Slide 1: The Irish Economic Update: Second Covid wave interrupts recovery
The Irish Economic Update: Second Covid wave interrupts recovery, but news on vaccines improves prospects December 2020 Oliver Mangan Chief Economist AIB 1
Slide 2: Economy in very strong shape ahead of Covid shock
Economy in very strong shape ahead of Covid shock Irish economy was in very strong shape ahead of being hit by very deep H1 Covid recession Economy had recovered strongly from severe recession of 2009-2012 period Well balanced, robust underlying growth of circa 5% per annum over 2013-19 period
Slide 3: Big Covid hits to domestic demand, employment, inflation
Big Covid hits to domestic demand, employment, inflation % Modified Final Domestic Demand Employment (YoY, %) % (% Yr-on-Yr) 8 10 6 5 Private 4 0 2 -5 Total Public 0 -10 -2 -15 -4 -20 -6 Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 2018 Q2 2019 Q2 2020 Q3 2013 Q3 2014 Q3 2015 Q3 2016 Q3 2017 Q3 2018 Q
Slide 4: Domestic spending fell sharply on Covid impact in H1'20
Domestic spending fell sharply on Covid impact in H1’20 Construction Output Covid hit saw modified final domestic demand fall % 30 (Volume, YoY% Change) by 16.4% in Q2 2020, after decline of 1.3% in Q1 20 Consumer spending contracted by 19.6% in Q2 10 following fall of 3.6% in Q1 0 Core retail
Slide 5: Goods exports performed well in H1'20, services exports fell
Goods exports performed well in H1’20, services exports fell 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 Total exports rose by 10.4%
Slide 6: Activity rebounded over summer as lockdown lifted
Activity rebounded over summer as lockdown lifted AIB Irish Mfg and Services PMIs % Retail Sales (ex-autos) - Volume, YoY, % 70 10 Services 60 5 50 Manufacturing 0 40 -5 30 -10 20 10 -15 Oct-13 Oct-14 Oct-15 Oct-16 Oct-17 Oct-18 Oct-19 Oct-20 Q3 2014 Q3 2015 Q3 2016 Q3 2017 Q3 2018 Q3 2019 Q3 2020 S
Slide 7: New lockdown in Q4, but prospects brighten on vaccines
New lockdown in Q4, but prospects brighten on vaccines Unemployment rate down to 14.7% by September, but rising sharply again in Q4 on new lockdown Core retail sales rebound strongly; up 22% in Q3 vs Q2 level, +7.2% yoy. Flat in October vs Sept New car registrations rose in August-October peri
Slide 8: New house building activity holds up in 2020
New house building activity holds up in 2020 Housing completions rose 18% yoy to over 21,000 units Irish Housing Activity in 2019, up from 18,250 in 2018 40,000 35,000 Completions down by 32% yoy in Q2 on lockdown 30,000 impact, but recover in Q3 – were strong in Q1 also 25,000 20,000 Housing
Slide 9: House prices broadly stable this year
House prices broadly stable this year National House Price Inflation % % House prices declined by very sharp 55% in 2007-13 6 24 5 20 period, but have recovered strongly since then 4 16 Prices up 84% by Sept 2020 from March 2013 trough 3 12 2 8 But house prices still some 18% below 2007 peak 1
Slide 10: 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 11: Private sector deleverages, Govt. debt ratios rising again
Private sector deleverages, Govt. debt ratios rising again 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 Q2 2002 Q2 2004 Q2 2006 Q2 2008 Q2 2010 Q2 2012 Q2 2014 Q2 2016 Q2 2
Slide 12: Blowout budget deficit in 2020 despite resilient tax take
Blowout budget deficit in 2020 despite resilient tax take Budget deficit declined sharply over last decade, 2 General Government Balance* (% GDP) with small surpluses recorded in 2018 and 2019 0 Primary budget surplus (i.e. excluding debt -2 interest) of 1.8% of GDP in 2019 -4 However, Covid-1
Slide 13: Brexit: EU-UK trade talks in crucial final stage
Brexit: EU-UK trade talks in crucial final stage UK left the EU on Jan 31st 2020 in orderly exit. Transition period in place until end 2020 UK government has ruled out extending the transition period beyond this date Slow progress on key issues in talks, with time running out EU wants consid
Slide 14: Key points about any EU-UK Free Trade Agreement
Key points about any EU-UK Free Trade Agreement Any FTA will be much inferior to the EU Single Market, involve a lot of extra admin costs Significant restrictions on trade will come into play in a FTA– new customs procedures, compliance with onerous rules of origin requirements, more regulations
Slide 15: Food industry is very dependent on UK market
Food industry is very dependent on UK market Share of Exports by Industry Destined for the UK (ESRI) Food and Beverages account for 25% of Irish exports to UK 50% Around 40% of Irish food 45 % 40% exports go to the UK – key 35% market for beef and cheese 30 % UK could impose tariffs on EU 25 %
Slide 16: Brexit to lower growth rate of Irish economy
Brexit to lower growth rate of Irish economy Multiple hits to the Irish economy if there is a no EU-UK Trade deal at end of transition period: further sharp fall in sterling, weak UK economy, disruption to trade/supply lines, tariffs, new administrative and regulatory costs etc. Sharp fall-off i
Slide 17: Key medium-term Irish growth drivers remain in place
Key medium-term Irish growth drivers remain in place Favourable medium-term drivers of strong Irish growth remain in place OECD GDP Forecasts (Sept 2020) House building picking up from still low output % Vol 2020 2021 levels – big focus of new government World -4.5 5.0 Government spending supp
Slide 18: AIB Irish Economic Forecasts
AIB Irish Economic Forecasts % change in real terms unless 2018 2019 2020 (f) 2021 (f) 2022 (f) stated GDP 8.5 5.6 -3.0 5.0 4.5 GNP 7.3 3.4 -2.5 4.5 4.0 Personal Consumption 2.8 3.2 -10.5 5.5 3.5 Government Spending 5.8 6.3 8.0 -2.5 2.0 Fixed Investment* -6.2 74.8 -17.0 -0.5 5.0 Exports 11.1 10.5 0.
Slide 19: Risks to the Irish economy
Risks to the Irish economy Main risk is still the coronavirus – could continue to weigh heavily on growth & employment Persistent virus could see scarring effects – high business failures, rising bad debts, job losses Very open nature of Irish economy means it is quite exposed to global recess