Ireland: Good starting point to fight crisis Ireland reached the higher ground of budget surpluses, full employment and stronger balance sheets: will help it to weather black swan event April 2020
Index Page 3: Summary Page 8: Macro Page 16: Covid-19 fiscal response Page 22: Fiscal & NTMA funding Page 35: Long-term fundamentals Page 45: Property Page 51: Brexit Page 58: Other Data 2
Summary Ireland better placed than most in the Euro Area to weather Covid-19 recession
Economy grew strongly before Covid-19; initial unemployment swing will be large like other countries Robust growth in run up to Recovery in unemployment Employment fell over 300K in lockdown rate reversed temporarily March; more to come 18 2.4 30% Millions 16.0 25% 2.3 16 20% 2.2 14 15% 2.1 12 10% 2.0 10 5% 1.9 8 0% 1.8 6 -5% 1.7 -10% 4 4.8 1.6 -15% 2 1996 1999 2002 2005 2008 2011 2014 2017 1.5 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020f 0 GDP Underlying* 2000 2004 2008 2012 2016 2020 Source: CSO 4 * Underlying series is modified final domestic demand (excludes inventories) ** Dotted lines indicate unofficial estimates using live register data. Should be taken as purely indicative
Ireland used 2014-19 growth to create fiscal room and debt sustainability; will be needed in the years ahead Six years of primary Improved debt position allows Debt hit 100% of national surplus ( € bn) for fiscal policy to act income but will reverse 10 180% Debt-to-GNI* 160% 5 (100% 2019f, from 166% peak) 140% 0 120% -5 Debt-to-GG Revenue 100% (236% 2019f, from 353%) 80% -10 60% -15 Average interest rate 40% -20 (2.3% 2019f, 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% 2019f, 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 Irish rish fisc iscal res esponse se cu curr rrently ly Irela eland is is he headed for or rece ecess ssion. wil ill be be hi hit t har hard li like oth others s but but at t 3.3% .3% of of GNI* NI*, mor ore cou ould Key que questi tion is is for or ho how lon long? ther there ar are e rela elati tive pos positi tives. . fol ollow if if nee needed. This his is is a a bl black ck swan event. The he Our ur in internati tionally y tr traded ECB CB an and Fed acti actions s sho hould cap ap Fan cha chart t of of out outcomes s is is wid ide sec ectors s (Pharm rma and and ICT) ) wil ill interest in t cos osts ts an and al allow so o for orecasti ting is is of of li littl tle val alue. help weath help ther r the the stor orm nec necess ssary ry fis iscal roo oom 6
€5bn already funded in 2020; NTMA’s original € 10-14bn plan will be exceeded but Ireland relatively better placed 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 up upgraded to o the the Apri pril 2020 red edempti tion average maturi riti ties s in in Eur Europe AA space by y S& S&P pr prefu funded an and a a yea ear r free of of maturi ring bo bonds s in in 2021 The he NTM NTMA us used ECB CB QE QE to o On n rela elati tive ba basi sis, s, Irela eland may y extend deb debt t maturi rities red educe be le be less hit hit tha than ot other r cou ountr tries Funding will ill com ome from several l interest in t cos ost t and and rep epay y the the IMF. gi given mul ulti tinati tionals, s, rela elati tively sou ources. s. Bo Bonds, s, ST pap paper r an and Now the No the ECB CB has has start arted to o smaller dom domesti tic sha hare of of the the the rai the ainy y da day fun und. buy buy ag again wit ithout t li limits ts ec economy an and tour ourism sm sect ector Irela eland has has la large cash ash bal balances, s, 2020 red edempti tions s pr prefu funded, min inimal red edempti tions s in in 2021 7
Section 1: Macro Q2 numbers will be grim but structure of Ireland’s economy will help cushion impact
