advantages, cyclical risks Continued growth in 2018 as unemployment - PowerPoint PPT Presentation

Ireland: Long-term advantages, cyclical risks Continued growth in 2018 as unemployment falls to 5% August 2018

Index Page 3: Summary Page 8: Macro Page 24: Fiscal & NTMA funding Page 42: Brexit Page 48: Long-term fundamentals Page 60: Property Page 67: Other Data Page 77: Annex (GDP distortions explainer) 2

Summary Growth continues and debt dynamics remain in “sweet spot”

Macro picture is positive: Averaging five per cent growth in last four years Inflation still low – partly True growth healthy, Dramatic drop in but slowing? unemployment thanks to Brexit 30% 18 4 25% 16 3 20% 14 2 15% 12 1 10% 10 0 5% 8 -1 0% 6 -5% -2 -10% 4 -3 -15% 2 -4 1996 1999 2002 2005 2008 2011 2014 2017 2009 2011 2013 2015 2017 0 GDP Underlying* HICP Ireland HICP Euro Area 1999 2002 2005 2008 2011 2014 2017 * Underlying series is modified final domestic demand 4

A hat-trick of primary surplus, improving debt dynamics and reduced financing needs Five years of primary Ireland is improving its debt NTMA has reduced near- surplus ( € bn) term issuance needs ( € bns) dynamics by the month 10 30 25 5 20 Debt-to-GNI* 0 (111%, from 166%) 15 -5 10 Debt-to-GG Revenue 5 -10 (263%, from 353%) 0 -15 2018 2019 2020 2021 Average interest rate Recent Reductions -20 (2.9%, from 5.1%) 1995 1998 2001 2004 2007 2010 2013 2016 2019 f Debt Prefunded in Cash Debt GG Balance Primary Balance End 2013 Debt Profile 5

Known unknowns are outside Ireland’s control Late Cycle US Brexit Irela eland is is la later r tha than the the Eur Euro Ireland is still a “high beta” bet “Hard” Brexit could impact Irish Area (EA) in in its its ec economic cy cycl cle on on the the US S ec economy, Growth by y 4% over er a a 4-5 yea ear r thanks tha s to o its its clo close se tie ties s to o US in n par parti ticular r its its ICT sec ector peri period Sl Slowdown in invari riably fol ollows s Impact t of of US S Corp Corporate Tax when Ce Centr tral Ba Banks s mak ake reform rm mon oney de dearer and and mor ore scarce 6

Funding environment still favourable for Ireland in 2018 - € 12.5bn issued already at long maturity 15 years 15 € 13bn € 14 14-18bn fun unding ran ange for or 2018 € 4bn bn rai aise sed thr through the the Ex Expe pected yea ear r end end cash ash syn yndicated sal ale of of a a ne new 15 bal balance. Irel eland pr prefunding 2018 YTD YTD yea ear r ben benchmark rk bon bond. he heading in into mor ore vol olatile ile € 12.5b .5bn of of funding Yiel ield of of 1.31 .319% times tim Average maturi rity y 12.1 .1 yea ears Interest t rate of of 1.04 .04% 7

Section 1: Macro GDP/GNP are misleading. Other metrics show Ireland is growing and closer to full employment

Labour market shows growth story most clearly – 360,000 net new jobs in last six years Unemployment rate: 5.1% Total employment in July 2018 back to previous peak (2008 peak = 100) 18 105 100 16 95 14 90 12 85 10 80 8 Non-Construction 75 Employment 6 above 2008 peak 70 for first time 4 Unemployment 65 approaches 2002-06 2 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 average Non-Construction Employment 0 Total Employment 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 Source: CSO 9

Employment growth driven by high skill job creation; Full- time employment expanded by around 5% in 2017 Employment growth has been driven by high Substantial full-time employment growth in skilled jobs since start of 2014 recent quarters 15% 15% 10% 10% 5% 5% 0% 0% -5% -5% New labour -10% survey method -10% caused unusual -15% reading 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 -15% 2000 2002 2004 2006 2008 2010 2012 2014 2016 Part-time Emp (Y-o-Y) Full-time Emp (Y-o-Y) High Skill Other Employment Growth Employment (Y-o-Y) Source: Eurostat; CSO 10 High Skill jobs include the ISCO08 defined groupings Managers, Professionals, Technicians and associate professionals

Labour participation has not yet recovered – young reaching labour force later Participation rate hovering around 62% Part. rate down as construction jobs lost and younger people stay in education longer 68% 100 90 67% 80 66% 70 65% 60 64% 50 63% 40 62% 30 61% 20 60% 10 Rate inflated pre-crisis by migrant construction 59% 0 workers 15-19 20-24 25-34 35-44 45-54 55-59 60-64 65+ 58% 2007Q3 Peak 2012 2014 2016 2018Q1 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Source: CSO 11

