as more sectors open Irelands economic structure has helped to - PowerPoint PPT Presentation

Ireland: Rebounding as more sectors open Ireland’s economic structure has helped to maintain incomes and government revenues July 2020

Index Page 3: Summary Page 8: Macro Page 15: Covid-19 fiscal response Page 22: Fiscal & NTMA funding Page 38: Long-term fundamentals Page 47: Property Page 54: Brexit Page 63: Other Data 2

Summary Ireland begins recovery; Economy’s structural advantages come to the fore

Economy grew strongly before Covid-19; unemployment peaked in April as workers begin to return Irish wage bill less impacted – Robust growth in run up to U rate uncertain**; more lockdown returned to work in June ICT and Pharma help 600 Latvia 30% Lithuania France 25% 500 Spain Netherlands 20% UK 400 Malta Cyprus 15% Sweden 300 Portugal 10% Luxembourg Denmark Austria 5% 200 EA 19 Finland 0% EU 27 100 Slovenia -5% Belgium Greece 40% of wage 0 Italy bill in most -10% Ireland affected Slovakia sectors -15% Germany 1996 1999 2002 2005 2008 2011 2014 2017 30 35 40 45 50 Unemployment claimants (Index, Jan 20 = 100) Compensation of Employee in most GDP Underlying* affected sectors (% of total) Source: CSO * Underlying series is modified final domestic demand (excludes inventories) ** Whether those on government income supports are unemployed is statistically debatable. Some will have 4 left the labour force, others are just temporarily furloughed . August’s Q2 labour force survey will illuminate.

Ireland used 2014-19 growth to create fiscal room and improve debt sustainability Six years of primary Improved debt position allows Debt fell to 99% of national surplus; run to end in 2020 for fiscal policy to act income but will reverse 10 180% € bns Debt-to-GNI* 160% 5 (99% 2019f, from 166% peak) 140% 0 120% -5 Debt-to-GG Revenue 100% (233% 2019, from 353%) 80% -10 60% -15 Average interest rate 40% -20 (2.2% 2019, from 5.1%) 20% -25 0% 1995 1998 2001 2004 2007 2010 2013 2016 2019e 1995 1998 2001 2004 2007 2010 2013 2016 2019 Debt-to-GDP^ (59% 2019, from 120%) GG Balance Primary Balance Debt to GNI* Debt to GDP ^ due to GDP distortions, Debt to GDP is not representative for Ireland, we suggest using other 5 measures listed.

Covid-19 and Ireland outlook Recession Exposure Policy Ireland’s domestic economy hit New cen Ne centri trist t Government t Irela eland is is in in rece ecess ssion. Key har hard li like oth others s but but coa oalition for ormed. Pos ossi sible qu question is is for or ho how lon long? in internationally-tr traded sect ectors s stim timulus s pac package in in July July (Pharma an and ICT) ) will ill he help This his is is a a bl black ck swan event. The he weather r the the storm orm ECB CB an and Fed acti actions s sho hould cap ap fan an cha chart t of of out outcomes s is is wid ide interest in t cos osts ts an and al allow but but so o far ar the the mos ost extr treme Br Brexit t ris risk k in in bac background nec necess ssary ry fis iscal roo oom out outcomes s ha have be been avoided 6

NTMA has already funded € 20bn of revised funding plan of € 20-24bn for 2020 Fle lexibility 10 years AA- AA Irela eland has has la large cash ash bal balances, s, One ne of of the the lon longest t weig eighted Irela eland has has be been affi firmed in in AA the fin the inal 2020 rede edempti tion average maturi riti ties s in in Eur Europe spa pace by y S& S&P prefu pr funded an and a a yea ear r free of of maturi ring bo bonds s in in 2021 The ECB’s QE enabled NTMA to On n rela elati tive ba basi sis, s, hi hit t to o Irela eland extend deb debt t maturi rities, redu educe may be be le less tha than ot other r Funding will ill com ome from several l in interest t cos ost t and and rep epay y the the IMF. cou ountri tries s gi given mul ulti tinati tionals, s, sou ources. s. Bo Bonds, s, Sh Short rt Term erm No Now ECB CB is is buyi buying ag aggress ssively y rela elati tively smaller dom domesti tic pa paper an and the the Rai ainy Da Day Fun und ag again with ith few li limitati tions s sha hare of of ec economy an and touri ourism sm 7

Section 1: Macro Ireland’s labour market highlights both the recent improvements and the path ahead

