AIB Group plc · EURONEXT:A5G
AIB — Irish Economic January 2018
23 slides from AIB's investor presentation, January 2018
Slide 1: The Irish Economic Update
The Irish Economic Update Continuing Robust Growth January 2018 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 8.5% and GNP down 11% Collapse in construction activity and banking system, severe fiscal tightening, high unemploymen
Slide 3: Indicators remain upbeat despite concerns over Brexit
Indicators remain upbeat despite concerns over Brexit 65.0 Ireland Mfg and Services PMIs Consumer Confidence (ESRI - KBC) 120 Services 60.0 100 55.0 80 Manufacturing 50.0 60 45.0 40 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Source
Slide 4: Strong growth again in 2017
Strong growth again in 2017 Robust GDP growth of 5.1% in 2016. GDP forecast at 6.5% in 2017 but underlying rate put at 4-5% Mfg PMI hit record high of 59.1 in December - best level since series began in 1998 Services PMI remained very strong in 2017, with index at 60.4 in December Continuing high co
Slide 5: Robust jobs growth; unemployment falls sharply
Robust jobs growth; unemployment falls sharply Year Average 2014 2015 2016 2017(f) 2018(f) 2019(f) Unemployment Rate % 11.3 9.5 7.9 6.2 5.2 4.7 Labour Force Growth % -0.3 0.5 1.2 0.7 1.0 1.2 Employment Growth % 1.7 2.6 2.9 2.6 2.0 1.8 Net Migration : Year to April (‘000) -8.5 5.9 16.2 19.8 25.0 30.0
Slide 6: Large Irish export base performing very well
Large Irish export base performing very well Ireland a very open economy – exports, driven by Exports as % of GDP huge FDI, equate to well over 100% of GDP Finland UK Major gains in Irish competitiveness in this Germany decade, with weakening of euro also helpful France Exports have risen strongly,
Slide 7: 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% - €150bn Exports (64% of Irish exports) - English speaking country - 200,000 Jobs in FDI, 340,000 in total - Wel
Slide 8: Many top global companies have big operations in Ireland
Many top global companies have big operations in Ireland 8
Slide 9: Strong recovery by domestic economy in place since 2013
Strong recovery by domestic economy in place since 2013 Construction Investment % (Volume, 3 Qtr Moving Average, YoY% Change) 40 Domestic economy contracted by 20% in period from 30 2008-2012, with particularly big fall in construction 20 Construction has seen good recovery since 2013, with 10 0 out
Slide 10: House prices rebound as big housing shortage emerges
House prices rebound as big housing shortage emerges 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 3 15 House prices have since rebounded as big housing 2 1 10 5 shortage emerged after 90% fall in house building
Slide 11: 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 100,000 Housing Completions 11,000 in 2014 and 8,300 in 2013 90,000 Completions rose by 18% to 15,000 in 2016 and up 80,000 70,000 by 28% yoy to October 2017 60,000 Completions likely to rise around 19,0
Slide 12: AIB Model of Estimated Housing Demand
AIB Model of Estimated Housing Demand Rising headship rates added circa Calendar Year 2016 2017 2018 2019 2020 8,000 per year to housing demand in 2002-2011 period Household 26,500 26,500 26,500 27,500 27,500 Shortage of housing, high rents, Formation tighter lending rules saw average of which house
Slide 13: Govt debt ratios fall, private sector deleverages
Govt debt ratios fall, private sector deleverages % Government Debt Ratios (%) % Gov Debt Interest (% GDP) 130 10 120 8 110 Net Gov Debt (i.e. ex cash & liquid assets) /modified Gross National Income Ratio 100 6 90 80 4 Gross General Gov Debt/GDP Ratio 70 2 60 50 0 2010 2011 2012 2013 2014 2015 2016
Slide 14: Budget deficit falls sharply – now close to balance
Budget deficit falls sharply – now close to balance Some €30bn (18% of GDP) of fiscal tightening 2 General Government Balance* (% GDP) implemented in 2008-2014 period 0 Budget deficit fell sharply over the course of -2 this decade -4 -6 Public finances were very close to target in -8 2017, with defi
Slide 15: Brexit is a major challenge for Ireland
Brexit is a major challenge 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 hits exports to UK administration, differing rules and Trade with UK equates toUK 35% regulations,
Slide 16: Agri. sector would be severely impacted by hard Brexit
Agri. sector would be severely impacted by hard Brexit Share of Exports by Industry Destined for the UK (ESRI) Main EU tariffs relate to food 50% products, keeping prices up. 45 % UK may not maintain these 40% post-Brexit 35% Food and Beverages account 30 % for 25% of total Irish exports 25 % to UK
Slide 17: Brexit expected to lower growth rate of Irish economy
Brexit expected to lower growth rate of Irish economy Impact of Brexit on Output (% deviation from base) ESRI estimate that Irish output would be reduced by 2-2.5% on a soft Brexit Sharp fall-off in trade with UK likely on a hard Brexit Output almost 4.0 % lower over time if there is hard Brexit and
Slide 18: Irish Government’s Priorities in Brexit Talks
Irish Government’s Priorities in Brexit Talks Border Trade •Trade Avoidwith UKborder a hard equates on to the35% island of • Orderly withdrawal of UK from the EU that of Irish GDP. Thus, it is a key Ireland avoids a hard Brexit or cliff-edge trading partner • Cater for Good Friday Agreement and • Ag
Slide 19: Customs arrangements key issue in Brexit
Customs arrangements key issue in Brexit UK to leave EU, Single Market and Customs Union – does not want common external tariffs Exit deal will need to contain transition arrangements to avoid disruption to trade until EU/UK free trade deal is done. UK suggests common UK-EU Customs Unions during tra
Slide 20: Talks on trade to determine shape of Brexit
Talks on trade to determine shape of Brexit Sufficient progress made on citizens rights, financial settlement and Irish border in Brexit negotiations in H2 2017 to move talks in 2018 on to transition arrangements and future trade Should be able to agree on arrangements for a circa two-year transitio
Slide 21: Strong Irish growth to continue ahead of Brexit
Strong Irish growth to continue ahead of Brexit Strong growth by Irish economy is continuing Irish, Eurozone & UK Inflation (HICP Rates) 6 Construction picking up from still low output levels UK Budgetary policy turns mildly expansionary 4 Activity supported by low interest rate environment 2 FDI st
Slide 22: AIB Irish Economic Forecasts
AIB Irish Economic Forecasts % change in real terms unless 2014 2015 2016 2017 (f) 2018 (f) 2019 (f) stated GDP 8.3 25.6 5.1 6.5 4.0 3.5 GNP 9.0 16.3 9.6 5.0 3.5 3.0 Personal Consumption 2.0 4.2 3.3 2.2 2.7 2.5 Government Spending 4.8 1.8 5.3 2.0 2.0 2.0 Fixed Investment 18.1 27.9 61.2 -12.0 6.0 5.0
Slide 23: 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 Possibility of reduced FDI as US cuts its corporate tax rate from 35% to 21% Questi