Labour market illustrated Ireland’s march to recovery and full employment; now highlights the stark Covid-19 impact Unemployment rate: Live register data Employment growth temporarily reversed suggest rate above 16% in March 2020 18 100 6.0% 4.0% 50 16 2.0% 0 14 0.0% -50 12 -2.0% -100 -4.0% 10 -150 -6.0% 8 -200 -8.0% -250 -10.0% 6 -300 -12.0% 4 >300K added to -350 -14.0% unemployment in two 2 2005 2007 2009 2011 2013 2015 2017 2019 weeks Total Employment (Quarterly net chg, 000s) 0 Total Employment (Y-o-Y growth rate, RHS) 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 Source: CSO NTMA calculations 9 ** Dotted lines indicate unofficial estimates using live register data. Should be taken as purely indicative
PMIs have tumbled like other countries but Ireland’s contraction less than most – timing of lockdown a factor Ireland’s Composite PMI at 37.3 in March, After brief upswing after Brexit reprieve, Manufacturing held up at 45.1 PMIs have fallen sharply on Covid-19 60 70 55 65 50 60 45 55 40 50 Manu 35 45 45.1 30 Comp 40 37.3 25 35 Services 20 32.5 30 January Composite PMI March Services Manufacturing Composite 10 Source: Bloomberg
During lockdown, Pharma and ICT will stabilise GVA; domestic sectors in lockdown or have reduced capacity Domestic Estimated 2019 data MNCs GVA Wage Bill^ Owned % of normal ( € Billions) Profits^^ Profits^^ output 3.1 0.7 2.4 0.0 >75% Agri, Forest & Fish 112.4 14.1 7.9 90.3 >75% Industry (incl. Pharma) 9.7 4.5 5.0 0.2 <25% Construction 36.2 19.8 10.0 6.0 <25% Dist, Transport, Hotels & Rest. 44.7 8.3 1.9 34.7 >75% ICT 23.3 9.2 5.1 9.3 >75% Financial & Insurance 20.9 0.7 20.1 0.0 <50% Real Estate 33.7 12.8 5.6 15.6 >75% Prof, Admin & Support 33.7 28.3 5.5 0.1 >75% P Admin, Educ. & Health 4.4 2.1 2.1 0.1 <25% Arts, Other 324.2 100.6 65.4 156.3 - All Sectors Source: CSO (2019) NTMA calculations Note GVA figures are not adjusted for distortions by multinationals. ^ Wage Bill is given by 11 compensation of employees in national accounts ^^ Profits are given by Gross Operating Surplus in national accounts
On a relative basis Ireland could perform better than most EU peers – ICT to pay its part The Irish wage bill is not going to be as ICT sector will 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, 12 accommodation and food service activities, real estate activities, professional, scientific and technical activities; administrative and support service activities, arts, entertainment and recreation
Most foreign-owned multinationals are shielded but aircraft leasing is exposed (as are Irish-based airlines) Covid-19 outlook – plummeting travel Timely CSO data on aircraft leasing in Ireland show a small but valuable sector numbers will endanger leasing contracts Estimated € 250bn hit to global passenger revenues 2018 from Covid-19* Impacts Ireland in two ways Assets ( € bn) 140 Hit to Irish- based airlines – Ryanair (Europe’s biggest airline) and Aer Lingus Persons Employed 1,971 Will have a knock impact on multinational aircraft leasing companies in Ireland. Average Salary ( € 000s) 207.6 • The 2008 crisis led to a fall in aircraft values of 19% on average. Implies hit to assets held in Total Compensation of 0.4 Ireland are likely. Employee ( € bn) • Support for airlines through fiscal packages in the Profits ( € bn) 4.7 US and China will alleviate some concerns • Secondary impacts on retail given high value jobs Industry % of GNI* 2.6 could be lost. Dublin office market may lose a demand source. Only fiscal impact is lost taxes Source: CSO (2018); *based on 70% reduction in Q2 travel numbers (CAPA forecast) 13
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