for April, beginning to re-open in May Irelands economy and - - PowerPoint PPT Presentation
Ireland: Shutdown for April, beginning to re-open in May Irelands economy and financial system was in its best shape for almost two decades pre-Covid 19 May 2020 Index Page 3: Summary Page 8: Macro Page 16: Covid-19 fiscal response Page
Ireland’s economy and financial system was in its best shape for almost two decades pre-Covid 19
May 2020
2
Index
Page 3: Summary Page 8: Macro Page 16: Covid-19 fiscal response Page 24: Fiscal & NTMA funding Page 39: Long-term fundamentals Page 48: Property Page 54: Brexit Page 61: Other Data
Ireland hit hard like rest of Europe but better placed than most to weather Covid- 19 recession
4
Economy grew strongly before Covid-19; unemployment shows large impact like other countries
True unemployment rate and timing of peak uncertain Robust growth in run up to lockdown
Source: CSO * Underlying series is modified final domestic demand (excludes inventories) ** The dotted line is CSO data. It can be considered an upper bound for unemployment in April. There are definitional questions around whether those on government income supports are unemployed. Some will have left the labour force, others are just temporarily furloughed.
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
16.0 5.4 28.2 5 10 15 20 25 30 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Unemployment Covid-19 Adjusted Unemployment
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; will be needed in years ahead
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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7
NTMA already funded €11bn of revised funding plan of €20-24bn for 2020; Ireland relatively well placed
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Q2 numbers will be grim but structure of Ireland’s economy will help cushion impact
16.0 5.4 28.2 5 10 15 20 25 30 1998 1999 2000 2001 2002 2003 2005 2006 2007 2008 2009 2010 2012 2013 2014 2015 2016 2017 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 illustrated Ireland’s march to recovery and full employment; now highlights the stark Covid-19 impact
April unemployment rate: Traditional CSO metric 5.4%; incl. Covid-19 impact 28.2%* A million getting income supports - unclear how many would be considered unemployed
CSO has urged caution on Covid-19 data given likelihood
Source: CSO, Department of Social Protection, NTMA calculations * The dotted line is CSO data. It can be considered an upper bound for unemployment in April. Note: There is no official data on how employment has been affected yet. The next labour market survey may answer 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.
Note: CSO define those on wage subsidy scheme as employed
10 20 30 40 50 60 January Composite PMI March April
10
Ireland’s Composite PMI at 17.3 in April, Manufacturing held up at 36.0 Brief upswing after Brexit reprieve but PMIs have fallen sharply on Covid-19 since
Source: Bloomberg
Manu 36.0 Comp 17.3 Services 13.9
10 20 30 40 50 60 70 Services Manufacturing Composite
11
2019 data (€ Billions) GVA Wage Bill^ Domestic Owned Profits^^ MNCs Profits^^ Estimated % of normal Output* Agri, Forest & Fish 3.1 0.7 2.4 0.0 >75% Industry (incl. Pharma) 112.4 14.1 7.9 90.3 >75% Construction 9.7 4.5 5.0 0.2 <25%
Dist, Transport, Hotels & Rest.
36.2 19.8 10.0 6.0 <25% ICT 44.7 8.3 1.9 34.7 >75% Financial & Insurance 23.3 9.2 5.1 9.3 >75% Real Estate 20.9 0.7 20.1 0.0 <50% Prof, Admin & Support 33.7 12.8 5.6 15.6 >75% P Admin, Educ. & Health 33.7 28.3 5.5 0.1 >75% Arts, Other 4.4 2.1 2.1 0.1 <25% All Sectors 324.2 100.6 65.4 156.3
domestic sectors in lockdown or have reduced capacity
Source: CSO (2019) NTMA calculations Note GVA figures are not adjusted for distortions by multinationals. ^ Wage Bill is given by compensation of employees in national accounts ^^ Profits are given by Gross Operating Surplus in national accounts; *Construction set to re-open gradually from May 18th
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)
12
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
13
Estimated €250bn hit to global passenger revenues from Covid-19* Impacts Ireland in two ways
biggest airline) and Aer Lingus
aircraft leasing companies in Ireland.
19% on average. Implies hit to assets held in Ireland are likely.
US and China will alleviate some concerns
could be lost. Dublin office market may lose a demand source. Only fiscal impact is lost taxes Covid-19 outlook – plummeting travel numbers will endanger leasing contracts
Source: CSO (2018); *based on 70% reduction in Q2 travel numbers (CAPA forecast)
2018 Assets (€ bn) 140 Persons Employed 1,971 Average Salary (€ 000s) 207.6 Total Compensation of Employee (€bn) 0.4 Profits (€ bn) 4.7 Industry % of GNI* 2.6 Timely CSO data on aircraft leasing in Ireland show a small but valuable sector
14
Consumption is being curtailed by lockdown; Oil price drop is welcome boost for importer like Ireland
Lockdown economy means as much as 40%
Oil price drop might boost the economy by 0.5-1% of GNI*
Source: CSO; DataStream; NTMA calculations 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.
