AIB Group plc · EURONEXT:A5G
AIB — The Irish Economic July 2020
20 slides from AIB's investor presentation, July 2020
Slide 1: The Irish Economic Update: Economy starts to emerge from very deep 3-month Covid-19 recession
The Irish Economic Update: Economy starts to emerge from very deep 3-month Covid-19 recession July 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 Covid 19 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 hit consumer spending in Q1, but GDP still rose 1.2%
Covid hit consumer spending in Q1, but GDP still rose 1.2% % Modified Final Domestic Demand and Employment % Employment (YoY, %) % 6 7.00 5.0 Private 6.00 4.0 5.00 4 4.00 3.0 3.00 2.0 2 2.00 1.0 1.00 Total 0.00 0.0 0 -1.00 Public -1.0 -2.00 -2 -2.0 -3.00 -4.00 -3.0 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1
Slide 4: Steep contraction in activity during March-May lockdown
Steep contraction in activity during March-May lockdown GDP grew in Q1 by 1.2%. Modified domestic demand fell by 1.3% on decline in consumer spending Sharp decline in GDP on cards for Q2 as economy put into lockdown to contain coronavirus At peak, c.1.2 million or 50% of labour force enrolled
Slide 5: Economy starts to emerge from March-May shutdown
Economy starts to emerge from March-May shutdown AIB Irish Mfg and Services PMIs Consumer Confidence (ESRI - KBC) 70 120 Services 60 100 50 Manufacturing 40 80 30 60 20 10 40 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18 Jun-19 Jun-20 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18 Jun-19 Jun-20 Source: Refin
Slide 6: Early signs of summer rebound as economy opens up again
Early signs of summer rebound as economy opens up again Unemployment rate spikes to COVID-19 adjusted figure of 28.2% in April, but falls to 22.5% by June Numbers enrolled on state income support schemes move lower as COVID-19 restrictions are eased At end June, total at circa 1.1m, down from pe
Slide 7: Exports perform well – pharma boosted by Covid in Q1
Exports perform well – pharma boosted by Covid in Q1 Exports as % of GDP Ireland a very open economy – exports, driven Finland by large scale FDI, are a huge part of economy UK Exports rise strongly in recent years, helped by Germany France large FDI inflows Italy Total exports rose by 10.4% i
Slide 8: Domestic demand falls in Q1 on hit to consumer spending
Domestic demand falls in Q1 on hit to consumer spending Construction Output Construction sees strong recovery since 2013. % 20 (Volume, 3 Qtr Moving Average, YoY% Change) Output grows over 10% on average in 2016-19 Fall of 1.6% in sector’s output in Q1 ahead of 16 cessation of all construction a
Slide 9: House building on steady rise before virus halted activity
House building on steady rise before virus halted activity 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
Slide 10: House price inflation slows sharply
House price inflation slows sharply 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 82
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 28,500 28,000 26,500 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 Debt interest
Slide 14: Brexit: EU-UK trade talks enter more intensive phase
Brexit: EU-UK trade talks enter more intensive phase EU and UK agreed on revised Withdrawal Agreement at last October’s Heads of State Summit NI to remain within Single Market for goods and have dual EU-UK customs system UK left the EU on Jan 31st 2020 in orderly exit. Transition period in pla
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 Irish GDP Forecasts House building picking up from still low output % Vol 2020 2021 levels – big focus of new government IMF -6.8 6.3 Government spending supportive of gro
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 -6.
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 or fresh outbreak could see scarring effects – high business failures, job losses Very open nature of Irish economy means it is quite exposed to global r