Labour market highlights the stark Covid-19 impact but uncertainty about exact numbers as of now True unemployment rate is uncertain: Covid- 820K getting income supports - unclear how many would be considered unemployed 19 adjusted rate 22.5%* down from 28.2% 30 2.4 millions Large caveat: CSO has urged caution 2.3 25 on Covid-19 data. The true labour force number is unknown – the 2.2 22.5 labour force survey for Q2 will be key 20 2.1 16.0 2.0 15 1.9 10 1.8 Note: CSO define 5 1.7 those on wage subsidy scheme as 1.6 0 employed 2005 2005 2006 2007 2008 2009 2010 2010 2011 2012 2013 2014 2015 2015 2016 2017 2018 2019 2020 1.5 1998 1999 2000 2001 2003 2004 2005 2006 2008 2009 2010 2011 2013 2014 2015 2016 2018 2019 Unemployment Total Employment Covid-19 Adjusted Unemployment Source: CSO, Department of Social Protection, NTMA calculations * The CSO have estimated the upper bound of the unemployment rate at 22.5% in June. There is no official data on how employment has been affected yet. The next labour force survey may answer 9 questions about what constitutes being employed and whether those losing jobs will leave the labour market. Thus we give a range of outcomes, as we cannot be accurate now.

Government’s income supports have peaked: those on TWSS are still employed; PUP unemployed (for a time) Around 33% of workforce receiving either Numbers on supports falling as re-opening accelerates – more to come in July one of two Covid-19 income supports 200 100% 1.2 Millions 180 90% 160 80% 140 70% 1 PUP – 412k 120 60% TWSS – 410k 100 50% 80 40% 0.8 60 30% 40 20% 20 10% 0.6 0 0% 0.4 0.2 0 W3W4W1W2W3W4W5W1W2W3W4W1W2W3W4 Temporary Wage Subsidy Scheme March April May June Pandemic Unemployment Payment PUP TWSS Total % of Sector Employment (RHS) 10 Source: Department of Social Protection (as of 6 July), Revenue(as of 2 July), CSO

June’s accelerated re -opening helped boost PMI – manufacturing back above 50 Ireland’s Composite PMI at 44.3 in June, Manu PMI has been less impacted – services Manufacturing held up at 51.0 recovering slowly given later re-opening 60 70 60 50 50 40 Manu 51 40 30 Comp 44.3 30 20 Services 39.7 20 10 10 0 0 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 April May June Services Manufacturing Composite 11 Source: Markit, Bloomberg

Consumption dropped in April; timely payment data shows rebound in May/June Retail sales have begun to rebound – food & Card data shows consumption fell sharply from mid-March & rebound in recent months online sales helping cushion blow 30% 1600 1400 20% 1200 10% 1000 0% 800 -10% 600 -20% 400 -30% Spending in June 2020 down 200 c.5% on June 2019 -40% 0 -50% 2016 2017 2018 2019 2020 All Retail Food Retail Spending on debit and credit cards ( € m, 7 day sum) Source: CSO; DataStream; NTMA calculations; CBI Using Household Budget survey data, we can estimate how much consumption of goods and services can still occur during the lockdown. We make allowances for extra grocery shopping and reduced 12 housing costs given government moratorium policy. * This can be seen as an upper bound, revisions may reduce this.

On a relative basis Ireland could perform better than most EU peers – thanks to big tech/social media companies The Irish wage bill is not going to be as ICT sector will be a bulwark in protecting impacted as other countries incomes in Ireland Latvia Ireland Lithuania UK France Latvia Spain Sweden Netherlands Finland UK Luxembourg Malta France Cyprus Malta Sweden Netherlands Portugal Germany Luxembourg Denmark Denmark EU 27 Austria Cyprus EA 19 EA 19 Finland Slovakia EU 27 40% of Slovenia Lithuania Belgium Spain wage bill in Greece Austria most Italy Belgium Ireland affected Slovenia Slovakia Italy sectors Germany Portugal Greece 30 35 40 45 50 0.0 2.0 4.0 6.0 8.0 10.0 Compensation of Employee in most affected sectors (% of total) % of Compensation of Employee % of Employment Source: Eurostat (2019) Note: Most affected sectors include construction, wholesale and retail trade, transport, 13 accommodation and food service activities, real estate activities, professional, scientific and technical activities; administrative and support service activities, arts, entertainment and recreation