Ireland: Begins 2020 in best shape since early 2000s Second straight budget surplus in 2019 January 2020
Index Page 3: Summary Page 8: Macro Page 23: Fiscal & NTMA funding Page 38: Brexit Page 46: Long-term fundamentals Page 57: Property Page 63: Other Data Page 72: Annex (GDP distortions explainer) 2
Summary Full employment as debt sustainability improves
Domestic economy growing: averaging 4%+ since 2014 Dramatic drop in Employment (000s) well True growth healthy unemployment rate above 2008 peak 18.0 30% 200 16.0 25% 16.0 100 20% 14.0 0 15% 12.0 10% -100 10.0 5% -200 8.0 0% -300 -5% 6.0 -400 -10% 4.0 4.8 2008 2011 2014 2017 -15% 2.0 Non-Construction Employment Construction Employment 0.0 GDP Underlying* Total Employment vs 2008 peak 1999 2003 2007 2011 2015 2019 * Underlying series is modified final domestic demand (excludes inventories) 4
Ireland is improving its debt sustainability year-by-year Two years of budget Ireland is improving its debt Debt headed below 100% of surplus ( € bn) dynamics by the month national income 10 180% Debt-to-GNI* 160% 5 (100% 2019f, from 166% peak) 140% 0 120% -5 Debt-to-GG Revenue 100% (243% 2019f, from 353%) -10 80% 60% -15 Average interest rate 40% -20 (2.3% 2019f, from 5.1%) 20% -25 0% 1995 1998 2001 2004 2007 2010 2013 2016 2019f 1995 1998 2001 2004 2007 2010 2013 2016 2019f Debt-to-GDP^ (59% 2019f, from 120%) GG Balance Primary Balance Ireland (GNI*) Ireland (GDP) ^ due to GDP distortions, Debt to GDP is not representative for Ireland, we suggest using other 5 measures listed.
Main risks are external and outside of Ireland’s control Brexit US Tax Corporation tax x reform may Deal is Dea is lik likely to o be be pass passed in in UK K Ireland is still a “high beta” bet on impact Ireland's im 's ec economic model parliament mea parl eaning the the US S ec economy, in the in he medium term. immediate ris im isk is is gon one. in n part particular it its s ICT sec sector. The OECD BEP EPS II pr process ss is is se set to o The catch for or Ireland is is tha hat US S is is in in the la late stag age of of it its s be be completed by en end 20 2020 20 Britain reverts s to o WTO rul ules s in in the economic cy ec cycle, alt although in interest end and en and di diverges s fr from EU EU reg egs. . rate cu cuts s may extend it its s du duration 6
Funding range of € 10-14bn for 2020 – down from 2019 10 years AA- AA € 10 10-14bn One ne of of the the lon longest t weig eighted Irela eland has has be been up upgrade to o AA Funding ran ange is is € 10 10-14bn for or average maturi riti ties s in in Eur Europe spa pace by y S& S&P the com the oming yea ear The he NTM NTMA us used ECB CB QE QE to o Ireland’s debt sustainability has Irela eland has has € 20bn bn+ in in out outfl flows s extend deb debt t maturi rity, redu educe be been im impr proving an and Br Brexi xit ris risk k in 2020, in , so o the the NTM NTMA will ill run run in interest t cos ost t and and rep epay y the the IMF has rece has eceded down som do ome of of its its cash ash buf buffer 7
Section 1: Macro Economy still healthy, but manufacturing has softened in line with global conditions
Labour market best illustrates Ireland’s growth story – Ireland is close to full employment Unemployment rate: down to 4.8% Employment growth consistently above 2%; in December 2019 from peak of 16% average net jobs increase of 15K a quarter 18.0 60 6.0% 40 4.0% 16.0 20 2.0% 14.0 0 0.0% 12.0 -20 -2.0% 10.0 -40 -4.0% 8.0 -60 -6.0% 6.0 2.3m people -80 -8.0% employed 4.0 Ireland back to -100 -10.0% unemployment levels 2.0 2005 2007 2009 2011 2013 2015 2017 2019 seen pre-crisis Total Employment (Quarterly net chg, 000s) 0.0 Total Employment (Y-o-Y growth rate, RHS) 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 Source: CSO 9
High-skill employment an important driver; though labour participation rate has been slow to recover High-skill employment has grown sharply Labour participation has not yet fully (index, 100 = end 2008) recovered as young stay in school 130 68% 67% 120 66% 110 65% 64% 100 63% 90 62% 61% 80 60% Rate inflated pre-crisis by migrant construction workers 70 59% 2006 2008 2010 2012 2014 2016 2018 58% High Skill Other 1998 2001 2004 2007 2010 2013 2016 2019 Source: Eurostat; CSO 10 High sk0ill jobs include the ISCO08 defined groupings Managers, Professionals, Technicians and associate professionals
