AIB Group plc · EURONEXT:A5G
AIB — irish economic august 2016
18 slides from AIB's investor presentation, August 2016
Slide 1: The Irish Economic Update
The Irish Economic Update Brexit Poses Challenge to Strong Recovery August 2016 Oliver Mangan Chief Economist April 2013 AIB aibeconomicresearch.com 1
Slide 2: Strong recovery by Irish economy
Strong recovery by Irish economy 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. Ireland en
Slide 3: Huge distortions inflate Irish GDP/GNP figures
Huge distortions inflate Irish GDP/GNP figures GDP/GNP no longer reliable measures of output and Economic Growth (% YoY) 30 income in Ireland. Review underway of National A\Cs 25 Exports, imports, industrial production, investment and 20 Real GDP 15 BoP all distorted by activities of some multi-nati
Slide 4: Many indicators point to robust Irish growth
Many indicators point to robust Irish growth 70 Ireland Mfg and Services PMIs % Core Domestic Spending* (3 Qtr MA, % Yr-on-Yr) 9.0 65 Services 6.0 60 3.0 55 0.0 Manufacturing 50 -3.0 45 -6.0 40 -9.0 35 -12.0 30 -15.0 Jul-06 Jul-08 Jul-10 Jul-12 Jul-14 Jul-16 Q1 2009 Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q
Slide 5: Continuing good data in 2016
Continuing good data in 2016 Continuing good manufacturing PMI data – averaged 52.4 in H1 2016 but fell in July to 50.2 Very robust services PMI to date in 2016 – averages 61.7, near 10 year highs. July at 59.5 Construction PMI performing strongly – averaged 61.1 in H1 2016. At 61 in July Consumer c
Slide 6: Strong jobs growth & falling unemployment
Strong jobs growth & falling unemployment Year Average 2013 2014 2015 2016(f) 2017(f) 2018(f) Unemployment Rate % 13.1 11.3 9.5 7.9 7.2 6.7 Labour Force Growth % 0.4 -0.3 0.5 0.4 0.9 1.0 Employment Growth % 2.4* 1.7 2.6 2.1 1.7 1.5 Net Emigration : Year to April (‘000) 33.1 21.4 11.6 6.0 3.0 0.0 * E
Slide 7: Ireland has very large export base
Ireland has very large export base Ireland a very open economy – exports, driven by Exports as % of GDP huge FDI, equated to 108% of GDP in 2013 Finland UK Major gains in Irish competitiveness since 2009, Germany with weakening of euro also helpful France Italy Exports have risen strongly helped by
Slide 8: Impact of FDI on economy (Source IDA)
Impact of FDI on economy (Source IDA) KEY FDI IMPACTS ON THE IRISH ECONOMY - 1,200 multinational companies - €125bn Exports (70% of Irish exports) - 175,000 Jobs in FDI, 290,000 in total - 70% of Corporation Tax - €13.5bn Spending on services/materials - €8.5bn in Payroll - 67% of Business R&D expen
Slide 9: Strong rebound by domestic economy
Strong rebound by domestic economy Domestic economy contracted by 20% from 2008-12 % Construction Investment (3 Qtr MA, % YoY) 20 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 output rose by
Slide 10: House prices rise as shortages emerge in market
House prices rise as shortages emerge in market Housing output fell by 90% but now past the bottom % 3 National House Price Inflation % 30 of cycle 2 20 Bulk of the new housing stock overhang eliminated 1 10 House prices declined sharply – fell by over 50% 0 0 between their peak in late 2007 and ear
Slide 11: House building rising slowly from very depressed levels
House building rising slowly from very depressed levels Housing completions at 12,700 in 2015, up from 11,000 in 2014 and 8,300 in 2013 Completions up 18% in H1 2016. May reach 15,000 units this year but still at very low levels Annual demand estimated at over 25,000 new units Trend in new housing r
Slide 12: AIB Model of Estimated Potential Housing Demand
AIB Model of Estimated 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 1,0
Slide 13: Gov debt ratio falling, private sector deleveraging
Gov debt ratio falling, private sector deleveraging Gross Gen Gov Debt (% GDP) 140 % 10 Gov Debt Interest (% GDP) 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) 0 Source: Dept of Finance/AIB ERU. Note Inflated/Distorted GDP figues from 2015) 1980 1985 1
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 Budgetary policy turns mildly expansionary -2 in 2015 and 2016 -4 Budget deficit falls sharply in recent years -6 Deficit of under 1% of GDP lik
Slide 15: Economy has capacity to grow strongly but…
Economy has capacity to grow strongly but… Euro Trade Weighted Index* The contraction on the domestic side of economy is 120 well over and it is now recovering strongly 115 Wage growth and very low inflation boosting real 110 spending power 105 Labour market on steadily improving path 100 Constructi
Slide 16: …Brexit is a major headache for Ireland
…Brexit is a major headache for Ireland Brexit has serious implications for Ireland given close economic/trade links with UK Trade with UK equates to 35% of Irish GDP. Thus, it is a key trading partner Hence negative impact of Brexit on UK growth will have knock-on effects in Ireland Sterling has al
Slide 17: 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 4.7 3.5 3.0 GNP 4.7 9.2 18.7 4.2 3.0 2.5 Personal Consumption -0.8 1.7 4.5 3.5 3.0 2.5 Government Spending 0.1 5.4 1.1 1.0 1.0 1.0 Fixed Investment -5.4 18.2 32.7 7.0 6.0 5.0
Slide 18: 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 Recovery in the global economy still quite fragile, with on-going risks and headwinds especially from weak eme