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.
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