as more sectors open Irelands economic structure has helped to - - PowerPoint PPT Presentation
Ireland: Rebounding as more sectors open Irelands 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
Ireland’s economic structure has helped to maintain incomes and government revenues
July 2020
2
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
Ireland begins recovery; Economy’s structural advantages come to the fore
4
Economy grew strongly before Covid-19; unemployment peaked in April as workers begin to return
U rate uncertain**; more returned to work in June Robust growth in run up to lockdown
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 left the labour force, others are just temporarily furloughed. August’s Q2 labour force survey will illuminate.
0% 5% 10% 15% 20% 25% 30% 1996 1999 2002 2005 2008 2011 2014 2017 GDP Underlying* 30 35 40 45 50 Germany Slovakia Ireland Italy Greece Belgium Slovenia EU 27 Finland EA 19 Austria Denmark Luxembourg Portugal Sweden Cyprus Malta UK Netherlands Spain France Lithuania Latvia
Compensation of Employee in most affected sectors (% of total) 40% of wage bill in most affected sectors
Irish wage bill less impacted – ICT and Pharma help
100 200 300 400 500 600 Unemployment claimants (Index, Jan 20 = 100)
0% 20% 40% 60% 80% 100% 120% 140% 160% 180% 1995 1998 2001 2004 2007 2010 2013 2016 2019 Debt to GNI* Debt to GDP
5
Ireland used 2014-19 growth to create fiscal room and improve debt sustainability
Improved debt position allows for fiscal policy to act Debt-to-GNI* (99% 2019f, from 166% peak) Debt-to-GG Revenue (233% 2019, from 353%) Average interest rate (2.2% 2019, from 5.1%) Debt-to-GDP^ (59% 2019, from 120%) Debt fell to 99% of national income but will reverse Six years of primary surplus; run to end in 2020
^ due to GDP distortions, Debt to GDP is not representative for Ireland, we suggest using other measures listed.
5 10 1995 1998 2001 2004 2007 2010 2013 2016 2019e GG Balance Primary Balance €bns
6
Covid-19 and Ireland outlook
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Br Brexit t ris risk k in in bac background
Ne New cen centri trist t Government t coa
sible stim timulus s pac package in in July July ECB CB an and Fed acti actions s sho hould cap ap in interest t cos
ts an and al allow nec necess ssary ry fis iscal roo
7
NTMA has already funded €20bn of revised funding plan
Irela eland has has la large cash ash bal balances, s, the the fin inal 2020 rede edempti tion pr prefu funded an and a a yea ear r free of
maturi ring bo bonds s in in 2021 Funding will ill com
l sou
Bonds, s, Sh Short rt Term erm pa paper an and the the Rai ainy Da Day Fun und
One ne of
the lon longest t weig eighted average maturi riti ties s in in Eur Europe The ECB’s QE enabled NTMA to extend deb debt t maturi rities, redu educe in interest t cos
t and and rep epay y the the IMF. No Now ECB CB is is buyi buying ag aggress ssively y ag again with ith few li limitati tions s
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Ireland’s labour market highlights both the recent improvements and the path ahead
16.0 22.5 5 10 15 20 25 30 2005 2005 2006 2007 2008 2009 2010 2010 2011 2012 2013 2014 2015 2015 2016 2017 2018 2019 2020 Unemployment Covid-19 Adjusted Unemployment 1.5 1.6 1.7 1.8 1.9 2.0 2.1 2.2 2.3 2.4 1998 1999 2000 2001 2003 2004 2005 2006 2008 2009 2010 2011 2013 2014 2015 2016 2018 2019 millions Total Employment
9
Labour market highlights the stark Covid-19 impact but uncertainty about exact numbers as of now
True unemployment rate is uncertain: Covid- 19 adjusted rate 22.5%* down from 28.2% 820K getting income supports - unclear how many would be considered unemployed
Large caveat: CSO has urged caution
force number is unknown – the labour force survey for Q2 will be key
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
questions about what constitutes being employed and whether those losing jobs will leave the labour
Note: CSO define those on wage subsidy scheme as employed
10
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 20 40 60 80 100 120 140 160 180 200 Temporary Wage Subsidy Scheme Pandemic Unemployment Payment % of Sector Employment (RHS)
Around 33% of workforce receiving either
Numbers on supports falling as re-opening accelerates – more to come in July
Source: Department of Social Protection (as of 6 July), Revenue(as of 2 July), CSO
PUP – 412k TWSS – 410k 0.2 0.4 0.6 0.8 1 1.2 W3W4W1W2W3W4W5W1W2W3W4W1W2W3W4 March April May June Millions PUP TWSS Total
10 20 30 40 50 60 70 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 Services Manufacturing Composite
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Ireland’s Composite PMI at 44.3 in June, Manufacturing held up at 51.0 Manu PMI has been less impacted – services recovering slowly given later re-opening
Source: Markit, Bloomberg
Manu 51 Comp 44.3 Services 39.7
10 20 30 40 50 60 April May June
200 400 600 800 1000 1200 1400 1600 Spending on debit and credit cards (€m, 7 day sum)
12
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
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 housing costs given government moratorium policy. * This can be seen as an upper bound, revisions may reduce this.