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 Food & Drink (increased groceries), 23% Fuel and light , 3% Housing (10% moratorium use), 18% Non-durable goods, 2% Prof services (incl. medical), 12% Recreation and education, 2% Lost consumption , 40%
15
Building and construction investment will be hit in Q2 but can rebound quickly Another surge of IP into Ireland in 2019 – helps ICT but distorts investment picture
Construction sector has been shuttered for the time being; good news that it is set to restart in mid-May
20 40 60 80 100 120 140 160 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Building Investment Other Domestic Investment Distortions (mainly IP) Modified GFCF Total GFCF 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)
16
€4.8bn bn for income support measures:
1.
A temporary wage subsidy scheme (TWSS) has been introduced for 12 weeks 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.
A pandemic unemployment payment (PUP) for employees (and self-employed) who were laid off due to Covid-19 is now €350 p/w. This is larger than the usual benefit of circa €200 p/w.
3.
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.
0% 20% 40% 60% 80% 100% 120% 25 50 75 100 125 150 175 200 225 250 Temporary Wage Subsidy Scheme Pandemic Unemployment Payment % of Sector Employment (RHS)
17
0% 5% 10% 15% 20% 25% Distribution of weekly net pay of TWSS participants 72% below avg. earnings of c.40k
Around 40% of workforce have received either one of two Covid-19 income supports Those furloughed under TWSS are weighted towards the lower end of wage scale
Source: Department of Social Protection (as of 5 May), Revenue(as of 30 April), CSO
PUP – 598k TWSS – 427k 53% below median earnings of c.30k
18
Roadmap for phased re-opening laid out by Government; May 18th is start, sees all sectors back open in early Q3
100 200 300 400 500 600 29-Feb 07-Mar 14-Mar 21-Mar 28-Mar 04-Apr 11-Apr 18-Apr 25-Apr 02-May 09-May 16-May 23-May 30-May 06-Jun 13-Jun 20-Jun 27-Jun 04-Jul 11-Jul 18-Jul 25-Jul 01-Aug 08-Aug 15-Aug 22-Aug 29-Aug Daily cases (7 day average)*
Full Lockdown Phase One: Outside Works -
Construction Garden centres
Phase Three:
More retail Cafes Restaurants
Phase Four:
Hotels, museums, parks
Phase Five:
Cinemas, theatre, pubs
Phase Two:
Small retail
Partial Shut down Source: HSE, Department of the Taoiseach, NTMA analysis *Daily cases are adjusted for backlog of testing which meant cases related to end-March/early April but were not confirmed until mid April. ** Roadmap subject to change. Arrows are illustrative. Covid-19 cases & other indicators will need to fall or be contained for Ireland to move through the proposed phases. Ultimately the re-opening will be guided by public health advice.
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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 on demand and Saudi action UK growth Brexit uncertainty headwind Covid-19 shock Euro Growth Sluggish Covid-19 shock Euro currency No change y-o-y v. £; weaker v $ Neutral so far
Source: NTMA analysis
20
High-skill employment grew sharply in recovery period (index, 100 = end 2008) Real wages increase helped HHs to repair balance sheets, increase living standards
High-skill jobs were added in recovery; 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
70 80 90 100 110 120 130 2006 2008 2010 2012 2014 2016 2018 High Skill Other 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)
21
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 2019Q3
Ireland has used recovery period to repair private sector balance sheets – especially households
Source: CBI data, CSO
20 40 60 80 100 120 140 160 180 200 220 Debt (€Bns) Disposable Income (€Bns) Debt-to-Income Ratio (%) 2008 2013 2019Q3
Source: CBI 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
22
Gross household saving rate lower than peak but close to EU average Interest burden down to 3% of disposable income from peak of 11%
Source: Eurostat, ONS, CSO ; CBI, Eurostat 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
0% 2% 4% 6% 8% 10% 12% 2003 2005 2007 2009 2011 2013 2015 2017 2019 % of f di disp sposable le Inc ncome Ireland EA-19 Germany Spain Italy Netherlands 2 4 6 8 10 12 14 16 2002 2004 2006 2008 2010 2012 2014 2016 2018 % of Disposable Income (4Q MA) Ireland EU-28 EA-19 UK
23
No two parties together can form govt. No new legislation can be passed without govt. formation which will force issue
Source: NTMA analysis *Note: Number of seats increased by two to 160 in 2020 election.
Sinn Féin the biggest winners of the GE but may not enter govt.
