The Irish Economy
Presented by
Pat McArdle
Chief Economist
Friday, July 1, 2016
Celtic tiger is long gone
GNP growth rates
12%
TIGER PERIOD
10%
1994 to 00
AVERAGE
GNP = 8.3%
8%
6%
AVERAGE = 3.8%
4%
2%
0%
-2%
-4%
1960
1965
15 May 08 – Page 2
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1970
1975
Group Economics
1980
1985
1990
1995
2000
2005
It was not a productivity miracle
7%
6%
TIGER PERIOD
5%
4%
AVERAGE = 2.6%
3%
2%
1%
0%
1969
1972
1975
15 May 08 – Page 3
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1978
1981
1984
Group Economics
1987
1990
1993
1996
1999
2002
2005
More a catch-up in employment!
ROI non-agri emp as % of population
45%
40%
Had we not made the policy mistakes of the seventies and eighties we
could have followed the red line and ended up at the same place, albeit
in a much less painful manner?
35%
30%
This is
where the
UK was 30
years ago!
25%
20%
1961
1964 1967
1970 1973 1976
15 May 08 – Page 4
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Group Economics
1979 1982
1985 1988
1991 1994 1997
2000 2003
ESRI predict growth to recover from 2010
7
MTR08
6
5
%
4
3
2
1
Source: ESRI
0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
15 May 08 – Page 5
© Ulster Bank
Group Economics
Driven by productivity with less employment
9
8
7
6
5
4
3
2
1
0
-1
-2
Productivity
Empl Rate
Labour Force
Source: ESRI
5
0
5
0
5
0
5
0
0
0
1
1
2
2
0
5
0
5
0
5
0
199
199
200
200
201
201
202
15 May 08 – Page 6
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Group Economics
Meanwhile, growth forecasts have been cut
Evolution of consensus forecasts for 2008 -
%
during 2007/08
4.5
Source: Consensus GDP Forecasts
ROI = Reuters Consensus GNP Forecast
Horizontal axis = date of forecast
4.0
3.5
3.0
2.5
2.0
1.5
Global
US
UK
EURO
IRL
1.0
Jan-07
Mar-07
15 May 08 – Page 7
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May-07
Jul-07
Group Economics
Sep-07
Nov-07
Jan-08
Mar-08
Some key issues
•
•
•
•
•
•
•
•
Sub Prime legacy
Record oil prices
Sharp currency movements
Vulnerable housing markets abroad
Slower global growth likely in 2008
Domestic housing market slowdown
Lower growth in Ireland in 2008
Rebound in 2009
15 May 08 – Page 8
© Ulster Bank
Group Economics
Euro interest rates on hold
US, UK & ECB Interest Rates
%
Forecast
6.00
5.50
BOE
5.00
4.50
4.00
ECB
3.50
3.00
2.50
2.00
FED
1.50
1.00
Jun-04
Dec-04
15 May 08 – Page 9
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Jun-05
Dec-05
Group Economics
Jun-06
Dec-06
Jun-07
Dec-07
Jun-08
Dec-08
Oil prices have breached the $120/barrel mark
WTI Oil Prices per Barrel
(in EUR and USD)
140
WTI Light Crude Spot Price (EUR)
WTI Light Crude Spot Price (USD)
$ 122
USD/EUR per barrel
120
100
80
60
40
20
Source: UB, Ecowin
0
07/03/2002
07/03/2003
15 May 08 – Page 10
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07/03/2004
Group Economics
07/03/2005
07/03/2006
07/03/2007
07/03/2008
Currency movements are impeding exports
Euro/$ exchange rate
0.80
$ per euro inverted
0.90
1.00
1.10
1.20
1.30
1.40
1.50
1.60
Dec-01
Nov-02
15 May 08 – Page 11
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Sep-03
Aug-04
Group Economics
Jun-05
Apr-06
Feb-07
Jan-08
Irish GNP to slow in 08, but to rebound in 09
Contributions to GNP
7%
7%
5%
5%
3%
3%
1%
1%
-1%
-1%
Consumer
Investment
External
Sum=GNP
-3%
-5%
-3%
-5%
-7%
-7%
2004
15 May 08 – Page 12
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2005
2006
Group Economics
2007
2008E
2009F
Consumer confidence influences spending
Consumer Confidence and Retail Sales Volumes
(3MAV seas adj)
10%
140
Retail Sales (LHS)
Consumer Confidence (RHS)
130
8%
120
110
5%
% yoy
90
3%
80
70
0%
60
Source: UB, CSO
-3%
Dec-01
50
Dec-02
15 May 08 – Page 13
© Ulster Bank
Dec-03
Group Economics
Dec-04
Dec-05
Dec-06
Dec-07
Index
100
No sign of distress credit-card usage
New personal spending on credit cards
(% yoy 3MAV)
25%
20%
Nominal
15%
10%
5%
Source: UB, Central Bank
15 May 08 – Page 14
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Group Economics
-0
8
8
M
ay
-0
M
ar
08
Ja
n-
07
07
ov
N
Se
p-
l-0
7
Ju
-0
7
7
M
ay
-0
M
ar
07
Ja
n-
06
ov
N
06
Se
p-
l-0
6
Ju
-0
6
6
M
ay
-0
M
ar
06
Ja
n-
05
ov
N
05
Se
p-
l-0
5
Ju
-0
5
M
ay
M
ar
-0
5
0%
Car sales down sharply this year
SIMI new car registrations 12M cumulative
195,000
14%
Cars(LHS)
YOY %(RHS)
12%
185,000
10%
175,000
8%
165,000
6%
155,000
4%
2%
145,000
0%
135,000
-2%
Source: UB, SIMI
125,000
-4%
Dec-04
Jun-05
15 May 08 – Page 15
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Dec-05
Group Economics
Jun-06
Dec-06
Jun-07
Dec-07
Housing is critical to investment
13%
8%
3%
-3%
-8%
Housing
Other Construction
Plant & Machinery
-13%
Total Investment
-18%
2001
2002
15 May 08 – Page 16
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2003
2004
Group Economics
2005
2006
2007
2008F
2009F
.. and housing output is particularly weak
PMI Construction Sector Components
70
Above 50 = expansion
65
60
55
50
45
40
Below 50 = contraction
35
30
Source: NTC, UB
25
Housing
20
Dec-04
Jun-05
15 May 08 – Page 17
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Commercial
Dec-05
Civil Engineering
Jun-06
Group Economics
Dec-06
Jun-07
Dec-07
Jun-08
House prices up 290%, down 10%!