Spending in June 2020 down c.5% on June 2019
0% 10% 20% 30% 2016 2017 2018 2019 2020 All Retail Food Retail
30 35 40 45 50 Germany Slovakia Ireland Italy Greece Belgium Slovenia EU 27 Finland EA 19 Austria Denmark Luxembourg Portugal Sweden Cyprus Malta UK Netherlands Spain France Lithuania Latvia Compensation of Employee in most affected sectors (% of total)
13
The Irish wage bill is not going to be as impacted as other countries ICT sector will be a bulwark in protecting incomes in Ireland
40% of wage bill in most affected sectors
Source: Eurostat (2019) Note: Most affected sectors include construction, wholesale and retail trade, transport, accommodation and food service activities, real estate activities, professional, scientific and technical activities; administrative and support service activities, arts, entertainment and recreation
0.0 2.0 4.0 6.0 8.0 10.0 Greece Portugal Italy Slovenia Belgium Austria Spain Lithuania Slovakia EA 19 Cyprus EU 27 Denmark Germany Netherlands Malta France Luxembourg Finland Sweden Latvia UK Ireland % of Compensation of Employee % of Employment
14
€4.8bn bn for income support measures (extended to August – cost will increase):
1.
A temporary wage subsidy scheme (TWSS) has been introduced which pays 70-85% of an employee’s income up to €410p/w. This equates to any salary below €38,000.
Subsidy is for businesses with >20% reduction in turnover and keeps employee on the books. Most furloughed salaries are below €38,000; average payment close to €350 p/w more likely.
2.
The pandemic unemployment payment (PUP) for employees (and self-employed) has been amended to €200 or €350 p/w depending on previous wage level. A sick leave payment for actual Covid-19 diagnosis or self isolation is available and is €350 p/w. €2bn bn for increased health spending to combat Covid-19. €6.5bn bn for business supports: Some of these supports need to be legislated for in coming weeks.
1.
A €10,000 restart grant for micro and small businesses;
2.
A three month commercial rates waiver for impacted businesses;
3.
A €2 billion Pandemic Stabilisation and Recovery Fund within the Ireland Strategic Investment Fund (ISIF), which will make capital available to medium and large enterprises on commercial terms;
4.
A €2 billion COVID-19 Credit Guarantee Scheme to support lending to SMEs;
5.
The ‘warehousing’ of tax liabilities for a period of twelve months Other measures enacted include support for bank borrowers, reducing the CBI’s Countercyclical Capital Buffer, deferrals on tax payments including VAT & stamp duty, temporary rent freezes and temporary ban on evictions.
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Many sectors can work from home; income supports have cushioned incomes for workers who can not
Income support have meant aggregate income was maintained in Mar-May 2020 High-skill employment grew sharply in recovery period (index, 100 = end 2008)
70 80 90 100 110 120 130 2006 2008 2010 2012 2014 2016 2018 High Skill Other
Source: Revenue; Eurostat High skill jobs include the ISCO08 defined groupings Managers, Professionals, Technicians and associate professionals
10 12 14 16 18 20 22 24 26 2019 Mar-May 2020 Mar-May Employee Gross Pay PUP TWSS
16
Deflation expected for 2020 follows sustained period of low inflation Real wages increase helped HHs to repair balance sheets, increase living standards
Deflation expected for 2020; wage growth and low inflation pushed real wages up in the last five years
Source: Eurostat; CSO High skill jobs include the ISCO08 defined groupings Managers, Professionals, Technicians and associate professionals
1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 0% 2% 4% 6% 8% 10% 12% 14% 16% IT Fin, Insurance & RE Transport/Storage Prof, science & tech Construction Total Industry Wholesale/Retail Admin & Support Education Health Accom & Food Arts & Rec Public admin 2015 v 2019 real wage %chg average € increase (RHS)
1 2 3 4 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 HICP Ireland HICP Euro Area
17
2019 2020 EA Monetary Policy Accommodative in Q4 Maximum accommodative EU Fiscal Policy Minimal Expansionary US Monetary Policy Easing Maximum accommodative US growth YC inversion, but still growing Covid-19 shock Oil price Flat y-o-y Significantly down despite rebound UK growth Brexit uncertainty headwind Covid-19 shock; Brexit unresolved Euro Growth Sluggish Covid-19 shock Euro currency No change y-o-y v. £; weaker v $ Neutral so far
Source: NTMA analysis, DataStream, CSO
1 2 3 4 5 6 7 8 10 20 30 40 50 60 70 80 90 100 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Brent Oil €/Barrel Mineral Fuels Imports (12m rolling, €bns)
significant drop in import cost in 2015/16 reversing in 2017/18
Oil price drop might boost the economy by 0.5-1% of GNI*
18
Household debt ratio has decreased due to deleveraging and increasing incomes Legacy of crisis is on the Government balance sheet not the private sector’s
0% 50% 100% 150% 200% 250% 300% 350% 400% Public and Private debt (% of GNI*) Private debt (% of GNI*) Public debt (% of GNI*) 2003 2008 2013 2019
Ireland has used recovery period to repair private sector balance sheets – especially households
Source: CBI data, CSO Source: Eurostat (2019 versus 2009) Note: Private debt includes household and Irish-resident enterprises (ex. financial intermediation) CBI quarterly financial accounts data used for household and CSO data for nominal government liabilities.