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 Social Democrats, 6 Sinn Féin, 37 AAA-PBP, 5
3 10 14
10 20 Fine Gael Fianna Fáil Other/Ind Labour AAA-PBP Soc Dems Greens Sinn Féin
Change since GE 2016
Ireland was in relatively good shape fiscally before Covid-19
25
NTMA already funded €11bn of revised funding plan of €20-24bn for 2020; Ireland relatively well placed
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26
Two positives for Ireland: 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.
2 4 6 8 10 12 14 16 Billions € Bond (Fixed) EFSM EFSF Bond (Floating Rate) Green Other (incl. Bilateral)
27
NTMA issued €80bn MLT debt since 2015; 13.6 yr. weighted maturity; avg. rate of 0.94% Even with extra Covid-19 borrowings, NTMA might not match supply since 2015
Near term redemptions much lower than last five years; this + lower borrowing costs 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 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 0.0 1.0 2.0 3.0 4.0 5.0 6.0 2012 2013 2014 2015 2016 2017 2018 2019 2020f € Billions Auction Syndication Weighted Average Yield % (LHS)
28
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
10.4 10.3 10.1 8.7 8.0 7.8 7.7 7.7 6.9 6.7 6.4 6.1 2 4 6 8 10 12 Govt Debt Securities - Weighted Maturity EA Govt Debt Securities - Avg. Weighted Maturity 2 4 6 8 10 12 14 16 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036-40 2041-45 2046-50 2051-53 € Billions Debt Prefunded Long-term Extensions since 2014 Debt Profile
2 4 Romania France Spain UK Hungary Belgium Italy Slovakia Finland Poland EU27 EA19 Estonia Latvia Portugal Czechia Lithuania Croatia Malta Slovenia Sweden Austria Ireland (GNI*) Germany Greece Cyprus Netherlands Bulgaria Luxembourg Denmark
29
Government worked to get Gen. Govt. Balance (€bn) to surplus before Covid-19 2019 GGB Deficit/Surplus (% of GDP): Ireland started in better shape than most
Fiscal discipline in evidence in last decade – after Covid- 19 stimulus Ireland will have to do the hard yards again
Source: CSO; Department of Finance Eurostat
5 10 GG Balance Primary Balance 2020 estimates caveated by large degree of uncertainty
30
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
0.0% 10.0% 20.0% 30.0% 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 caveated by large degree of uncertainty
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
33
Debt metrics improved but debt stock is high and will increase; assess other metrics apart from debt to GDP too
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
10 20 30 40 50 60 1 2 3 4 5 6 € Billions PSPP IGB purchases (LHS) PEPP purchases (Min, LHS) PEPP purchases (Max, LHS) Cumulative ECB Purchases (RHS) Cumulative ECB purchases (Max, RHS))
34
Depending on the % of purchases allocated to public sector additional monthly IGB purchases could between €0.8-1.3bn
Source: ECB, NTMA Calculations Notes: PEPP min scenario assumes 50% of new purchases will be for public sector assets. Using Ireland’s capital key of 1.69% would imply €0.8bn. PEPP max scenario assumes 80% of new purchases will be for public sector assets.
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
8.6% 22.2% 8.1% 43.6% 15.2% Ireland UK US and Canada Continental Europe Nordics Asia & Other Fund/Asset Manager, 34.2% Banks/ Central Banks*, 38.4% Pensions/ Insurance, 14.2% Other, 9.6%
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) 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2011 2012 2013 2014 2015 2016 2017 2018 Manufacturing ICT Financial & insurance Admin & support services Wholesale & retail trade Other
37
Corporation tax (CT) receipts have more than doubled in four years Sectors with large MNC presence dominate CT receipts (2018)
In 2018, 45% of CT paid by 10 companies
Source: Department of Finance, Revenue
38
Ireland rated in “AA” category by Standard & Poor's
Ra Rating g Ag Agency Lon Long-term Sho Short-term Outl utlook/Trend Da Date of
last ch 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
40
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 "Celtic Tiger" 1994-2001 Credit/Prop erty Bubble Bubble Burst
Recovery
41
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
42
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
43
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)
44
Openness to trade is also central to Irish success – led by services exports; Ireland is living within its means again
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.
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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
46
Source: OECD
Lower GINI score means more equal society
47
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 would 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.
