AIB Group plc · EURONEXT:A5G
AIB — The Irish Economic January 2017
20 slides from AIB's investor presentation, January 2017
Slide 1: The Irish Economic Update
The Irish Economic Update Economy Continues To Perform Well Despite Concerns Over Brexit January 2017 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% and GNP down 10% Collapse in construction activity and banking system, severe fiscal tightening, high unemployment.
Slide 3: Economy performed well again in 2016
Economy performed well again in 2016 GDP growth averaged strong 4.5% year-on-year in Q1-Q3 2016 Manufacturing PMI weakened appreciably around mid-year but rebounded strongly in Q4’16 Strong rebound by services PMI at end 2016 after marked decline post Brexit vote in UK Slower growth in service expor
Slide 4: UK Brexit vote had limited impact on Irish data
UK Brexit vote had limited impact on Irish data Ireland Mfg and Services PMIs % Irish Retail Sales (ex-autos) - Volume, YoY, % 70 10 8 65 Services 6 60 4 55 2 Manufacturing 0 50 -2 45 -4 40 -6 35 -8 -10 30 Q4 2007 Q4 2008 Q4 2009 Q4 2010 Q4 2011 Q4 2012 Q4 2013 Q4 2014 Q4 2015 Q4 2016 Dec-06 Dec-08
Slide 5: Strong jobs growth continues; unemployment falls
Strong jobs growth continues; unemployment falls Year Average 2013 2014 2015 2016(f) 2017(f) 2018(f) Unemployment Rate % 13.1 11.3 9.5 8.1 7.2 6.6 Labour Force Growth % 0.4 -0.3 0.5 1.2 1.2 1.1 Employment Growth % 2.4* 1.7 2.6 2.8 2.1 1.7 Net Migration : Year to April (‘000) -33.1 -21.4 -11.6 3.0 10
Slide 6: Large Irish export base performs well
Large Irish export base performs well Ireland a very open economy – exports, driven by Exports as % of GDP huge FDI, equate to well over 100% of GDP Finland Major gains in Irish competitiveness since 2009, Germany UK with weakening of euro also helpful France Exports have risen strongly, helped by l
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: Slower growth by domestic economy last year
Slower growth by domestic economy last year 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 of -10 circa
Slide 10: House prices rebound as big housing shortage emerges
House prices rebound as big housing shortage emerges % National House Price Inflation % House prices declined by a very sharp 55% 5 4 25 20 between their peak in late 2007 and early 2013 3 15 2 10 House prices rebound: up 48.5% by Oct 2016 from 1 5 low in early 2013 as big housing shortage emerges 0
Slide 11: House building rising only slowly from very low levels
House building rising only slowly from very low levels Housing completions at 12,700 in 2015, up from 11,000 in 2014 and 8,300 in 2013 Completions up 17% to Oct 2016. Should reach 15,000 units last year but still at low level Annual demand estimated at 25,000-30,000 units Measures being put in place
Slide 12: AIB Model of Potential Housing Demand
AIB Model of 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 1,000 2,500 3
Slide 13: Gov debt ratio falling, private sector deleveraging
Gov debt ratio falling, private sector deleveraging Gross Gen Gov Debt (% GDP) % Gov Debt Interest (% GDP) 140 10 120 8 100 80 6 60 4 40 20 2 0 2008 2009 2010 2011 2012 2013 2014 2015 2016(f)2017(f)2018(f)2019(f)2020(f) 0 1980 1985 1990 1995 2000 2005 2010 2015 2020 Source: Dept of Finance. (Note In
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 Fiscal policy now mildly expansionary -2 Budget deficit falls sharply in recent years -4 -6 Deficit of some 1% of GDP in 2016 -8 Budget deficit
Slide 15: Brexit is a major headache for Ireland
Brexit is a major headache 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 will hit exports to UK administration, differing trade rules Trade with UK equates toUK 35% and regu
Slide 16: Ireland hopes that hard Brexit will be avoided
Ireland hopes that hard Brexit will be avoided Key will be the trade arrangements put in place between EU and UK post Brexit Ideally, UK would retain access to Single Market and UK/Irish common travel area remains Indications from EU that talks on new trade deal can only begin after UK leaves Thus,
Slide 17: Somewhat slower Irish growth likely ahead of Brexit
Somewhat slower Irish growth likely ahead of Brexit Irish, Eurozone & UK Inflation (HICP Rates) Rebound by Irish economy should continue 6 Construction picking up from still low output levels 4 UK Budgetary policy turns mildly expansionary 2 Activity supported by low interest rate environment FDI st
Slide 18: Actual Brexit could have big impact on Irish economy
Actual Brexit could have big impact on Irish economy ESRI-D/Finance estimate Irish output would be reduced by over 2% 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 a fall back on WTO rules Employment 2% lower
Slide 19: 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 4.5 3.5 3.0 GNP 4.7 9.2 18.7 8.0 3.5 3.0 Personal Consumption -0.8 1.7 4.5 3.2 3.0 2.5 Government Spending 0.1 5.4 1.1 4.5 1.5 1.5 Fixed Investment -5.4 18.2 32.7 6.0 6.0 5.5
Slide 20: 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 Recovery in the global economy still quite fragile, with on-going risks and headwin