AIB Group plc · EURONEXT:A5G
AIB — The Irish Economic July 2021
18 slides from AIB's investor presentation, July 2021
Slide 1: The Irish Economic Update: Strong rebound underway as vaccine rollout allows re-opening
The Irish Economic Update: Strong rebound underway as vaccine rollout allows re-opening of economy July 2021 Oliver Mangan Chief Economist AIB 1
Slide 2: Lockdown sees contraction in economy in Q1 2021
Lockdown sees contraction in economy in Q1 2021 Construction Output % (Volume, YoY% Change) GDP grew by 3.4% in 2020, with GNP up 0.6% 30 20 Modified final domestic demand contracted by 10 5.4% in 2020, a smaller than expected decline 0 Consumer spending down 9% and fixed investment -10 -20 8.
Slide 3: Signs of very strong rebound in Q2 as restrictions eased
Signs of very strong rebound in Q2 as restrictions eased Long third lockdown imposed at end 2020, with restrictions only being lifted during Q2 Indicators point to strong rebound getting underway in Q2 as lockdown ends Mfg PMI hits record highs of 60.8 in April and 64.1 in May Services PMI j
Slide 4: Lead indicators rebound strongly after weak start to 2021
Lead indicators rebound strongly after weak start to 2021 AIB Irish Mfg and Services PMIs Ulster Bank Construction PMI 70 70 60 60 50 50 40 40 Manufacturing 30 30 20 20 10 Services 0 10 May-15 May-16 May-17 May-18 May-19 May-20 May-21 May-15 May-16 May-17 May-18 May-19 May-20 May-21 Source: Refiniti
Slide 5: Unemployment starting to fall again, inflation picking up
Unemployment starting to fall again, inflation picking up % Employment (YoY, %) 8 Unemployment Rate 32 Private 6 28 4 Covid-19 Adjusted Rate 24 2 20 Total Public 0 16 -2 12 Traditional Rate -4 8 -6 4 -8 Q1 2015 Q1 2016 Q1 2017 Q1 2018 Q1 2019 Q1 2020 Q1 2021 0 Source: CSO via Refinitiv May-15 May-16
Slide 6: Exports perform very strongly throughout the pandemic
Exports perform very strongly throughout the pandemic Ireland a very open economy – exports, driven Exports as % of GDP by large scale FDI, are a huge part of economy Finland UK Exports rise strongly in recent years, helped by Germany large FDI inflows France Pharma, medical care products, IT
Slide 7: House building hold up, but commencements fall sharply
House building hold up, but commencements fall sharply Total completions amounted to 20,676 in 2020, just 2% Irish Housing Activity down on 2019 level despite a 6-week lockdown 40,000 35,000 Planning permissions increased again last year – up 30,000 13.5% - but steep fall in Q1 2021 during lockd
Slide 8: House prices on marked upward trend
House prices on marked upward trend House prices declined by very sharp 55% over 2007-13 % National House Price Inflation % 3.0 Prices have since recovered strongly; 91% above trough 2.5 by April 2021, but still 14.5% below 2007 peak 2.0 1.5 CSO data show house prices little changed over 2019-
Slide 9: 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 32,000 31,000 25,000 25,000 Shortage of housing, high rents, Formation tighter lending rules saw average of which h
Slide 10: Private sector deleverages, Gov. debt ratios move higher
Private sector deleverages, Gov. debt ratios move higher Irish Household Debt Ratio Irish Private Sector Credit (Inc Securitisations) as % GNI* % (% of Disposible Income) % 220 350 200 300 250 180 200 160 150 140 100 120 50 100 0 Q4 2002 Q4 2004 Q4 2006 Q4 2008 Q4 2010 Q4 2012 Q4 2014 Q4 2016 Q4 201
Slide 11: Big 2020-21 budget deficits to decline sharply in 2022-23
Big 2020-21 budget deficits to decline sharply in 2022-23 Budget deficit fell sharply in last decade, with 2 General Government Balance* (% GDP) small surpluses recorded in 2018 and 2019 0 However, Covid-19 and efforts to mitigate it saw -2 the public finances deteriorate during 2020 -4 Tax re
Slide 12: Economy was in very strong shape ahead of Covid shock
Economy was in very strong shape ahead of Covid shock Economy was in very strong shape ahead of being hit by very deep 2020 Covid recession Well balanced, robust underlying growth of circa 5% per annum over 2013-19 period Large inflows of FDI and strong export growth remain key features of the
Slide 13: Factors in place for strong rebound by Irish economy
Factors in place for strong rebound by Irish economy Key ingredients in place for a strong rebound by Irish OECD GDP Forecasts (June 2021) economy from mid-2021 onwards % Vol 2020 2021 2022 Rollout of vaccines gathering momentum, with World -3.5 5.8 4.4 economies reopening here and elsewhere OEC
Slide 14: AIB Irish Economic Forecasts
AIB Irish Economic Forecasts % change in real terms unless 2019 2020 2021 (f) 2022 (f) 2023 (f) stated GDP 5.6 3.4 8.0 5.5 4.0 GNP 3.4 0.6 5.0 5.0 3.5 Modified Final Domestic Demand 3.3 -5.4 4.0 5.3 3.7 Personal Consumption 3.2 -9.0 3.5 7.5 4.0 Government Spending 6.3 9.8 2.0 -1.5 1.0 Fixed Investme
Slide 15: Brexit: The EU-UK Trade & Cooperation Agreement
Brexit: The EU-UK Trade & Cooperation Agreement The Trade Deal: EU and UK finally agreed on a trade deal before end 2020, thereby allow for continuing tariff-free and quota-free trade in goods However, the FTA is much inferior to the EU Single Market, involves a lot of extra admin costs and dela
Slide 16: Ireland's 12.5% Corporate Tax regime at risk
Ireland’s 12.5% Corporate Tax regime at risk Importance of FDI: Some 1,600 multinational companies are based in Ireland, accounting for over 250,000 in direct employment or about 18% of total jobs in terms of direct and indirect employment. Corporation tax accounts for €12bn or circa 20% of tota
Slide 17: Ireland has other advantages besides low tax rate
Ireland has other advantages besides low tax rate Ireland will remain attractive FDI location: Big multinationals will still need to retain large global operations, whatever happens in the tax field US companies require employees with language skills to service European customers in European tim
Slide 18: Reprise of risks to the Irish economy
Reprise of risks to the Irish economy Main near term risk is still Covid-19 – concerns about new variants Virus could leave lasting scarring effects – high business failures & bad debts, job losses Very open nature of Irish economy means it is exposed to any weakening in global economy Chang