Economic growth has allowed smooth private sector deleveraging
40 Ireland NL Spain Portugal Romania UK Germany EA19 Slovenia Austria Denmark Italy Poland Greece Czech Rep France Sweden Belgium Finland 10 year pp change in HH Debt/Disposable Income ratio
1 2 3 4 5 6 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 €bns Three month flows, Deposits, households
19
Gross household saving rate recovered in growth year - close to EU-27 average Bank deposits shows increased saving as households couldn’t consume in April/May
Source: Eurostat, ONS, CSO ; CBI, Eurostat; ECB NTMA calculations Note: Gross Savings as calculated by the CSO has tended to be a volatile series in the past, some caution is warranted when interpreting this data
2 4 6 8 10 12 14 16 2002 2004 2006 2008 2010 2012 2014 2016 2018 % of Disposable Income (4Q MA) Ireland EU-27 EA-19 UK
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Programme for government focuses on economic recovery, Brexit, public investment and climate action
Source: NTMA analysis
New Taoiseach – position will rotate in 2022
Name Party Position/ Ministry Micheál Martin FF (leader) Taoiseach (PM, until end 2022) Leo Varadkar FG (leader) Tánaiste (deputy PM), Business Simon Coveney FG Foreign Affairs (Brexit) Paschal Donohoe FG Finance Eamon Ryan Greens (leader) Climate, Transport
Breakdown of seats in Dáil Éireann following 2020 General Election (160 Seats total)
Other/Ind, 21 Fine Gael, 35 Fianna Fáil, 38 Labour, 6 Greens, 12 Soc Dems, 6 Sinn Féin, 37 AAA-PBP, 5
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Building and construction investment will be hit in Q2 but can rebound quickly Another surge of IP into Ireland in 2019-2020 – helps ICT but distorts investment picture
Construction sector was shuttered for six weeks before restart in mid-May
Source: CSO; NTMA calculations
10 15 20 25 30 35 40 50 100 150 200 250 300 1998 1999 2001 2002 2004 2005 2007 2008 2010 2011 2013 2014 2016 2017 2019 € billions Construction Employment (000s) Building GFCF (4 quarters, RHS) 20 40 60 80 100 120 140 160 180 200 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Building Investment Other Domestic Investment Distortions (mainly IP) Modified GFCF Total GFCF Four-quarter sum (€bns)
Ireland’s economic structure has meant revenues have held up despite Covid-19
23
NTMA has already funded €20bn of revised funding plan
Irela eland has has la large cash ash bal balances, s, the the fin inal 2020 rede edempti tion pr prefu funded an and a a yea ear r free of
maturi ring bo bonds s in in 2021 Funding will ill com
l sou
Bonds, s, Sh Short rt Term erm pa paper an and the the Rai ainy Da Day Fun und
One ne of
the lon longest t weig eighted average maturi riti ties s in in Eur Europe The ECB’s QE enabled NTMA to extend deb debt t maturi rities, redu educe in interest t cos
t and and rep epay y the the IMF. No Now ECB CB is is buyi buying ag aggress ssively y ag again with ith few li limitati tions s
Irela eland has has be been affi firmed in in AA spa pace by y S& S&P On n rela elati tive ba basi sis, s, hi hit t to
eland may be be le less tha than ot
r cou
tries s gi given mul ulti tinati tionals, s, rela elati tively smaller dom domesti tic sha hare of
economy an and touri
sm
24
Flexibility helped by smoother maturity profile and no bond redemptions in 2021
Source: NTMA Note: EFSM loans are subject to a 7-year extensions. It is not expected that Ireland will refinance any
2027-30 range although these may be subject to change.
5 10 15 20 25 Billions € Bond (Fixed) EFSM EFSF Bond (Floating Rate) Green Other (incl. Bilateral)
25
NTMA issued €88.5bn MLT debt since 2015; 13.2 yr. weighted maturity; avg. rate of 0.87% Even with extra Covid-19 borrowings, NTMA might not match supply in 2015-19 period
Near-term redemptions much lower than last five years; lower borrowing costs also provides NTMA with flexibility
Source: NTMA, CSO, Department of Finance Only showing marketable MLT debt (auctions and syndications). Other issuance such as inflation linked bonds, private placement and amortising bonds occurred but not shown.
10 20 30 40 50 60 70 80 Redemptions (2017-2020) Redemptions (2021-2024) 5Y 8Y 5Y 10Y 10Y 16Y 7Y 30Y 10Y 5Y 20Y 10Y 12Y 15Y 10Y 12Y 30Y 7Y 10Y 15Y 5.5 3.9 2.8 1.5 0.8 0.9 1.1 0.9 0.3 3 6 9 12 15 18 21 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 € Billions Auction Syndication Weighted Average Yield % (LHS)
26
The NTMA took advantage of QE to extend debt profile
…Ireland (in years) now compares favourably to other EU countries Various operations have extended the maturity of Government debt …
Source: NTMA; ECB Note: Data excludes programme loans. Ireland’s maturity including these loans is still similar
2 4 6 8 10 12 14 16 18 20 2015 2016 2017 2018 2019 2020 YTD Weighted Average Maturity Issued (Years) 10.1 10.1 9.9 8.5 7.8 7.6 7.6 7.1 6.9 6.6 6.2 6.2 2 4 6 8 10 12 Govt Debt Securities - Weighted Maturity EA Govt Debt Securities - Avg. Weighted Maturity
0% 20% 40% 60% 80% 100% 120% 140% 160% H1 2020 vs H1 2019 Income tax VAT Excise duties Corporation tax Total Tax Revenue Total Expenditure
27
Government worked to get Gen. Govt. Balance (€bn) to surplus before Covid-19 Revenues holding up despite pandemic; expenditure is increasing (Central Govt.)
