Global & Irish Economic Outlook         17 February 2011             John Beggs           Chief Economist         AIB Glob...
Challenges Restore order to public finances Boost jobs and skills Support existing and find new sources of economic  gr...
Economic recovery underway in 2011                                   Irish GDP (Yr-on-Yr % Change)8.06.04.02.00.0-2.0-4.0-...
Wide range of views on Irish GDP prospects% change in real    2010   2011   2012   2013   2014   2015termsNational        ...
Wide variation on outlook for domestic demand% change in      2010    2011   2012   2013   2014   2015real termsNational  ...
Ireland exporting its way out of recession                                  Irish Industrial Production                   ...
Drag from domestic demand will abate over time %                 GDP Contributions (2008-2012) 6 3 0 -3 -6 -9-12-15       ...
Advanced economies stuck in slow lane% change volume              2009          2010          2011          2012Global    ...
Euro in narrow range against key currencies                                             E u       r o       /   $     E x ...
Official interest rates set to rise           Official Interest Rates in the US, UK and Eurozone (%)765                   ...
Domestic spending still contracting, albeit at slower pace   %               Housing Repayment Affordability *            ...
Irish retail sales flat                                  Irish Retail Sales                              (Volume, Yr-on-Yr...
Consumer confidence remains weak                    Consumer Confidence (ESRI - KBC)120100                                ...
Irish inflation makes reappearance             Irish Inflation (Annual CPI and HICP Measures)6.0                          ...
Productivity growth to pick up      Irish Whole Economy Productivity Growth (4 year moving average %)5.04.03.02.01.00.0   ...
Positive employment trends from 2012                                         2008       2009         2010               20...
Banking recapitalisation costs add to fiscal deficits% of GDP                                 2008       2009       2010(f...
AIB Irish Economic Forecasts (2010-2013)% change in real terms unless   2008    2009    2010 (f)   2011(f)    2012(f)    2...
Summing up Narrow based recovery underway Global economy supportive Some improvement in Irish cost and price competitiv...
Factors for strong medium term growth remain intactIreland strongly positioned in international recovery   Very open econ...
Note: All Irish data in tables are sourced from the CSO unless otherwise stated. Non-Irish data   are from the IMF, OECD a...
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Global & irish economic outlook john beggs, aib 17 02-11

  1. 1. Global & Irish Economic Outlook 17 February 2011 John Beggs Chief Economist AIB Global Treasury 1
  2. 2. Challenges Restore order to public finances Boost jobs and skills Support existing and find new sources of economic growth Stabilise the banking system Restore public trust and confidence Risks and uncertainties in world economy 2
  3. 3. Economic recovery underway in 2011 Irish GDP (Yr-on-Yr % Change)8.06.04.02.00.0-2.0-4.0-6.0-8.0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 (f) 2011 (f) 2012 (f) 2013 (f) Source: Thomson Datastream, AIB ERU 3
  4. 4. Wide range of views on Irish GDP prospects% change in real 2010 2011 2012 2013 2014 2015termsNational 0.3 1.7 3.2 3.0 2.8 NARecovery PlanEuropean -0.2 0.9 1.9 2.5 3.0 3.0CommissionIMF -0.2 0.9 1.9 2.4 3.0 3.4AIB -0.5 1.0 3.0 3.5 4.0 4.5 4
  5. 5. Wide variation on outlook for domestic demand% change in 2010 2011 2012 2013 2014 2015real termsNational -3.8 -0.8 1.1 1.5 1.6 NARecovery PlanEuropean -4.3 -3.4 -0.7 0.4 1.4 1.5CommissionIMF -4.1 -2.2 0.5 1.2 1.9 2.9AIB -5.1 -3.3 0.8 2.1 2.3 3.3 5
