IRELAND: PROGRAMME EXIT ACHIEVED Ireland hit its targets for a third - PowerPoint PPT Presentation

IRELAND: PROGRAMME EXIT ACHIEVED Ireland hit its targets for a third year in 2013 January 2014

Index Page 3: Summary Page 7: Macro Page 27: Fiscal & NTMA Funding Page 41: Rebalancing Page 50: Property Page 57: NAMA Page 68: Banking 2

SUMMARY Ireland continues its recovery 3

Ireland looking less fragile following further progress • Government probably beat deficit target again last year Full year Central Government fiscal data for 2013 were healthy; Revenue was  slightly ahead of target and expenditure control was tight Nominal GDP catch up in Q2 and Q3 suggest full year forecast within reach,  despite drag from patent cliff in pharma sector throughout the year (esp. in Q1) Forecast deficit outturn of 7.3% of GDP for 2013 on October 15 th is conservative  • Economy picked up in the second half of 2013 after weak Q1 PMI surveys have improved: services at seven-year high, retail sales bounced in  Q3 and unemployment rate is down to 12.4% - lowest since June 2009 First quarter soft patch was weakest point of the year: the euro area economy  pulled out of recession in the second quarter and the UK has strengthened Ireland’s GDP growth was among the quickest in the euro area in 2013 and it is  expected to take high rank in 2014 - marking four consecutive years of growth • Contingent liabilities for the State dwindling and net debt c. 100% of GDP Ireland's main contingent liability being reduced: NAMA met its 2010-2013  target to repay € 7.5bn of its senior bonds before end-2013 Net Government debt was likely just under 100% at end-2013, as Ireland  husbands large financial resources to offset a large chunk of its gross debt 4

State has already tapped the market in 2014 • NTMA had funded the State into part of 2015 by the end of last year Two bond issues, promissory note deal and term extensions meant Ireland was  funded into early 2015 by the end of 2013; held cash of € 18.5bn at end-year • Investor demand solid when the NTMA came to market this January Sold € 3.75bn in 10-year deal through syndication at a record low yield of 3.54%  Broader investor interest than in previous benchmark (March 2013): some 400  investors submitted bids, including fund managers, pension funds, banks and insurance companies. More than 83 per cent of demand from overseas investors; including the U.K. (26% of total), the Nordic region (15%), Germany, Austria and Switzerland (14%), U.S. and Canada (14%), Middle East & Asia (4%) This followed the initial return to the Treasury Bill and bond market in 2012 and  two successful forays in early 2013: sales of € 7.5bn in total in 10-year and 5- year deals through syndication Ireland continues to engage with investors on a regular basis: the NTMA  conducted two non-deal roadshows each year during 2011, 2012 and 2013 • State exited bailout at end-2013 Last Troika mission of Programme took place in early November  Government did not apply for any support in the form of a credit line  Budget 2014 implemented on October 15 th (brought forward under “2 - pack”)  5

Irish bond market best investment-grade euro area performer for third consecutive year in 2013 (yld: %) 25 20 Moody's downgrade EU/IMF loan rate reduction LTRO 15 announced PCAR by ECB results EU/IMF EU summit Programme commitment Bank losses on NAMA 10 & NTMA issuance haircuts, OMT recommences rising ELA & announced Deauville Agreement NTMA returns with syndicated bond deals 5 0 Jan 10 Apr 10 Jul 10 Oct 10 Jan 11 Apr 11 Jul 11 Oct 11 Jan 12 Apr 12 Jul 12 Oct 12 Jan 13 Apr 13 Jul 13 Oct 13 10 Year 2 Year Source: Bloomberg (weekly data) 6

SECTION 1: MACRO Ireland’s economy likely grew for third year in 2013; PMIs still well above euro area average; Labour market has turned after five years of difficulty 7

Ireland is expected to rank among fastest growing economies in the euro area in 2013 and 2014 4.0 2.0 Real GDP (% Change Year-on-Year) 0.0 -2.0 -4.0 -6.0 -8.0 -10.0 2013 2014 Source: IMF World Economic Outlook, Oct 2013 8

Exports continue to drive recovery as domestic drag lessens (annual real GDP growth contributions, p.p.) 8 6 4 Percentage point contributions 2 0 -2 -4 -6 -8 -10 -12 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Domestic Demand (ex. Stocks) Net Exports Value of Stocks Real GDP Sources: NTMA, CSO and Department of Finance (SPU April, 2013) 9

Ireland’s tradable sectors perform best in long run (gross output by main sector, Q1 1997 = 100) 220 200 180 160 140 120 100 80 60 Q1 1997 Q3 1998 Q1 2000 Q3 2001 Q1 2003 Q3 2004 Q1 2006 Q3 2007 Q1 2009 Q3 2010 Q1 2012 Q3 2013 Agriculture Industry Construction Distr., Transport, Software and Comms. Public Admin. and Defence (All) Other Services Source: CSO 10