Fiscal discipline in evidence in last decade – after Covid- 19 stimulus ends Ireland plans to narrow its deficit again
Source: CSO; Department of Finance
5 10 GG Balance Primary Balance 2020 estimates caveated by large degree of uncertainty
28
Debt-to-GNI* had dropped since last crisis No country will be running primary surplus necessary to keep debt ratio in check
Source: CSO; Department of Finance, NTMA analysis
0% 10% 20% 30% Primary Balance (% of GNI*) Debt Stabilising PB (% of GNI*)
~
0% 20% 40% 60% 80% 100% 120% 140% 160% 180% 1995 1999 2003 2007 2011 2015 2019 Debt to GNI* Debt to GDP 2020 estimates subject to large degree of uncertainty
0% 10% 20% 30% 40% 50% 60% 70% Most affected sectors Other sectors % of Workers on PUP/TWSS % of Income Tax (PAYE, USC & self-employed IT) from these sectors
4.0 6.0 8.0 10.0 12.0 0.0% 4.0% 8.0% 12.0% 16.0% 20.0% 24.0% 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 Corporation Tax (€bns, RHS) Corporation Tax (% of tax revenue)
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Corporation tax (CT) receipts have more than doubled in four years Progressiveness of IT & sector mix means hit to receipts isn’t as larger as employment
In 2019, 40% of CT paid by 10 companies
Source: Department of Finance, Revenue, NTMA analysis Note: Most affected sectors include construction, wholesale and retail trade, transport, accommodation and food service activities, real estate activities, professional, scientific and technical activities; administrative and support service activities, arts, entertainment and recreation
66% of workers in most affected sector but only 34% of usual IT take
0% 5% 10% 15% 20% t = '07/'19 t+1 t+2 t+3 t+4 t+5 VAT (Financial Crisis 2007 - 2012) VAT (Pandemic 2019 onwards)
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Over 70% of VAT receipts comes from most affected sectors; only 17% of CT receipts Fall off in VAT receipts much sharper in 2020 than start of financial crisis
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% VAT Income Tax Corporate Tax Most Affected Sectors Other
Source: Department of Finance, Revenue, NTMA analysis Note: Most affected sectors include construction, wholesale and retail trade, transport, accommodation and food service activities, real estate activities, professional, scientific and technical activities; administrative and support service activities, arts, entertainment and recreation
Year on year growth rate of cumulative VAT receipts
31
April and the second will mature in October.
bilateral loan mature in 2020.
been revised to €15.5bn up from €1.6bn. This is subject to change given the economic uncertainty.
part of the 2020 funding requirement.
source – one Ireland has not tapped in recent years.
Bond issuance: 22 EBR: 16 Net ST paper: 5
Redemption
Other 1
UK Bilateral 2
Other: 3 Change in cash: 10 €- €4 €8 €12 €16 €20 €24 €28 €32 €36 €40 Funding Requirements (€bn) Sources of Funding (€bn)
Source: NTMA Notes: Other funding: Includes general contingency provision including for potential FRN purchases Bond issuance: Mid-point of €20-€24bn bond funding range. Net ST paper: Forecast net growth in short-term paper. Other Sources: Includes retail (State Savings), private placements and EIB loan drawdowns.
32
2019 2020 2021 Comments EBR 0.6
the NTMA must finance each year
Adjust for Accruals 0.9 1.4 0.8
Accruals can relate to interest, taxes,
Exclude Equity & Loan Transactions -2.5
Transactions between the Exchequer and NAMA, CBI and other govt. entities: this benefits funding req.
Social Insurance Fund 1.5
Archaic funding structure of social insurance in Ireland is outside
Semi State, ISIF,
1.2
0.0
Dividends and profits from government entities
Local Govt.
Local governments fund themselves
GGB 1.3
Most complete metric for fiscal
comparison with other nations
Methodological Differences EBR GGB Accounting basis Cash (exchequer) Accrual Financial transactions Included Excluded Scope Subset of Central Govt. Includes all of Central & Local Intra-Government Consolidation No Yes
10 GG Balance EBR
transfer to recap banks hit GGB in 2010 but not EBR (non-cash expenditure)
Gap between EBR and GGB (€bns) usually minor - stark in 2020
Source: CSO, Department of Finance
33
Need to assess other metrics apart from debt to GDP when analysing debt sustainability
2019 GG debt to GG revenue % GG interest to GG rev % GG debt to GDP % Greece 370.0% 6.2% 176.6% Italy 286.4% 7.2% 134.8% Portugal 274.7% 7.0% 117.7% Spain 244.2% 5.8% 95.5% Ireland 233.3% 5.1% 58.8% Cyprus 231.7% 6.1% 95.5% UK 226.5% 5.6% 88.1% Belgium 196.1% 3.9% 98.6% France 186.6% 2.7% 98.1% EA19 181.1% 3.5% 84.1% Austria 143.7% 2.9% 70.4% Germany 127.6% 1.7% 59.8% Finland 113.8% 1.6% 59.4% Netherlands 111.4% 1.8% 48.6% Sweden 71.5% 0.8% 35.6%
Source: Eurostat Ireland 99% Debt to GNI* ratio in 2019
5 10 15 20 25 30 35 40 45 50 1 2 3 4 5 € Billions PSPP Net IGB purchases (LHS) PEPP/PSPP net purchases (LHS) Cumulative Net ECB Purchases (RHS)
34
PEPP monthly IGB purchases running at roughly €1.5bn a month – that pace may slow to c.€1bn a month
Source: ECB, NTMA Calculations Notes: Forecasts sees Ireland’s capital key of 1.69% and assumes 80% of new purchases will be for public sector assets with 7% of public sectors assets being supranational issuers.
