Aib Group Plc · EURONEXT:A5G
Aib — The Irish Economic October 2020
20 slides from Aib's investor presentation, October 2020
Slide 1: The Irish Economic Update: Economy starts to recover from deep Covid recession in H1 2020
The Irish Economic Update: Economy starts to recover from deep Covid recession in H1 2020 October 2020 Oliver Mangan Chief Economist AIB 1
Slide 2: Economy entered Covid recession in very strong shape
Economy entered Covid recession in very strong shape 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 per
Slide 3: Covid hits consumer spending, employment & inflation
Covid hits consumer spending, employment & inflation % Retail Sales (ex-autos) - Volume, YoY, % % Employment (YoY, %) 10 6 Private 4 5 2 0 Total Public 0 -5 -2 -10 -4 -15 -6 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 2018 Q2 2019 Q2 2020 Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 2018 Q2 2019 Q2 2020 Source
Slide 4: Steep contraction in domestic activity during Q2 lockdown
Steep contraction in domestic activity during Q2 lockdown GDP fell by 2.1% in Q1 and 6.1% in Q2, so economy entered a deep recession Modified final domestic demand fell by a very steep 16.4% in Q2 after 1.3% fall in Q1 Sharp declines of 20% in consumer spending and 28% in domestic fixed invest
Slide 5: Domestic spending falls sharply in H1 on Covid impact
Domestic spending falls sharply in H1 on Covid impact Construction Output Average growth rate of 4.25% in modified final % 30 (Volume, YoY% Change) domestic demand in period 2014-19 20 Covid hit sees modified FDD fall by 16.4% in Q2 10 2020, after decline of 1.3% in Q1 0 Consumer spending cont
Slide 6: Goods exports perform well in H1, Services exports fall
Goods exports perform well in H1, Services exports fall 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% in 2
Slide 7: Activity picks up over summer as lockdown lifted
Activity picks up over summer as lockdown lifted AIB Irish Mfg and Services PMIs Consumer Confidence (ESRI - KBC) 70 120 Services 60 100 50 Manufacturing 40 80 30 60 20 10 40 Aug-13 Aug-14 Aug-15 Aug-16 Aug-17 Aug-18 Aug-19 Aug-20 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 Sep-18 Sep-19 Sep-20 Source: Refin
Slide 8: GDP to rebound in Q3 as economy opens up again
GDP to rebound in Q3 as economy opens up again Unemployment rate spiked to Covid-19 adjusted figure of 28.8% in April, but falls to 14.7% by Sept Core retail sales fall by 12.3% in Q2. But rebound strongly; up 20% in July/Aug vs Q2 level, +6%yoy New car registrations rise 2% yoy in August afte
Slide 9: New house building activity falls back in 2020
New house building activity falls back in 2020 Housing completions up 18% yoy to over 21,000 units 40,000 Irish Housing Activity in 2019, a moderation on 2018’s 25% growth rate 35,000 30,000 Housing commencements increase by further 17% in 25,000 2019 to 26,000 units 20,000 15,000 Planning per
Slide 10: House prices stable to date this year
House prices stable to date this year House prices declined by a very sharp 55% between % 5 National House Price Inflation % 25 their peak in late 2007 and early 2013 4 20 House prices have since rebounded as big housing 3 15 shortage emerged after 90% fall in home building 2 10 1 5 Prices up
Slide 11: 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 12: Govt. debt ratios had fallen, private sector deleverages
Govt. debt ratios had fallen, private sector deleverages Government Debt Ratios (%) % 130 % 10 Gov Debt Interest (% GDP) 120 Gen Gov Net Debt /Modified Gross National Income Ratio 8 110 100 6 90 80 4 70 General Gov Gross Debt/GDP Ratio 60 2 50 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020(f) 202
Slide 13: 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 near 2% of GDP in 2019 -4 However, Covi
Slide 14: Brexit: EU-UK trade talks enter crucial phase
Brexit: EU-UK trade talks enter crucial phase 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 Little progress on key issues made in talks to date, with time running out EU
Slide 15: 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 16: 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 17: 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 18: 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 19: AIB Irish Economic Forecasts
AIB Irish Economic Forecasts** % change in real terms unless 2018 2019 2020 (f) 2021 (f) 2022 (f) stated GDP 8.2 5.5 -7.5 6.3 3.5 GNP 6.5 3.3 -6.5 5.5 3.0 Personal Consumption 3.4 2.8 -8.0 5.0 3.0 Government Spending 4.4 5.6 12.0 -5.0 2.0 Fixed Investment* -21.1 94.1 -8.0 4.8 4.0 Exports 10.4 11.1 -
Slide 20: Risks to the Irish economy
Risks to the Irish economy Main risk is obviously the coronavirus – will weigh heavily on growth & employment this year Persistence of 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 r