‘2016 – Economic Outlook for Ireland & Eurozone’

IFP LaunchDecember 3rd 2015

Jim

Power

Global Background

• US & UK growing at reasonable pace

• Euro Zone growing well below potential

• Emerging markets in some difficulty – China!

• Policy will very accomodative in Euro Zone

• US rates set to rise very gradually, UK cycle less clear

• Oil & Commodity prices weak

• Euro weakness to persist

• Migration crisis has highlighted yet again the lack of policy coherence at EU level

UK GDP (YoY)

-8

-6

-4

-2

0

2

4

6

Q100

Q300

Q101

Q301

Q102

Q302

Q103

Q303

Q104

Q304

Q105

Q305

Q106

Q306

Q107

Q307

Q108

Q308

Q109

Q309

Q110

Q310

Q111

Q311

Q112

Q312

Q113

Q313

Q114

Q314

Q115

Q315

US GDP (YoY)

-10

-8

-6

-4

-2

0

2

4

6

8

10

Q100

Q300

Q101

Q301

Q102

Q302

Q103

Q303

Q104

Q304

Q105

Q305

Q106

Q306

Q107

Q307

Q108

Q308

Q109

Q309

Q110

Q310

Q111

Q311

Q112

Q312

Q113

Q313

Q114

Q314

Q115

Q315

Euro Zone Economic Checklist

GDP (Q3 YoY) Inflation (YoY) Unemployment

Euro Zone 1.6% +0.1% 10.8%

Germany 1.7% +0.2% 4.5%

France 1.2% +0.2% 10.7%

Italy 0.9% +0.3% 11.8%

Spain 3.4% -0.9% 21.6%

Netherlands 1.9% +0.4% 6.8%

Belgium 1.3% +1.2% 8.7%

Greece -0.4% -0.1% 25.0%

Portugal 1.4% +0.7 12.2%

Euro Zone GDP (YoY)

-8

-6

-4

-2

0

2

4

6

Q100

Q300

Q101

Q301

Q102

Q302

Q103

Q303

Q104

Q304

Q105

Q305

Q106

Q306

Q107

Q307

Q108

Q308

Q109

Q309

Q110

Q310

Q111

Q311

Q112

Q312

Q113

Q313

Q114

Q314

Q115

Q315

USD v EURO

0.9

1

1.1

1.2

1.3

1.4

1.5

Sterling v Euro

0.6

0.65

0.7

0.75

0.8

0.85

0.9

Euro Zone in 2015

• Economic growth to remain below potential

• GDP 1.5% 2015, 1.8% in 2016?

• ECB will struggle to hit 2% inflation target

• € set to remain weak (I think)

• ECB may cut deposit rate further and increase monthly QE target

• Greater clarity needed on policy & governance

Ireland-Activity Has Surpassed 2007

0

10,000

20,000

30,000

40,000

50,000

60,000

19

97

Q1

19

97

Q3

19

98

Q1

19

98

Q3

19

99

Q1

19

99

Q3

20

00

Q1

20

00

Q3

20

01

Q1

20

01

Q3

20

02

Q1

20

02

Q3

20

03

Q1

20

03

Q3

20

04

Q1

20

04

Q3

20

05

Q1

20

05

Q3

20

06

Q1

20

06

Q3

20

07

Q1

20

07

Q3

20

08

Q1

20

08

Q3

20

09

Q1

20

09

Q3

20

10

Q1

20

10

Q3

20

11

Q1

20

11

Q3

20

12

Q1

20

12

Q3

20

13

Q1

20

13

Q3

20

14

Q1

20

14

Q3

20

15

Q1

GDP at Constant (Chain linked annually ref to 2013) Market Prices (Seasonally Adjusted) (Euro Million)

GNP at Constant (Chain linked annually ref to 2013) Market Prices (Seasonally Adjusted) (Euro Million)