35
Ireland roughly split 80/20 on non-resident versus resident holdings (Q4 ‘19) “Sticky” sources - official loans, Eurosystem, retail - make up over 50% of Irish debt
Diverse holders of Irish debt – sticky sources account for
Source: CSO, Eurostat, CBI, ECB, NTMA Analysis IGBs excludes those held by Eurosystem. Eurosystem holdings include SMP, PSPP and CBI holdings of
related liabilities. Retail includes State Savings and other currency and deposits. The CSO series has been altered to exclude the impact of IBRC on the data.
50 100 150 200 250
IGBs - Private Non Resident IGBs - Private Resident Short term Eurosystem Retail Other Debt (incl. Official) Total Debt (€bns)
IGBs - Private Non Resident 35% IGBs - Private Resident 6% Short term 2% Eurosystem 22% Retail, Resident 11% Other Debt (incl. Official) 24% IGBs - Private Non Resident IGBs - Private Resident Short term Eurosystem Retail Other Debt (incl. Official)
36
Investor base for Government bonds is wide and varied
Investor breakdown: Average over last five syndications Country breakdown: Average over last five syndications
Source: NTMA * Does not include ECB. ECB does not participate on primary market under its various asset purchasing programmes
6.6% 23.2% 8.8% 45.0% 15.0% Ireland UK US and Canada Continental Europe Nordics Asia & Other Fund/Asset Manager, 36.2% Banks/ Central Banks, 38.4% Pensions/ Insurance, 14.2% Other, 8.8%
37
Ireland rated in “AA” category by Standard & Poor's
Rati ting Agency cy Long-term Sh Short rt-term rm Outl utlook/Trend Da Date of
last cha change Standard & Poor's AA- A-1+ Stable Nov 2019 Fitch Ratings A+ F1+ Stable Dec 2017 Moody's A2 P-1 Stable Sept 2017 DBRS A(high) R-1 (middle) Positive Jan 2020 R&I A a-1 Stable
Source: NTMA
Ireland’s long run positives like demographics will reassert in time
39
Ireland’s GNI* per capita above 2007 levels and compares favourably to EA
Source: CSO, Eurostat
Gross National Income* at current prices (1995=100)
10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 Ireland (GNI*) EA 19 (GDP) Germany (GDP) 20 40 60 80 100 120 140 160 180 200 220 240 260 280 300 320 1995 2000 2005 2010 2015 2020f "Celtic Tiger" 1994-2001 Credit/Prope rty Bubble Bubble Burst
Recovery
40
Ireland’s population profile younger than the EU average
Ireland’s population was 4.92m in 2019 –
Ireland’s population will remain younger than most of its EA counterparts
0.0 0.2 0.4 0.6 0.8 World USA Sweden Canada China Belgium UK Ireland Denmark France Finland Germany Spain Italy Portugal Greece Japan 2018 Old Age Dependency Ratio 2045
Source: Eurostat (2019) CSO; OECD
0.0% 0.2% 0.4% 0.6% 0.8% 1.0% 1.2% 1.4% 1.6% 1.8% 2.0% <1 yr 5 101520253035404550556065707580859095
Ireland Germany EU28
25% of Ireland’s population aged 17 or below versus 19% for EU % of population in age cohort
41
Percentage of population: Ireland’s has relatively more young people and fewer old The consequence is that working-age population expected to grow (2020-2029)
Source: Oxford Economics forecasts Source: Eurostat
0% 10% 20% 30% 40% 50% 60% 70% <18 years 18-64 65+ EU Ireland
0.0% 5.0% 10.0% 15.0% Japan Germany Italy China Euro area EU Austria France Netherlands Belgium Spain UK Denmark Ireland US India
30 60 90 120 Third level Other Education Net Migration 2009-2013 2015-2019
42
Latest Census data show net migration positive since 2015 – mirroring economy Highly educated migrants moving to Ireland “Reverse Brain Drain”
Openness to immigration has been beneficial to Ireland; migration in 2020 to be closer to zero given lack of travel
Source: CSO
0.0% 1.0% 2.0% 3.0%
50 100 150 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 Emigration (000s) Immigration (000s) Net Migration (000s) Net Migration (% of Pop, RHS)
43
Openness to trade is also central to Irish success – led by services exports; Ireland running current account surplus
Current account is distorted heavily by MNEs: modified CA is consistent with GNI* Cumulative post-crisis total exports (4Q sum to end-2008 = 100, current prices)
90 110 130 150 170 190 210 230 250 270 290 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Contract Manufacturing* Services Goods ex. CM Exports
0% 5% 10% 15% 20% 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Current Account (% of GNI*) Modified Current Account (% of GNI*)
Source: CSO, NTMA calculations * Contract manufacturing proxy Nominal values, exports excludes contract manufacturing. Modified CA=CA less (IP Depreciation + Aircraft Leasing Depreciation + Redomiciled Incomes + R&D Services Exports) adding back (Imports of related to Leasing Aircraft + R&D related IP and services Imports). Significant caution should be exercised when viewing Ireland’s current account data. MNC’s action distort metrics heavily.