Business surveys point to sustainable recovery Strength of services PMI likely to continue as Domestic activity also expected to backlogs build (50 is no change level) strengthen further in Q3 from low base 70 4 20 65 2 10 Best since 0 0 early 2007 60 -2 -10 55 -4 -20 50 -6 -30 45 -8 -40 40 -10 -50 35 -12 -60 30 -14 -70 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 25 2009 2009 2010 2010 2011 2011 2012 2012 2013 2013 20 Domestic Demand (% Y-Y) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 IBEC Domestic Sales Component of Business Confidence Index Services PMI Services PMI: backlogs of work - 2Q MA (RHS) Sources: IBEC; CSO Source: Markit; Investec 11

Ireland continues to perform well relatively Ireland growing faster than euro area (Irish PMIs show divergent performances with recent composite PMI less EA composite PMI) uptick more broad-based (Base: June 2000=100) 250 10 8 200 6 4 150 2 0 100 -2 -4 50 -6 0 -8 2000 2002 2004 2006 2008 2010 2012 -10 Services PMI as index (June 2000 =100) 2006 2007 2008 2009 2010 2011 2012 2013 Manufacturing PMI index Construction PMI index Sources: Markit; Bloomberg; Investec Sources: Markit; Bloomberg; Investec; NTMA workings Note: Index is based on cumulative performance of diffusion index relative to the 50 no-change mark 12

Services exports lead the expansion in external trade; forward indicators still robust Services: New Export Orders (PMI) and Goods: New Export Orders (PMI) and Actual Actual Exports (QNA) – Seasonally Adjusted Exports (QNA) – Seasonally Adjusted 20 70 10 65 8 15 65 60 6 10 60 4 55 5 55 2 0 50 0 50 -2 -5 45 45 -4 -10 40 -6 Set to 40 -15 35 bounce? -8 -10 35 -20 30 2002 2004 2006 2008 2010 2012 2002 2004 2006 2008 2010 2012 PMI: New Export Orders Sadj. (RHS) Goods Exports Sadj. % Q-Q New Export Orders Sadj. (RHS) Export of Services % Q-Q Sadj Sources: Investec, CSO and NTMA calculations 13

Structural changes in pharmaceutical sector have tempered export growth on goods side Weak exports in pharma reflect patent expiries Global losses owing to patent expiries expected to have peaked in 2012 (Quarterly goods export values, change Y-Y € bn) 4.0 45 8 Increased investment in biopharma may 40 7 3.0 mitigate some losses 35 6 2.0 30 5 1.0 25 4 20 0.0 3 15 -1.0 2 10 -2.0 1 5 -3.0 0 0 2007 2008 2009 2010 2011 2012 2013 2001 2003 2005 2007 2009 2011 2013e 2015f Sales lost due to patent expiry ($bn) Chemicals and related products Other goods Ratio sales replaced/sales lost to patent-expired products (RHS) Sources: CSO; NTMA workings Source: Accenture For more information see: Accenture (2012) ‘Biopharmaceutical Industry High Performance Business Study - 2012 Update’ 14

Retail sales bounce back in Q3 as car sales jump Consumer confidence has recovered Signs of life in retail sales after weak H1 130 125 120 120 110 Best since 115 Index (3 Month Moving Average) mid-2007; 100 Index (Jan 2005 = 100) 110 helped by 90 rate cuts 105 80 100 70 Car sales have been 60 95 weak for 50 90 five years 40 85 Jan 05 Jan 07 Jan 09 Jan 11 Jan 13 30 Jan 00 Jan 02 Jan 04 Jan 06 Jan 08 Jan 10 Jan 12 Retail Sales excl. Motor Trades - Volume All Retail Sales - Volume Source: ESRI; KBC Source: CSO 15

Labour market showing consistent improvement Employment grows for fourth consecutive Unemployment rate down to 12.8% (Q3); quarter (12.4% extrapolating from Live Register) 16 2,200 14 2,100 12 2,000 Persons Thousands 10 1,900 8 % 1,800 6 1,700 4 1,600 2 1,500 0 1,400 Q1 1998 Q1 2001 Q1 2004 Q1 2007 Q1 2010 Q1 2013 Q1 1998 Q1 2001 Q1 2004 Q1 2007 Q1 2010 Q1 2013 Unemployment Rate Source: CSO Long-Term Unemployment Rate (NSA) 16

Private sector employment offsetting public sector declines; rise in participation rate signals confidence Private sector employees growing again The labour force participation rate has shown evidence of stabilisation (% change Y-Y) 4% 65 2% 64 0% 63 -2% -4% 62 -6% % 61 -8% 60 -10% -12% 59 -14% 58 Q1 2009 Q1 2010 Q1 2011 Q1 2012 Q1 2013 Private sector employees (ex-self employed) 57 Public sector employees Q1 1999 Q3 2002 Q1 2006 Q3 2009 Q1 2013 Source: CSO 17

Net emigration for first time since mid-1990s, but not quite as bad as the late 1980s in % of population terms 200 4% 150 3% 100 2% Persons Thousands 50 1% 0 0% -50 -1% -100 -2% 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 Immigration Emigration Net migration Net migration % population (RHS) Source: CSO 18