The Irish Economy in 2015

• Compelling economic recovery – more broadly based

• Consumer stronger, but price compression still relevant

• Strong car sales +30%

• Strong merchandise exports +19.3%

• Labour market much better

• Consumer confidence at 9-year high

• Tax Revenues +9.6%

• Construction activity improving

• Prospects for 2016 positive – but arrogance & complacency dangerous

Ireland-Consumer Price Inflation

-8

-6

-4

-2

0

2

4

6

8

Jan

-00

Jun

-00

No

v-0

0

Ap

r-0

1

Sep

-01

Feb

-02

Jul-

02

De

c-0

2

May

-03

Oct

-03

Mar

-04

Au

g-0

4

Jan

-05

Jun

-05

No

v-0

5

Ap

r-0

6

Sep

-06

Feb

-07

Jul-

07

De

c-0

7

May

-08

Oct

-08

Mar

-09

Au

g-0

9

Jan

-10

Jun

-10

No

v-1

0

Ap

r-1

1

Sep

-11

Feb

-12

Jul-

12

De

c-1

2

May

-13

Oct

-13

Mar

-14

Au

g-1

4

Jan

-15

Jun

-15

Ireland-Unemployment Rate (%)

0

2

4

6

8

10

12

14

16

Feb

-98

Au

g-9

8

Feb

-99

Au

g-9

9

Feb

-00

Au

g-0

0

Feb

-01

Au

g-0

1

Feb

-02

Au

g-0

2

Feb

-03

Au

g-0

3

Feb

-04

Au

g-0

4

Feb

-05

Au

g-0

5

Feb

-06

Au

g-0

6

Feb

-07

Au

g-0

7

Feb

-08

Au

g-0

8

Feb

-09

Au

g-0

9

Feb

-10

Au

g-1

0

Feb

-11

Au

g-1

1

Feb

-12

Au

g-1

2

Feb

-13

Au

g-1

3

Feb

-14

Au

g-1

4

Feb

-15

Au

g-1

5

Ireland-Employment Q3 2015SECTOR ANNUAL

CHANGEEMPLOYMENT % OF TOTAL

Agriculture F&F +3,000 112,700 5.7%

Industry +13,500 252,300 12.7%

Construction +15,000 127,400 6.4%

Wholesale & Retail Trade -1,400 273,800 13.8%

Transportation & Storage +2,500 90,000 4.5%

Accommodation & Food Services +100 139,900 7.1%

Information & Communication +4,400 83,700 4.2%

Financial, Insurance & Real Estate -3,300 99,800 5.0%

Professional & Scientific +5,700 122,600 6.2%

Administrative & Support Services +2,800 68,000 3.4%

Public Admin & Defence +3,200 101,300 5.1%

Education +2,500 146,600 7.4%

Health & Social Services +3,9,00 253,400 12.8%

Total (may not add up due to rounding &

omission of Other Category)+56,000 1,983,00

Ireland-Employment (S/A)

1000

1200

1400

1600

1800

2000

2200

2400

19

98

Q1

19

98

Q3

19

99

Q1

19

99

Q3

20

00

Q1

20

00

Q3

20

01

Q1

20

01

Q3

20

02

Q1

20

02

Q3

20

03

Q1

20

03

Q3

20

04

Q1

20

04

Q3

20

05

Q1

20

05

Q3

20

06

Q1

20

06

Q3

20

07

Q1

20

07

Q3

20

08

Q1

20

08

Q3

20

09

Q1

20

09

Q3

20

10

Q1

20

10

Q3

20

11

Q1

20

11

Q3

20

12

Q1

20

12

Q3

20

13

Q1

20

13

Q3

20

14

Q1

20

14

Q3

20

15

Q1

20

15

Q3

Ireland-Competitiveness

80.00

85.00

90.00

95.00

100.00

105.00

110.00

115.00

120.00

125.00

130.00

Jan

-95

Au

g-9

5

Mar

-96

Oct

-96

May

-97

De

c-9

7

Jul-

98

Feb

-99

Sep

-99

Ap

r-0

0

No

v-0

0

Jun

-01

Jan

-02

Au

g-0

2

Mar

-03

Oct

-03

May

-04

De

c-0

4

Jul-

05

Feb

-06

Sep

-06

Ap

r-0

7

No

v-0

7

Jun

-08

Jan

-09

Au

g-0

9

Mar

-10

Oct

-10

May

-11

De

c-1

1

Jul-

12

Feb

-13

Sep

-13

Ap

r-1

4

No

v-1

4

Jun

-15

Nominal HCI (Monthly average) Real HCI (Deflated by consumer prices) Real HCI (Deflated by producer prices)