44
UN Goal – Peace, Justice and Strong institutions Ireland Actual Figure Ireland Normalised (world leader = 100) OECD Average Overall
75.8 Corruption Perception Index (0-100) 73.0 79.4 73.5 Government Efficiency (1-7) 4.8 74.8 52.8 Homicides (per 100,000 people) 1.1 97.8 96.1 Prison population (per 100,000 people) 80.0 87.8 74.6 Property Rights (1-7) 6.1 94.8 73.1 Population who feel safe walking alone at night (%) 75.0 73.7 67.4
Ireland is close to OECD norms socially Favourable metrics on property rights and government efficiency
Ireland scores well on social issues and ability to do business
Source: United Nations SDG project
50 55 60 65 70 75 80 85 90 95 100 Gender Equality Decent work and economic growth Reduced Inequalities Sustainable Cities and Communities Ireland (World leader = 100) OECD Average
0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 Slovakia Slovenia Czech Rep Iceland Finland Denmark Norway Belgium Hungary Sweden Austria Poland Netherlands France Germany Switzerland Luxembourg Canada Ireland Estonia Italy Australia Portugal Russia Greece Japan Spain Israel Latvia UK Korea Lithuania USA Turkey Chile Mexico Costa Rica South Africa GINI Coefficient (Post Taxes and Transfers) Pre Taxes and Transfers
45
Source: OECD
Lower GINI score means more equal society
46
minimum tax rate with the aim of reducing incentives to shift profits.
there would an “income inclusion rule” which
rate of tax.
level or on a country-by-country basis?
minimum rate agreed is greater than the 12.5% rate that Ireland levies, it might erode this country’s comparative advantage.
reform - a BEPS 2.0.
focuses on proposals that would re-allocate taxing rights between jurisdictions where assets are held and the markets where user/consumers are
degree be taxed where customers reside.
would be re- allocated from small countries to large countries. Such a proposal will reduce Ireland’s corporation tax base but it is impossible to predict the size of the impact.
disagreements across countries. OECD original deadline of end 2020 is unlikely to be met. Pillar One : proposal to re-allocate taxing rights on non-routine profits Pillar Two: proposal for minimum global tax
Property market to see low transactions, completions, starts for next while
48
House prices have stabilised 20% below their peak (100 in 2007) Covid-19 impact: transactions, approvals down sharply; price/rents steady for now
House prices had plateaued before the virus arrived
Source: CSO; BPFI, PPR, Department of Housing
20 40 60 80 100 120 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 National
Dublin Level (y-o-y % change) Jan Feb Mar Apr May # of transactions 3,511 3,610 4,360
(1.6%)
2,610
(-42.6%)
2,430
(-50.5%)
# of mortgage approvals 3,265 3,514 3,733
(-9.9%)
2,200
(-46.5%)
Housing starts 353 436 502
(-17%)
Residential Property Price Index 134.4 134.2 134.3
(1.0%)
133.9
(0.5%)
Private Rent Index 117.7 118 117.5
(3.1%)
115.4
(0.8%)
114.1
(-0.7%)
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Housing supply still below demand; supply was catching up before Covid-19 put the sector in hibernation
Housing supply picking up in a uniform fashion – coronavirus to hamper supply H2 2020 Housing Completions* above 25,000 in 2019
* Housing completions derived from electrical grid connection data for a property. Reconnections
Source: DoHPCLG, CSO, NTMA Calculations
5 10 15 20 25 30 2015 2016 2017 2018 2019 Thousands
Non-Domestic Reconnection Unfinished New dwelling completion All connections
4 6 8 10 12 2016 2017 2018 2019 2020 Thousands
Dublin Starts (advanced 12 months) Dublin Completions Commuter Belt Starts (advanced 12 months) Commuter Belt Completions ex-GDA Starts (advanced 12 months) ex-GDA Completions
50
Mortgage drawdowns (000s) rose from deep trough before Covid-19 impact Non-mortgage transactions still important but closer to 40% of total
Source: BPFI; Residential Property Price Register Source: BPFI (4 quarter sum used)
0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 2 4 6 8 10 12 14 16 18 20 Q4 2010 Q2 2011 Q4 2011 Q2 2012 Q4 2012 Q2 2013 Q4 2013 Q2 2014 Q4 2014 Q2 2015 Q4 2015 Q2 2016 Q4 2016 Q2 2017 Q4 2017 Q2 2018 Q4 2018 Q2 2019 Q4 2019 Thousands Non-mortgage transactions Mortgage drawdowns for house purchase Non-mortgage transactions % of total (RHS) 20 40 60 80 100 120 2006 2008 2010 2012 2014 2016 2018 2020 Residential Investment Letting Mover purchaser First Time Buyers
51
Dublin resi. property prices fell in 2019; higher end of the market most hit Rents are well above previous peak – out of line with prices
Source: CSO; RTB
0% 10% 20% 30% 2005 2007 2009 2011 2013 2015 2017 2019 National (Y-o-Y %) Ex Dublin (Y-o-Y %) Dublin (Y-o-Y %) 20 40 60 80 100 120 140 160 180 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Rents (100 = 2005) Price
Prices growing faster than rents Rents growing faster than prices
52
50 100 150 200 250 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 Jones Lang LaSalle Real Office Estimated Rent Value (ERV) MSCI Real Office Property Price Index
Source: MSCI, Jones Lang LaSalle Indexed data, 1983 = 100
0% 20% 40% 60% BG SD OE NL LX NW DN FR ES IE PT EA UK BD GR FN IT
0% 20% 40% 60% 80% 100% SD NW BG UK LX FR DN ES NL IE OE FN EA BD PT GR IT
53
Irish house price valuation metrics remained well below 2008 levels throughout last cycle
Source: OECD, NTMA Workings Note: Measured as % over or under valuation relative to long term averages since 1980.
Deviation from average price-to-income ratio (Q4 2019, red dot represent Q1 2008) Deviation from average price-to-rent ratio (Q4 2019, red dot represent Q1 2008)
“Hard Brexit” risk is obvious: cliff edge at end 2020 a possibility
55
more distant relationship than previously argued for by the UK side.
1.
Level playing field
2.
“Fisheries for financial services”
3.