  6. 6. Ireland exporting its way out of recession Irish Industrial Production Volume: 3 Mth Moving Average Y/Y %1510 5 0 -5-10 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Source: Thomson Datastream Irish Exports of Services (Volume Yr-on-Yr % Change)1612 8 4 0 -4 -8 Q1-04 Q3-04 Q1-05 Q3-05 Q1-06 Q3-06 Q1-07 Q3-07 Q1-08 Q3-08 Q1-09 Q3-09 Q1-10 Q3-10 Source : CSO 6
  7. 7. Drag from domestic demand will abate over time % GDP Contributions (2008-2012) 6 3 0 -3 -6 -9-12-15 2008 2009 2010(f) 2011(f) 2012(f) Personal Spending Govt Spending Stocks & Fixed Investment Net Exports Source: CSO and AIB ERU forecasts 7
  8. 8. Advanced economies stuck in slow lane% change volume 2009 2010 2011 2012Global -0.6 5.0 4.4 4.5Advanced Economies -3.4 3.0 2.5 2.5US -2.6 2.8 3.0 2.7UK -4.9 1.7 2.0 2.3Eurozone -4.1 1.8 1.5 1.7Emerging Economies 2.6 7.1 6.5 6.5World Trade -10.7 12.0 7.1 6.8 Source: IMF World Economic Outlook, Update January 2011 8
  9. 9. Euro in narrow range against key currencies E u r o / $ E x c h a n g e R a t e 1 .4 5 1 .4 0 Euro / $ 1 .3 5 Exchange Rate 1 .3 0 1 .2 5 1 .2 0 1 .1 5 F M A M J J A S O N D J F S o u r c e : T h o m s o n D a ta s tr e a m S t e r l i n g / E u r o E x c h a n g e R a t e 0 .9 2 0 .9 0Sterling / Euro 0 .8 8Exchange Rate 0 .8 6 0 .8 4 0 .8 2 0 .8 0 F M A M J J A S O N D J F S o u r c e : T h o m s o n D a ta s tr e a m 9
  10. 10. Official interest rates set to rise Official Interest Rates in the US, UK and Eurozone (%)765 BoE Bank Rate432 ECB Repo Rate Fed Funds10Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Source: Thomson Datastream 10
  11. 11. Domestic spending still contracting, albeit at slower pace % Housing Repayment Affordability * Housing Completions 100,00026 90,000 80,00022 70,000 60,00018 50,000 40,00014 30,000 * % of disposable income required for mortgage repayments for 2 income household, 30 year 92% mortgage. 20,000 Based on permanent tsb/ESRI national house price10 10,000 Q1 96 Q1 97 Q1 98 Q1 99 Q1 00 Q1 01 Q1 02 Q1 03 Q1 04 Q1 05 Q1 06 Q1 07 Q1 08 Q1 09 Q1 10 0 Sources: AIB, permanent tsb/ESRI, CSO, Dept of Finance, 1970 1975 1980 1985 1990 1995 2000 2005 2010 (f) AIB ERU Calulculations Source: CSO; DoEHLG and AIB ERU forecasts Irish Personal Savings Rate (%) 6 % National House Price Inflation % 2012.5 4 1510.0 2 10 0 5 7.5 -2 0 -4 -5 5.0 -6 -10 2.5 -8 -15 -10 -20 0.0 Q1-03 Q1-04 Q1-05 Q1-06 Q1-07 Q1-08 Q1-09 Q1-10 2001 2002 2003 2004 2005 2006 2007 2008 2009 (e) 2010 (f) 2011 (f) 2012 (f) Quarter-on-Quarter : LHS Year-onYear : RHS source: permanent tsb/ESRI Source: CSO, AIB ERU 11
  12. 12. Irish retail sales flat Irish Retail Sales (Volume, Yr-on-Yr % Change)10 5 0 -5-10-15-20-25 Q1 2006 Q3 2006 Q1 2007 Q3 2007 Q1 2008 Q3 2008 Q1 2009 Q3 2009 Q1 2010 Q3 2010 Source: Thomson Datastream 12
  13. 13. Consumer confidence remains weak Consumer Confidence (ESRI - KBC)120100 Confidence Indicator 80 60 40 Expectations Component 20 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Source: ESRI - IIB, Thomson Datastream 13
  14. 14. Irish inflation makes reappearance Irish Inflation (Annual CPI and HICP Measures)6.0 CPI HICP4.02.00.0-2.0-4.0-6.0-8.0 Mar-07 Aug-07 Jan-08 Jun-08 Nov-08 Apr-09 Sep-09 Feb-10 Jul-10 Dec-10 Source:Thomson Datastream 14
  15. 15. Productivity growth to pick up Irish Whole Economy Productivity Growth (4 year moving average %)5.04.03.02.01.00.0 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 Source: CSO, AIB ERU Calculations 15
  16. 16. Positive employment trends from 2012 2008 2009 2010 2011 2012 2013Unemployment Rate % (average) 6.3 11.8 13.3 13.2 12.8 12.0Labour Force Growth % 0.8 -2.4 -2.5 -1.6 0.0 0.5Employment Growth % -1.1 -8.2 -4.1 -1.5 0.5 1.5Net Immigration : Year to April (‘000) 39.0 -7.8 -34.5 -50.0 -35.0 -20.0 Source: CSO and AIB ERU forecasts Easing in the pace of job losses in 2010 as Unemployment Rate (%) downturn in construction well advanced 15 Rise in unemployment levels out as 13 redundancies ease and emigration rises – 11 Live Register fell in three of the last four 9 months of 2010 7 Unemployment rate expected to average 5 around 13.25% in 2010 and 2011 before 3 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 falling to 12% by 2013 Source: Thomson Datastream 16