Wages rising slowly, pockets of slack remain in the market Wages and hours worked recovering Wage growth across most sectors but still disparity 32.6 38000 4.5% 60 4.0% 55 32.4 3.5% 50 32.2 37500 3.0% 45 2.5% 40 32.0 2.0% 35 31.8 37000 1.5% 30 1.0% 25 31.6 0.5% 20 31.4 36500 0.0% 15 Fin, Insurance & RE IT Education Prof, science & technical Public admin Accom & Food Health Wholesale/Retail Industry Admin & Support Construction Arts & Rec Transport/Storage 31.2 31.0 36000 30.8 30.6 35500 2009 2011 2013 2015 2017 Hours Worked (Annualised) Annualised Earnings (annualised, € , RHS) 4Q average hourly earnings y-o-y 2018 Q1 average annual earnings ( € 000, RHS) Source: CSO 12

Ireland’s labour market is edging closer to full employment - US and UK likely already there Unemployment (%) close to lows in Ireland’s Unemployment rates (%) falling across Europe; falling faster here main trading partners 2012 2016 2017 18Q1 12 Germany 5.4 4.2 3.8 3.5 10 Netherlands 5.8 6.0 4.9 4.1 Austria 4.9 6.0 5.5 5.0 8 Luxembourg 5.1 6.3 5.6 5.3 Slovenia 8.9 8.0 6.6 5.6 6 Ireland 15.5 8.4 6.7 5.8 Belgium 7.6 7.9 7.1 6.1 4 Sweden 8.0 6.9 6.7 6.2 EU 28 10.5 8.6 7.6 7.1 2 Portugal 15.8 11.2 9.0 7.7 0 Euro Area 11.4 10.0 9.1 8.6 US UK Ireland Euro Area France 9.8 10.1 9.4 9.2 Current U rate U Rate (20 yr average) Italy 10.7 11.7 11.3 11.0 Lowest U Rate in 20 yrs Spain 24.8 19.6 17.2 16.2 13 Source: Eurostat, 15-74 age basis; DataStream 20 year average = 1998 Q2 to 2018 Q1

External environment less helpful for Ireland 2015 2016 2017 2018/19 Less EA Monetary Policy Accommodative Accommodative Accommodative accommodative Accommodative Further tightening: US Monetary Policy Accommodative Accommodative but tightening curve inversion? Stimulative in 2018; US growth Stimulative Less stimulative Stimulative fiscal drag in 2019 Oil price Falling Falling Rising Rising Less favourable; UK growth Stimulative Growth slowing Brexit crunch Brexit impact Euro currency Very Helpful Helpful Headwind Neutral 14

GDP distortions mean we need to look to other metrics; Irish recovery evident when looking at GNI* GNI* was € 181bn in 2017; 9.4% higher than GNI* growth rate averaged 7.5% 2013-2017 in 2007 (current prices) (current prices) 300 40.0% 250 30.0% 200 20.0% 150 10.0% 100 0.0% 50 -10.0% 0 -20.0% 1995 1999 2003 2007 2011 2015 1996 2000 2004 2008 2012 2016 GDP GNI* GDP Growth GNI* Growth Source: CSO 15 Note: See annex for discussion on the GDP distortions from 2015 onwards

Modified Domestic Demand (MDD) – a reflection of the home economy - is best cyclical indicator 20%  GNI* is useful but not timely. MDD is released on a quarterly and real basis. 15%  MDD ignores the net exports channel. It also 10% omits aircraft leasing and IP imports from investment to give a modified measure of 5% domestic demand. 0%  The measure includes: -5% private consumption  government consumption  -10% building investment  elements of machinery & equipment  -15% investment -20% elements of intangible asset investment  1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 value of physical changes in stock  Modified Dom. Demand (Real)  This measure pegs real growth closer to 4.0% in Modified Dom. Demand (Nominal) the year to Q1 2018. Since 2014, annual growth has averaged over 5% when looking at MDD. Source: CSO, four quarter sum growth rate used to strip out substantial quarterly volatility. 16 Note MDD includes inventories. Large inventories in Q4 2016 added a further degree of volatility into MDD data.

Growth slowed a little in 2017 thanks to less helpful external environment Ireland’s PMIs are all expanding but down Most reliable metrics hint at slower growth from heights of 2016 70 20% 15% 65 10% 60 5% 0% 55 -5% 50 -10% 45 -15% -20% 40 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2010 2011 2012 2013 2014 2015 2016 2017 2018 MDD (real) Consumption (Real) GNI* (nominal) Services Manufacturing Composite Source: CSO; Markit, Bloomberg, Investec 17 Note MDD measure used here excludes inventories. Large inventories in Q4 2016 added a further degree of volatility into MDD data.