ECJ role in new relationship
UK-EU Future trading relationship unresolved
56
membership for NI.
ROI to NI will not require checks, but goods going to UK will.
through NI to UK or vice versa. Customs checks at ports, VAT and tariff rebates and alignment of regulations will be needed.
majority at certain times. Main points of Withdrawal Agreement
57
Sh Short rt term erm
checks and documentation (red tape)
UK-focused manufacturing; tourism might suffer
regions Long term erm
inflation when tariffs dominate the FX benefit
Sh Short rt term erm
Long term erm
temporary waiving of State Aid rules?
turmoil; UK’s reputation might be tarnished
IT and business services
may also be an influx of well paid workers
EU market share from British competitors
Cons Pros
58
Whichever type of Brexit materialises, trade is likely to be negatively impacted
Irish rish/U /UK tr trad ade li link nkages s will ill suf uffer r fol
Brexit
export destination for Ireland’s goods and the largest for its services
its goods from the UK. Ireland’s trade with the UK is is lab labour r in intensive
Ireland’s total exports, but Ireland is more dependent than that because those UK- reliant sectors are labour intensive SM SMEs Es ac account for
r 55% % of
rish exp xports rts to
the UK.
hey ar are li likely to
be mor
adverse sely y affected tha than la larger r com
s by y the the in intr troducti tion of
ariffs s an and barri barriers s to
trade
Source: CSO 2018 * UK data includes Northern Ireland NTMA calculations; Data does not include contract manufacturing
% of f tot total Good
(20 2018) Servic ices (20 2018) Tot
(20 2018) Exp. Imp. Exp. Imp. Exp. Imp. US 27.9 18.5 11.6 25.4 18.0 23.1 UK* 11.5 21.7 15.7 9.6 13.8 13.6 NI 1.6 1.6 n/a n/a n/a n/a EU-27 38.8 37.4 29.4 26.8 33.5 30.3 China 3.9 5.9 2.6 1.5 3.1 3.0 Other 21.8 22.4 43.3 38.3 30.7 31.1
59
Product % of IE-UK goods exports Comment on tariff imposed under UK schedule Pharmaceutical products 16.9% Almost all pharma products are tariff free Machinery and mechanical appliances 8.1% A lot of this category remains duty free. Meat and edible offal 7.7% High customs duties are imposed on Meat (6-16% + £34- £2313 per 100kg) Dairy produce, birds eggs, natural honey, edible products 5.6% High customs duties are imposed on Dairy (6-16%+£14- 185 per 100kg) Electrical machinery and equipment 4.8% A lot of this category remains duty free. Organic chemicals 4.3% Tariffs on Active Pharmaceutical Ingredients (6%) Plastics and articles thereof 3.8% Tariff rates increase but are lower than the current EU MFN rates. Cereals, flour, starch or milk, pastry cooks products 3.7% Bread and bakery face a small tariff (8%) Meat & fish 3.5% High tariff (6-25%+£34-2313 per 100kg) Optical, medical or surgical instruments 2.9% Most medical devices remain tariff free
Under the UK’s WTO Tariff Schedule, it would impose tariffs on only 40% of the UK’s imports from MFN countries: For Ireland, agri-food exports particularly hit by tariffs
UK-EU Relationship % of Tariff Free Products EU Membership 100% Free Trade Agreement 60-100% Partial FTA 60-100% WTO UK schedule 60% WTO EU MFN schedule (Assumed in modelling) 52% Economic modelling of WTO scenario often assumes a worse tariff regime than UKGT
60
0% 5% 10% 15% 20%
0% 10% 20% 30% 2000200220042006200820102012201420162018 Euro/Sterling (y-o-y, Lagged 3Qs, RHS) Visitors to IE from UK (y-o-y) 0% 10% 20% 30% 40% 50% 60% 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 % of Irish Agri Exports going to UK % of Other Irish Goods Exports going to UK
Agriculture has not diversified from the UK Tourism numbers linked to FX moves
Agri-food and tourism most at risk from trade barriers
Source: CSO, DataStream Eikon
All other goods exports to UK
61
Forecast vs. no Brexit baseline Short term (2 years) Medium term (5 years) Long term (10-15 years) Department of Finance (ESRI)
Copenhagen Economics
(of which -4.9pp is due to regulatory divergence) Central Bank of Ireland
Bank of England “disruptive” (implied)
Bank of England “disorderly” (implied)
UK Treasury range (implied)
Source: ESRI, Copenhagen, Bank of England, UK treasury Implied uses the impact on UK GDP and an elasticity measure of 0.8 to calculate the impact on Irish Growth
62
The chief areas of interest are Financial services Business services IT/ new media.
Paris, Luxembourg and Amsterdam for financial services.
