1. Irish Economic Recovery:
On The Road To Nowhere ?
Alan McQuaid
Chief Economist
October 2010

2. Irish Recovery Plan
 Plan A
 World Economy Recovers
 NAMA sorts out the banking crisis
 Plan B
 No plan B?
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3. OECD Leading Indicators
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4. Key US Leading Indicator
US ISM Manufacturing PMI
65
60
55
50
Index
45
40
35
30
Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul
08 09 10
Source: Reuters EcoWin
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5. Can Recovery Be Sustained?
 Yield curve slope historically been good indicator of the economic cycle
 Recent yield curve flattening raises questions over durability of economic recovery
US 10-Year minus 2-Year Yield
3.0
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct
06 07 08 09 10
Source: Reuters EcoWin
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6. German Leading Indicator
German Ifo Index 2000=100
110
105
100
Index
95
90
85
80
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
Source: Reuters EcoWin
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7. World GDP Forecasts
2008 2009 2010 (f) 2011 (f)
World 3.0 -0.6 4.0 3.3
US 1.2 -2.4 3.0 2.0
Japan -0.7 -5.2 1.8 2.0
China 9.0 9.1 10.5 10.2
Eurozone 0.7 -4.1 1.9 1.3
UK 0.7 -4.9 1.6 1.7
Ireland -3.5 -7.6 -0.4 2.0
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8. Irish Economy
 Contracted significantly more sharply than other deficit
countries
 GDP has posted a 14.5% real fall from peak to trough
 Domestic demand down over 26% since Q4 2007
 Exports the one bright spot
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9. Exports key to Irish recovery
 Chemicals account for half of merchandise exports
 Exports up 6.9% in volume terms year-on-year in H1
 Goods up 4.2% and Services up 10.1%
 Ireland has a higher weighting of exports in services (48%)
 Dichotomy between “Modern” and “Indigenous” exports
 Sterling key to performance of indigenous exports
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10. Still in Deflationary Territory
Irish Annual Inflation Rates
5
3
1
Percent
-1
-3
-5
-7
Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul
07 08 09 10
Headline HICP
Source: Reuters EcoWin
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11. Domestic demand to remain weak
 Building sector out of the equation for next couple of years
 House completions to total 10,000-15,000 in 2010/2011
 ‘Conservative’ consumer key to personal spending in the short-term
 Estimated €95bn on deposit
 Household savings reached €10.5bn (11% of disposable income) in
2009
 Long-term average savings rate = 7%
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12. Housing Output
Monthly House Completions
10000
9000
8000
7000
Number of
6000
5000
4000
3000
2000
1000
0
76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10
Source: Reuters EcoWin
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13. Consumer Sentiment
ESRI/IIB Consumer Confidence Index
140
130
120
110
100
90
dx
In e
80
70
60
50
40
30
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
Source: Reuters EcoWin
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14. Consumer Spending
Retail Sales Volume Annual % Change
10
5
0
-5
Percent
-10
-15
-20
-25
-30
Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul
07 08 09 10
All Businesses All Businesses (excl. motor trades)
Source: Reuters EcoWin
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15. Labour Market Outlook Critical
Irish Labour Market Outlook
(Annual Average ’000) 2009 2010 (f) 2011 (f) 2012 (f)
Agriculture 96 85 85 85
Industry (incl. construction) 411 366 360 365
Services 1,422 1,400 1,395 1,420
Total Employment 1,929 1,851 1,840 1,870
Unemployment 259 289 295 280
Labour Force 2,187 2,140 2,135 2,150
Unemployment Rate % 11.8 13.5 13.8 13.0
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16. Addressing the public finances
 Fiscal correction of 5% of GDP in 2009 and 2.5% of
GDP in 2010
 Further fiscal correction of at least €4bn (2.5% of GDP)
in 2011
 €1bn in capital spending adjustment
 Other €3bn in reduced cost of public services and reform
of tax system
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17. Issues that need to be looked at
 Broadening the tax base
 Property tax
 Corporation tax?
 Water charges
 Adjusting welfare rates to make it attractive to work
 Containing public expenditure
 Privatisation
 Stimulating economic activity
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18. NTMA Funding Requirements
€bn 2010 (f) 2011 (f) 2012 (f) 2013 2014 (f)
(f)
Exchequer Deficit 19 18 15 12 9
Bond Redemptions 1 4 6 6 12
Banks’ Promissory Notes 3 3 3 3 3
Total 23 25 24 21 24
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19. Funding Costs
Irish minus German 10-Year Bond Yield Spread %
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
Source: Reuters EcoWin
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20. Debt Interest as % of Tax Revenue
30
25.7
25 23.6
21.4
20.1
19.3 18.5 19.0 20.0
20 17.7 17.3 17.4
Percentage
14.2
15 13.0
10.0
10 7.6 6.7 7.7
5.7 5.5 4.7
4.4 4.1 3.4 3.8
5
-
1996
2004
1993
2012
1999
2011
1991
1992
1995
1997
2000
2003
2005
2007
2008
2013
2001
2009
1994
1998
2002
2010
2006
2014
Source: NTMA
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21. History Repeating Itself?
National Debt €m % of GNP
1982 14,817 84.8
1983 18,274 95.8
1984 21,358 103.3
1985 23,492 106.0
1986 27,440 115.1
1987 30,085 117.6
1988 31,250 116.2
1989 31,525 106.8
1990 31,849 99.4
1991 32,223 96.0
1992 33,450 93.9
1993 36,006 93.5
1994 37,111 89.0
1995 38,358 82.3
1996 37,980 73.3
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22. Bloxham: Irish Budget Forecasts
2009 2010 2011 (f) 2012 (f) 2013 2014 (f)
-7.6 (f)
-0.4 2.0 3.0 (f)
3.5 4.0
GDP %
GNP % -10.7 -3.2 1.3 2.5 3.0 3.5
Average Inflation Rate % -4.5 -0.8 1.4 2.0 2.5 3.0
Nominal GDP Growth % -11.3 -1.0 3.2 5.5 6.0 6.5
Underlying Budget Balance (% of GDP) -14.3 -31.5 -11.0 -8.0 -6.0 -5.0
Structural Balance (% of GDP) -9.3 -9.4 -9.0 -7.0 -5.0 -4.0
Structural Primary Balance (% of GDP) -7.2 -6.5 -5.5 -4.0 -2.0 -0.5
General Government Debt % of GDP 64.5 98.6 110.0 118.0 121.0 123.0
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23. Not All Doom and Gloom
 Record merchandise trade surplus in July (€4.2bn)
 High percentage of exports in services (48%)
 Corporation taxes well above target (€235m)
 €95bn in household savings
 New car sales (83,500) up 52% year-on-year
 Net monthly flow of loans to households positive in August (first time this year)
 Redundancies notified (47,600) down 21% year-on-year
 Agricultural output (up three quarters running)
 Demographics & Diaspora (median age of population is 35 years – lowest in EU)
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24. Bloxham is a Member of the Irish Stock Exchange and the London Stock Exchange. Regulated by The
Financial Regulator. This publication is solely for information purposes and cannot be construed as a
representation by Bloxham. The views in this report are an expression of opinion and are given in good
faith, but are not guaranteed. These are subject to change without notice.
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