AIB Group plc · EURONEXT:A5G
AIB — Corporate Update (August 2017)
23 slides from AIB's corporate update, August 2017
Slide 1: The Irish Economic Update
The Irish Economic Update Strong Growth Continues in 2017 August 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: Indicators remain upbeat despite concerns over Brexit
Indicators remain upbeat despite concerns over Brexit Construction Investment 70 Ireland Mfg and Services PMIs % (Volume, 3 Qtr Moving Average, YoY% Change) 40 65 Services 30 60 20 55 10 Manufacturing 50 0 45 -10 40 -20 35 -30 30 -40 Jul-07 Jul-09 Jul-11 Jul-13 Jul-15 Jul-17 Q1 2007 Q1 2009 Q1 2011
Slide 4: Strong growth continues in 2017
Strong growth continues in 2017 Robust GDP growth of 5.1% in 2016. GDP grew by 6.1% yoy in Q1 2017 Mfg PMI weakened after Brexit vote before rebounding strongly. Hit 56 in June, a 23-month high Strong rebound by services PMI after marked decline on Brexit vote. Averaged 59.4 in Q2 2017 Construction
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 6.3 5.3 4.8 Labour Force Growth % -0.3 0.5 1.2 1.3 1.5 1.6 Employment Growth % 1.7 2.6 2.9 3.1 2.5 2.2 Net Migration : Year to April (‘000)* -5.0 5.0 10.0 15.0 20.0 25.
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 UK Major gains in Irish competitiveness since 2009, Germany 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: Strong recovery by domestic economy in place since 2013
Strong recovery by domestic economy in place since 2013 Consumer Spending Domestic economy contracted by 20% in period from % (Volume, 3 Qtr Moving Average, YoY% Change) 6 2008-2012 with particularly big fall in construction 4 Construction has seen good recovery since 2013, with 2 output up 15% in 2
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 their peak in late 2007 and early 2013 % 5 National House Price Inflation % 25 House prices then rebounded as big housing 4 3 20 15 shortage emerged after 90% fall in house building 2 10 1 5 Supply
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 100,000 Housing Completions 11,000 in 2014 and 8,300 in 2013 90,000 80,000 Completions rose by 18% to 15,000 in 2016 and up 70,000 60,000 by 25% yoy to May 2017. 50,000 Completion should reach 18,50
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 24,000 24,000 24,500 25,500 26,000 Shortage of housing, high rents, Formation tighter lending rules saw average of which house
Slide 13: Govt debt ratio falls, private sector deleverages
Govt debt ratio falls, private sector deleverages Gross Gen Gov Debt (% GDP) % Gov Debt Interest (% GDP) 140 10 120 8 100 80 6 60 4 40 2 20 0 0 2010 2011 2012 2013 2014 2015 2016 2017(f) 2018(f) 2019(f) 2020(f) 1980 1985 1990 1995 2000 2005 2010 2015 2020 Source: Dept of Finance. (Note Inflated/Dist
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 General Government Balance* (% GDP) implemented in 2008-2014 period 2 0 Budget deficit falls sharply to very low levels - -2 down to 0.5% of GDP in 2016. -4 Public finances close to target to date in 201
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 trade rules Trade with UK equates toUK 35% and regulat
Slide 16: Ireland would be impacted by a hard Brexit
Ireland would be impacted by a hard Brexit Unclear what trade arrangements will be put in place between EU and UK post Brexit UK to leave Single Market and possibly Customs Union – does not want common external tariffs Ireland and UK want to preserve common travel area but need will EU agreement on
Slide 17: 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 % 25 % for 25% of total Irish exports to UK 2
Slide 18: 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 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 an
Slide 19: 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 20: Possible Exit Negotiations Timeline
Possible Exit Negotiations Timeline The Withdrawal Terms Future Relationship Transition Arrangements (June-December 2017) (January – June 2018) (July-November 2018) Some key issues Some key issues Some key issues • Disentangling past • Scope of discussions on future • Role of European Court of ties/
Slide 21: Solid Irish growth to continue ahead of Brexit
Solid Irish growth to continue ahead of Brexit Strong rebound 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 4.0 3.5 3.0 GNP 9.0 16.3 9.6 3.5 3.0 2.5 Personal Consumption 2.0 4.2 3.3 3.0 2.5 2.2 Government Spending 4.8 1.8 5.3 1.5 1.5 1.5 Fixed Investment 18.1 27.9 61.2 6.0 5.0 4.5 C
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 from US if Trump administration slashes corporate taxes.