Ireland-House Price Index

0

20

40

60

80

100

120

140

160

Jan

-05

May

-05

Sep

-05

Jan

-06

May

-06

Sep

-06

Jan

-07

May

-07

Sep

-07

Jan

-08

May

-08

Sep

-08

Jan

-09

May

-09

Sep

-09

Jan

-10

May

-10

Sep

-10

Jan

-11

May

-11

Sep

-11

Jan

-12

May

-12

Sep

-12

Jan

-13

May

-13

Sep

-13

Jan

-14

May

-14

Sep

-14

Jan

-15

May

-15

Sep

-15

National - all residential properties National excluding Dublin - all residential properties Dublin - all residential properties

Private Rents

80.0

85.0

90.0

95.0

100.0

105.0

110.0

115.0

120.0

125.0

130.0

Jan

-05

May

-05

Sep

-05

Jan

-06

May

-06

Sep

-06

Jan

-07

May

-07

Sep

-07

Jan

-08

May

-08

Sep

-08

Jan

-09

May

-09

Sep

-09

Jan

-10

May

-10

Sep

-10

Jan

-11

May

-11

Sep

-11

Jan

-12

May

-12

Sep

-12

Jan

-13

May

-13

Sep

-13

Jan

-14

May

-14

Sep

-14

Jan

-15

May

-15

Sep

-15

(Jan

20

05

=10

0)

Ireland-New Mortgage Lending

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Q1-Q3

FTB Purchase Mover Purchase RIL Purchase Re-mortgage Top-up

Ireland-PDH Mortgage Arrears >90 Days

Q309 Q409 Q110 Q210 Q310 Q410 Q111 Q211 Q311 Q411 Q112 Q212 Q312 Q412 Q113 Q213 Q313 Q413 Q114 Q214 Q314 Q414 Q115 Q215

3.33.6

4.14.6

5.1

5.7

6.3

7.2

8.1

9

9.9

10.6

11.511.9

12.312.7 12.9

12.612.2

11.8

11.2

10.4

9.89.3

What is pushing the Residential Market?

• National Prices +35.4% off lows: Dublin +52.7%; Rest +24.1%

• Year to Date National +7.6%; Dublin 4.5%; Rest 8.6%

• Rental market chaotic Private Rents 35.6% off lows

Pent-Up Demand meets Limited Supply

• Improved confidence about future

• Economic recovery

• Stronger labour market

• Mortgage market showing some signs of life

• Central Bank limits having impact – sensible policy

Needs to be focus on increasing supply

21

Prospects for 2016

• GDP 6.3% 2015 4.5%+ 2016

• Consumer expenditure will be boosted by employment & earnings growth & Fiscal Policy

• Construction sector will continue to rebound strongly

• Business investment spending to grow strongly

• Unemployment rate could hit 7%

• Promises to be another good year

The Ongoing Issues• Oil, € weakness, Interest Rates, US & UK growth all good for Ireland

• China a concern

• UK & the EU

• Regional balance

• Satisfying demand for housing

• Competitiveness – broadly defined - must be the constant focus

• Preserving the FDI model

• Credit model for the SME sector

• Sovereign & Personal Debt

• Political instability and poor policy – popular policies are rarely good policies

• Economy is moving in right direction, but careful management needed

Rebuilding the Irish Economic model

• Sustainability & Stability key attributes

• Sectoral diversification – focus on competitive advantage

• Constant search for FDI trends

• Competitiveness crucial

• Business costs, Quality of Public Services, Infrastructure, Labour Force, Tax Environment, Credit Model, Political Stability & Sensible Policy

• IT Infrastructure & Capability crucial

Irish GDP Growth

-8

-6

-4

-2

0

2

4

6

8

10

12

14

%