  17. 17. Banking recapitalisation costs add to fiscal deficits% of GDP 2008 2009 2010(f) 2011(f) 2012(f) 2013(f) 2014(f)General Gov Deficit 7.3 14.4 31.9* 9.4 7.3 5.8 2.8Gross General Gov Debt 44.3 65.5 94.2 98.6 102.0 102.5 100.0Actual National Debt** 28.0 47.0 60.0 70.0 76.5 79.5 78.5*To comply with Eurostat rules, the Gen Gov deficit and debt figures in 2010 include the cost of capital injectionsinto banks via promissory notes (some 20% of GDP) even though these funds are to be put in over the next 15years and not in 2010. Thus, the underlying Gen Gov deficit in 2010 is 11.6% of GDP.** The actual National Debt provides for bank promissory notes, not in 2010, but as funded each year byExchequer (€3.1bn from 2011 onwards) and also nets off cash balances (€16 billion). It stood at €93.5 billion atend 2010 (60% of GDP). Source: Dept of Finance, NTMA and AIB ERU 17
  18. 18. AIB Irish Economic Forecasts (2010-2013)% change in real terms unless 2008 2009 2010 (f) 2011(f) 2012(f) 2013 (f)statedGDP -3.5 -7.6 -0.5 1.0 3.0 3.5GNP -3.5 -10.7 -2.8 -0.5 2.0 2.5Personal Consumption -1.5 -7.0 -1.0 -1.0 1.0 2.0Government Spending 2.2 -4.4 -5.0 -5.0 -2.0 -2.0Fixed Investment -14.3 -31.0 -26.8 -11.0 3.0 7.0Contribution of stocks to GDP -0.8 -1.4 1.5 0.0 0.1 0.1growth (%)Domestic Demand -5.1 -13.9 -5.1 -3.3 0.8 2.1Exports -0.8 -4.1 8.7 6.5 5.5 5.5Imports -2.9 -9.7 5.4 3.0 4.0 4.5HICP (%) 3.1 -1.7 -1.6 1.4 1.5 1.5Personal Savings ratio (%) 5.2 11.0 12.0 11.0 9.7 8.0Construction Investment 16.0 11.4 7.7 5.9 5.7 5.9as % GDPCurrent Account as % GNP -6.6 -3.7 -1.3 0.6 0.3 0.0 Source: CSO, AIB ERU Forecasts 18
  19. 19. Summing up Narrow based recovery underway Global economy supportive Some improvement in Irish cost and price competitiveness Exports of goods and services could surprise on upside Construction sector well below trend but limited scope for recovery Consumer sector hampered by uncertainty over jobs, fiscal policy Employment to recover by 2012 but unemployment to remain high Credible fiscal path and sort out banks essential if pressure to lift on sovereign Economic news flow should improve – help to rebuild confidence 19
  20. 20. Factors for strong medium term growth remain intactIreland strongly positioned in international recovery Very open economy will continue to benefit from globalisation and FDI Large, modern, diversified, export base that will benefit from global recovery Ireland remains committed to its low corporate tax regime Competitiveness expected to improve further, building on the considerable progress already made from large price and wage fallsInternal structural factors remain positive for cyclical recovery Young, flexible population Housing output will need to rise from extremely low 2011 levels Public infrastructure still at active stage of development Scope for rebound in depressed consumer spending and business investment High personal savings rate (estimated at 12% in 2010) 20
  21. 21. Note: All Irish data in tables are sourced from the CSO unless otherwise stated. Non-Irish data are from the IMF, OECD and Thomson Financial. Irish forecasts are from AIB Economic Research Unit. This presentation is for information purposes only and is not an invitation to deal. The information is believed to be reliable but is not guaranteed. Any expressions of opinions are subject to change without notice. This publication is not to be reproduced inwhole or in part without prior permission. Allied Irish Banks p.l.c. is regulated by the Central Bank of Ireland. Economic Research Unit www.aibeconomicresearch.com 21
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