Wage growth evident in 2019 but uneven across sectors … but disparities remain across sectors Wage growth a driver for increase in compensation of employees… 12% 7% 70 65 10% 6% 60 8% 55 5% 6% 50 4% 45 4% 40 3% 2% 35 2% 30 0% 25 -2% 1% 20 -4% 0% 15 Admin & Support Transport/Storage Wholesale/Retail Arts & Rec IT Fin, Insurance & RE Construction Total Health Accom & Food Education Industry Prof, science & tech Public admin -6% -8% -10% Hours worked Hourly wage Employment Other Compensation 4Q average hourly earnings y-o-y Q2 2019 COE growth (y-o-y) 2019 Q3 average annual earnings ( € 000, RHS) Source: Eurostat, CSO 11
Despite being late cycle, inflation is low; Ireland’s Phillips Curve might be starting to bite Inflation (%) in Ireland similar to rest of euro At full employment, wage growth could area currently – Brexit ref. impact has gone become an issue if Brexit outcome is benign 4 12.0% 3 10.0% y = -0.7267x + 0.0943 Nominal COE growth per head R² = 0.8 2 8.0% 1 6.0% 0 4.0% -1 2.0% -2 0.0% -3 Unemployment -2.0% reached 5% in -4 Q3 2019 -4.0% 2.0% 5.0% 8.0% 11.0% 14.0% 17.0% HICP Ireland HICP Euro Area Unemployment Rate Source: CSO, Eurostat Source: CSO, NTMA analysis; Non-Agriculture employment /wage data on yearly basis (1999-2018) 12
GDP distortions mean we need to look to other metrics; Irish recovery evident when looking at GNI* GNI* was € 197bn in 2018; 7.3% higher than GNI* growth rate averaged 8% in 2013-2018 in 2017 (current prices or cash basis) (current prices or cash basis) 350 40% GNI* is 61% of 300 GDP 30% 250 20% 200 10% 150 0% 100 -10% 50 -20% 0 1995 1999 2003 2007 2011 2015 GDP GNI* GDP Growth GNI* Growth Source: CSO 13 Note: See annex for discussion on the GDP distortions from 2015 onwards
When looking for price-adjusted timely data, modified final domestic demand is the best measure In real terms underlying growth in Ireland MFDD measure driven by consumption; averaged 4.3% since 2014 investment slowed by Brexit uncertainty 15% 10.0% 10% 5.0% 5% 0.0% 0% -5.0% -5% -10.0% -10% -15% -15.0% 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2006 2008 2010 2012 2014 2016 2018 Modified Domestic Demand MFDD (MDD ex stocks) Investment Consumption Govt MFDD Source: CSO Note MDD measure used here includes private consumption, government consumption, building 14 investment, elements of machinery & equipment investment, elements of intangible asset investment. See annex for more detail.
Economy has been driven by multinational growth – in particular ICT; tech grew 26% in year to Sept 2019 Breakdown of the Irish economy by sector – Information and communication sector has Industry (pharma) and ICT are 40% of GVA expanded rapidly in recent years Other, 2.6% 30% 25% P Admin, 20% Industry, Educ & 27.2% 15% Health, Prof, Admin 11.4% 10% and Support , 11.6% 5% 0% Financial, Construction 8.0% + Real Estate, -5% 9.1% -10% Dist, trans, ICT, 17.1% -15% hotels, rest., 13.0% 1997 2000 2003 2006 2009 2012 2015 2018 ICT % of Economy (GVA adjusted for 2015 distortions) ICT Sector (GVA 4Q y-o-y) Source: CSO (2018) Note GVA figures adjusted for distortions in 2015. A depreciation charge was subtracted from 15 industry GVA in 2015 and onwards to take account of multinational effects.
Manufacturing is declining like elsewhere in the world; services are robust but growth has decelerated Ireland’s PMIs slipping much like rest of Manufacturing PMIs across the globe globe – services above 50 however declined in 2019 70 PMI PMI Country Dec Dec 2018 2018 Dec Dec 20 2019 19 65 EU 51.5 46.4 60 France 49.7 50.4 55 Germany 51.5 43.7 50 Italy 49.2 46.2 45 Japan 52.6 48.4 Spain 51.1 47.4 40 UK 54.3 47.5 35 US 53.8 52.4 30 World 51.4 50.1 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 Services Manufacturing Composite 16 Source: Bloomberg
Consumer spending growth consistent around 3% Ireland’s consuming faster than Euro Area Private consumption expanded by 3.3% in 2018 – steady trend emerging peers 12% 115 12% 10% 105 9% 8% 95 6% 6% 85 4% 3% 75 2% 0% 65 0% -3% -2% 55 -4% -6% 45 1997 2000 2003 2006 2009 2012 2015 2018 -6% 1997 2000 2003 2006 2009 2012 2015 2018 Consumption Growth (4Q Y-o-Y) Ireland Euro Area Consumption ( € bns, RHS) Source: CSO; Eurostat 17
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