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AIB — Corporate Update (November 2020)

20 slides from AIB's corporate update, November 2020

  1. Slide 1: The Irish Economic Update: Second wave to Covid-19 interrupts recovery from recession

    The Irish Economic Update: Second wave to Covid-19 interrupts recovery from recession November 2020 Oliver Mangan Chief Economist AIB 1

  2. 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

  3. 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) 6 10 Private 4 5 0 2 Total Public -5 0 -10 -2 -15 -4 -20 -6 Q2 2013 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

  4. Slide 4: Steep contraction in activity during Q2 lockdown

    Steep contraction in 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 investment in Q

  5. Slide 5: Domestic spending falls sharply on Covid impact in H1'20

    Domestic spending falls sharply on Covid impact in H1’20 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 c

  6. Slide 6: 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%

  7. Slide 7: Activity picks up over summer as lockdown lifted

    Activity picks up 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 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 Sep-18 Sep-19 Sep-20 Q3 2014 Q3 2015 Q3 2016 Q3 2017 Q3 2018 Q3 2019 Q3 2020 So

  8. Slide 8: Recovery interrupted as new lockdown imposed

    Recovery interrupted as new lockdown imposed  Unemployment rate down to 14.7% by September, but set to rise sharply again in Q4 on lockdown  Core retail sales rebound strongly; up over 21% in Q3 vs Q2 level, +6.5% yoy. Set for fall back in Q4  New car registrations rose in August/Sept after very

  9. 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, up from 18,250 in 2018 35,000  Completions rose by further 17% yoy in Q1 2020, 30,000 25,000 before declining by 32% yoy in Q2 on lockdown impact 20,000  Hous

  10. Slide 10: House prices broadly stable to date this year

    House prices broadly stable to date this year % National House Price Inflation %  House prices declined by very sharp 55% in 2007-13 5 4 25 20 period, but have recovered strongly since then 3 15  Prices up 84% by August 2020 from March 2013 trough 2 10  But house prices still some 18% below 2007

  11. 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

  12. Slide 12: 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) % 240 350 220 300 200 250 180 200 160 150 100 140 50 120 0 100 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

  13. 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 1.8% of GDP in 2019 -4  However, Covid-1

  14. Slide 14: Brexit: EU-UK trade talks enter final crucial stage

    Brexit: EU-UK trade talks enter final crucial 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 to date, with time running out  EU w

  15. 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

  16. 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 %

  17. 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

  18. 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

  19. 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 8.5 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.

  20. Slide 20: Risks to the Irish economy

    Risks to the Irish economy  Main risk is obviously the coronavirus – could continue to weigh heavily on growth & employment  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 globa

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