deadline of end 2020 is likely to be delayed by the Covid-19 pandemic. Pillar One : proposal to re-allocate taxing rights on non-routine profits Pillar Two: proposal for minimum global tax
Property market in hibernation for a few months with low transactions
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House prices have stabilised 20% below their peak (100 in 2007) Office prices have diverged from retail and industrial (peak = 100)
House prices had plateaued before the virus arrived
Source: CSO; MSCI data
20 40 60 80 100 120 1996 1999 2002 2005 2008 2011 2014 2017 Retail Office Industrial 20 40 60 80 100 120 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 National
Dublin
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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
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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
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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
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 were above rents Rents now well above prices
0% 10% 20% 30% 2006 2008 2010 2012 2014 2016 2018 2020 National (Y-o-Y %) Ex Dublin (Y-o-Y %) Dublin (Y-o-Y %)
0% 20% 40% 60% SD BG NL OE NW LX DN FR ES IE PT EA UK BD FN GR IT
0% 20% 40% 60% 80% SD NW BG UK DN FR LX ES IE NL OE FN EA BD PT GR IT
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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 (Q3 2019, red dot represent Q1 2008) Deviation from average price-to-rent ratio (Q3 2019, red dot represent Q1 2008)
“Hard Brexit” risk has de-escalated but cliff edge at end 2020 is sill possible
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the transition period, which is slated to finish at the end of 2020.
seek a free-trade arrangement for the long term.
more distant, making negotiations difficult.
takes several years.
concentrating on the global pandemic.
extended.
Customs Union but will abide by EU Customs Union rules – dual membership for NI.
border will be in the Irish sea. Goods crossing from ROI to NI will not require checks but goods going to UK will.
differentiate between goods going to NI and those travelling through NI to UK or vice versa. Customs checks at ports, VAT and tariff rebates and alignment of regulations will be needed.
mechanism, which allows Stormont to opt-out under simple majority at certain times. Withdrawal Agreement in 2019 helped to solve Northern Ireland border issue UK-EU Future trading relationship unresolved
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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
from British ones (and finally diversify)
Cons Pros
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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
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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
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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
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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 to be moved to Ireland
Ireland’s banks now among strongest in Europe – complete reverse of late 2000s
62
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
63
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
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Ireland’s banks are among the most capitalised banks 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)
65
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
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% LV SK ES PL DK GR PT NL HU SI GB FI IS IE IT EU AT LU BE FR CY DE
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
66
Pillar banks sold non-performing loans during 2018/19
No Non-performin ing exp xposures % of f tot total l loan
loss pr prov
ion % of NP NPE) Dec-18 18 Dec-19 19 Book k (€bn) bn) BOI
Irish Residential Mortgages 9.5(21) 6.3 (25) 23.1 UK Residential Mortgages 2.3(15) 2.1 (13) 23.2 Irish SMEs 11.2(49) 7.5 (54) 7.3 UK SMEs 6.1(53) 6.3 (46) 1.7 Corporate 2.6(60) 2 (60) 11.4 CRE - Investment 10.7(44) 7.7 (37) 7.2 CRE - Land/Development 14.0(54) 3.8 (64) 0.9 Consumer Loans 2.1(140) 1.7 (159) 5.7 6.3( 3(35 35) 4.4 4 (37) 37) 80.5
AIB
Residential Mortgages 10.1 (20) 7.4 (22) 31.5 SMEs/Corporate 5.2 (36) 2.2 (32) 20.3 CRE 17.9 (29) 5.1 (35) 7.9 Consumer Loans 11.2 (50) 6.4 (60) 3.0 9.6 5.4 4 (27) 27) 62.1
PTSB
Residential Mortgages 8.9(39) 5 (38) 12.2 Buy-to-let Mortgages 12.8(113) 10.5 (138) 3.5 Commercial 33.3(76) 24.8 (93) 0.17 Consumer Loans 7.5(112) 4.9 (133) 0.37 10.0( 0(64) 4) 6.4 16.4
All 3 Pillar banks (€bn) Dec-18 Dec-19 Total Loans 158.2 159 Non-performing Exposures 12.7 7.9 (NPE as % of Total) 8.0% 5% Provisions 4.4 3.0 (Provisions as % of book) 2.8% 1.9% (Provisions as % of Impaired) 34.6% 38.4%
Source: Published bank accounts 1 Non-performing exposures include impaired loans, loans past due greater than 90 days but not impaired, and Forborne Collateral Realisations
Non- performing Exposures, 7.9, 5% Performing Loans, 151.1
0.0 2.0 4.0 6.0 8.0 10.0 12.0 10 11 12 13 14 15 16 17 18 19 Over 90 days 90-180 days 181-360 days 361-720 days >720 days Total change
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Irish residential mortgage arrears could reverse course in 2020 – moratorium will help
firms, with the remaining 2 per cent held by unregulated loan owners. Credit Servicing Firms hold 22 per cent of all PDH mortgages in arrears over 720 days
Mortgage arrears (90+ days)* Repossessions**
Source: CBI
PDH Arrears (by thousands)
* Over 40% of those cases in arrears > 720 days are also in arrears greater than five years. ** Four quarter sum of repossessions. Includes voluntary/abandoned dwellings as well as court ordered repossessions
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 PDH BTL % of MA90+ (RHS) 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% 10 11 12 13 14 15 16 17 18 19 PDH + BTL (by balance) PDH + BTL (by number)
68
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.
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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
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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
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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.