(City of London) is almost certain to lose its EU passporting rights on exit, so there may be more
FDI: Ireland benefitting already Companies that have indicated jobs have or will be moved to Ireland
Ireland’s banks now among strongest in Europe – complete reverse of late 2000s
64
Net Interest Margin Profit before Tax
slow judicial process in accessing collateral.
used for debt reduction. Further disposal of banking assets unlikely in the short term given valuations
Source: Annual reports of banks - BOI, AIB, PTSB Profit measures are before exceptional items
All three pillar banks were profitable in recent years
0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% AIB BOI PTSB 2017 2018 2019 0.2 0.4 0.6 0.8 1 1.2 1.4 AIB BOI PTSB 2017 2018 2019
65
Ireland’s banks are among the best capitalised in Europe
Austria Belgium Cyprus Germany Spain Finland France Greece Ireland Italy Luxembourg Latvia Malta Netherlands Portugal Slovenia SSM Countries 4 5 6 7 8 9 10 11 10 12 14 16 18 20 22 Leverage Ratio (%, Fully phased in definition) Common Equity Tier 1 Ratio (%)
Stronger Note: Leverage Ratio = Tier 1 capital/Total leverage exposure; CET1 = Common tier 1 capital/total risk
Source: ECB consolidated banking data (Q4 2019)
66
CET 1 capital ratios (Dec 2019) allow for amble forbearance in Q2 Loan-to-deposit ratios have fallen significantly as loan books were slashed
Capital ratios strengthened as banks shrunk and consolidated in last ten years
Source: Published bank accounts Note: “Transitional” refers to the transitional Basel III required for CET1 ratios “Fully loaded” refers to the actual Basel III basis for CET1 ratios. Source: Published bank accounts
20.3% 17.3% 15.0% 13.8% 18.1% 15.0% 0% 5% 10% 15% 20% 25% CET1 % (Transitional) CET1 % (Fully Loaded) AIB BOI PTSB
40 60 80 100 120 140 160 180 200 Loan-to- Deposit % Loans (€bn) Loan-to- Deposit % Loans (€bn) AIB BOI Dec-10 Dec-19
67
Domestic bank cost base has risen but marginally
… and IE banks* below EU average Cost income ratios improve dramatically…
Source: Annual reports of Irish domestic banks, EBA * EBA data includes three domestic banks as well as Ulster Bank, DEPFA & Citibank.
Source: Annual reports of Irish domestic banks
Staffing (000s) halved post crisis
123% 88% 144% 56% 63% 68% 0% 25% 50% 75% 100% 125% 150% AIB BOI PTSB 2012 2013 2014 2015 2016 2017 2018 2019 26 16 5 10 10 2 10 20 30 AIB BOI PTSB 2008 2019 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% LT NO BG SE HR CZ EE GR RO LV ES PL SK IS PT NL SI HU DK GB IE FI CY MT EU AT IT BE LU FR DE
68
Irish residential mortgage arrears could reverse course in 2020 – moratorium will help
Mortgage arrears (90+ days) Repossessions*
Source: CBI
PDH Arrears (by thousands)
* Four quarter sum of repossessions. Includes voluntary/abandoned dwellings as well as court ordered repossessions
0.0 2.0 4.0 6.0 8.0 10.0 12.0 10 11 12 13 14 15 16 17 18 19 20 Over 90 days 90-180 days 181-360 days 361-720 days >720 days Total change 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%
10 11 12 13 14 15 16 17 18 19 20
PDH + BTL (by balance) PDH + BTL (by number) 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 500 1000 1500 2000 2500 3000 3500 13 14 15 16 17 18 19 20 PDH BTL % of MA90+ (RHS)
69
The European Commission’s ruling on Apple’s tax affairs does not change the NTMA’s funding plans
figure is based on the tax foregone as a result of a historic provision in Ireland’s tax code. This was closed on December 31st 2014.
his s case has nothing to do with Ireland’s corporate tax rate. In its press release the EC stated: “This decision does not call into question Ireland’s general tax system or its corporate tax rate”.
pple is is ap appealing the the rulin ruling, g, as as is is the the Iris rish Govern rnment.
fund.
to hold and administer the fund.
International have been selected for the provision of investment management services for the fund.
the NTM NTMA has has mad ade no no al allowance for
these funds. s.
70
Sustainable Mobility €8.6 billion Sustainable Management
Environmental Resources €6.8 billion Transition to a Low carbon and Climate Resilient Society €7.6 billion
Source: National Development Plan 2018-2027
1 in 5 euros in the National Development Plan (NDP) to be spent on green projects
Further details are available at ntma.ie
71
GNI* is a better measure of underlying economic activity than GDP/GNP; best as a level rather than a growth metric
growth of Ireland’s income due to MNCs.
multinational companies
by multinationals
in Ireland.
GNI* gives us a better understanding of the underlying economy.
National Account – Current Prices (€, y-o-y growth rates) 2015 2016 2017 2018 Gross Domestic Product (GDP) 262.8bn (34.9%) 271.7bn (3.4%) 297.1bn (9.4%) 324.0bn (9.4%) minus Net Factor Income from rest of the world = Gross National Product (GNP) 200.8bn (22.9%) 220.6bn (9.9%) 234.9bn (6.5%) 253.1bn (7.7%) add EU subsidies minus EU taxes 1.2bn 1.0bn 1.1bn 1.1bn = Gross National Income (GNI) 202.0bn (22.9%) 221.6bn (9.7%) 236.0bn (6.5%) 254.2bn (7.7%) minus retained earnings
minus depreciation on foreign owned IP assets
minus depreciation on aircraft leasing
= GNI* 162.7bn (9.4%) 175.6bn (8.0%) 184.0bn (4.7%) 197.5bn (7.3%)
Source: CSO
72
Disclaimer
The information in this presentation is issued by the National Treasury Management Agency (NTMA) for informational purposes. The contents of the presentation do not constitute investment advice and should not be read as such. The presentation does not constitute and is not an invitation or offer to buy or sell securities. The NTMA makes no warranty, express or implied, nor assumes any liability or responsibility for the accuracy, correctness, completeness, availability, fitness for purpose or use of any information that is available in this presentation nor represents that its use would not infringe other proprietary rights. The information contained in this presentation speaks only as of the particular date or dates included in the accompanying
The contents of this presentation should not be construed as legal, business or tax advice.