export base performs strongly
Large Irish export base performs strongly Ireland a very open economy – exports, driven by Exports as % of GDP huge FDI, equate to well over 100% of GDP Finland Major gains in Irish competitiveness since 2009, UK Germany with weakening of euro also helpful France Exports have risen strongly, h
Slide 8: 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% - €125bn Exports (70% of Irish exports) - English speaking country - 175,000 Jobs in FDI, 290,000 in total - Wel
Slide 9: Many top global companies have big operations in Ireland
Many top global companies have big operations in Ireland 8
Slide 10: Slower growth in domestic economy this year
Slower growth in domestic economy this year Domestic economy contracted by 20% from 2008-12 20 % Construction Investment (3 Qtr MA, % YoY) Collapse in construction was big drag on GDP - fell 10 from 13.5% of GDP in 2005-07 to 5.3% by 2012 0 Construction has seen steady growth since 2013 – -10
Slide 11: Prices rebound as major housing shortage emerges
Prices rebound as major housing shortage emerges Housing output fell by 90% but now past trough % 5 National House Price Inflation % 25 Bulk of the new housing stock overhang eliminated 4 3 20 15 House prices declined sharply – fell by almost 55% 2 1 10 5 between their peak in late 2007 and ea
Slide 12: House building rising slowly from very low levels
House building rising slowly from very low levels Housing completions at 12,700 in 2015, up from 11,000 in 2014 and 8,300 in 2013 Completions up 18% to Sept 2016. Should reach 15,000 units this year but still at very low levels Annual demand estimated at 25,000-30,000 units Measures being pu
Slide 13: 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 14: Gov debt ratio falling, private sector deleveraging
Gov debt ratio falling, private sector deleveraging Gross Gen Gov Debt (% GDP) % Gov Debt Interest (% GDP) 140 10 120 8 100 80 6 60 4 40 20 2 0 2008 2009 2010 2011 2012 2013 2014 2015 2016(f)2017(f)2018(f)2019(f)2020(f) 0 1980 1985 1990 1995 2000 2005 2010 2015 2020 Source: Dept of Finance. (Note In
Slide 15: 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 Fiscal policy now mildly expansionary -2 Budget deficit falls sharply in recent years -4 -6 Deficit of around 1% of GDP likely in 2016 -
Slide 16: 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 will hit exports to UK administration, differing trade rules Trade with UK equates toUK 35% and regu
Slide 17: Ireland keen that hard Brexit can be avoided
Ireland keen that hard Brexit can be avoided Key will be the trade arrangements put in place between EU and UK post Brexit Ideally, UK would retain access to Single Market and UK/Irish common travel area remains Indications from EU that talks on new trade deal can only begin after UK leaves
Slide 18: Irish economy already slowing on Brexit concerns
Irish economy already slowing on Brexit concerns Rebound by Irish economy should continue 6 Irish, Eurozone & UK Inflation (HICP Rates) Construction picking up from still low output levels 4 UK Budgetary policy turns mildly expansionary 2 Activity supported by low interest rate environment
Slide 19: AIB Irish Economic Forecasts
AIB Irish Economic Forecasts % change in real terms unless 2013 2014 2015 2016 (f) 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 7.5 3.0 2.5 Personal Consumption -0.8 1.7 4.5 3.2 3.0 2.5 Government Spending 0.1 5.4 1.1 4.5 1.0 1.0 Fixed Investment -5.4 18.2 32.7 6.0 6.0 5.0
Slide 20: Brexit will impact Irish economy in coming decade
Brexit will impact Irish economy in coming decade ESRI-D/Finance estimate Irish output would be reduced by over 2% on a soft Brexit Output almost 4.0 % lower over time if there is a hard Brexit and a fall back on WTO rules Sharp fall-off in trade with UK on hard Brexit Employment 2% lower an
Slide 21: 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 Recovery in the global economy still quite fragile, with on-going risks and h