ROI HOUSE PRICES
EUR
450,000
425,000
National
Dublin
400,000
375,000
350,000
325,000
300,000
275,000
250,000
225,000
200,000
175,000
150,000
125,000
Dec-98
Dec-99
15 May 08 – Page 18
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Dec-00
Dec-01
Group Economics
Dec-02
Dec-03
Dec-04
Dec-05
Dec-06
Dec-07
13 monthly declines, but only 10% fall
National House Price Inflation
4%
16%
3%
12%
Peak = May 06
2%
8%
1%
4%
0%
0%
-1%
-4%
MOM% (LHS)
YOY% (RHS)
-2%
-8%
Source: Permanent TSB/ESRI Index
-3%
Dec-00
-12%
Dec-01
15 May 08 – Page 19
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Dec-02
Dec-03
Group Economics
Dec-04
Dec-05
Dec-06
Dec-07
Completions have been sharply curtailed
Housing Supply Indicators
100,000
2006 = 88,188
90,000
2007 = 78,027
80,000
70,000
60,000
2009 = 42,500F
50,000
Completions (ESB data)
Registrations - advanced 9 mnths
40,000
2008 = 42,500F
Source: DOE, UB
30,000
Dec-03
Dec-04
Dec-05
Dec-06
12 month cumulative rolling totals
15 May 08 – Page 20
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Group Economics
Dec-07
Dec-08
Dec-09
Affordability is no longer the issue
UB Housing Affordability Index
45%
Disimproving Affordability
Situation if first-time buyers tax
relief had not been increased
40%
Stress Test = ECB rate +2.75%
35%
30%
25%
20%
Source: UB
Improving Affordability
15%
Q1 98
Q1 00
Q1 02
Q1 04
Q1 06
Q1 08
Married couple on twice average industrial earnings - % of after tax income used to fund 90% mortgage on average new house price
15 May 08 – Page 21
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Group Economics
Despite mortgage rates again edging up
Mortgage lending rates
%
6
FORECASTS
Std Variable Rate
ECB key rate
Difference
5
4
3
2
1
Source: UB, Central Bank
Jan-05
Jul-05
15 May 08 – Page 22
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Jan-06
Jul-06
Group Economics
Jan-07
Jul-07
Jan-08
Jul-08
Total employment will still grow in 2008
Employment growth rates
20%
15%
10%
5%
0%
-5%
Nov-98
Services
Construction
Total
Nov-99
Source: CSO, UB
Nov-00
15 May 08 – Page 23
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Nov-01
Group Economics
Nov-02
Nov-03
Nov-04
Nov-05
Nov-06
Nov-07
Numbers self-employed have increased substantially
Annual employment changes
000s
120
Employee
Self employed & ass relatives
Total persons
100
80
60
40
20
0
Source: UB, CSO
-20
Nov 98
Nov 99
15 May 08 – Page 24
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Nov 00
Nov 01
Group Economics
Nov 02
Nov 03
Nov 04
Nov 05
Nov 06
Nov-07
Net exports main contributor to growth in 2008
Exports and Imports of Goods & Services
10%
Exports
Imports
8%
6%
4%
2%
0%
Source: UB, CSO
-2%
2001
2002
15 May 08 – Page 25
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2003
2004
Group Economics
2005
2006
2007
2008 E
2009 F
GNP growth to rebound in 2009
Contributions to GNP
7%
7%
5%
5%
3%
3%
1%
1%
-1%
-1%
Consumer
Investment
External
Sum=GNP
-3%
-5%
-3%
-5%
-7%
-7%
2004
15 May 08 – Page 26
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2005
2006
Group Economics
2007
2008E
2009F
The CPI will fall in 2008 and 2009
%
Consumer Price Inflation
5.5
Forecasts
CPI
5.0
07 avg = 4.9%
4.5
08 avg = 4.4%
06 avg = 4.0%
4.0
3.5
3.0
09 avg = 2.8%
05 avg = 2.5%
2.5
HICP
2.0
1.5
Source: CSO, UB
1.0
Jan-05
Jul-05
Jan-06
15 May 08 – Page 27
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Jul-06
Jan-07
Group Economics
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Credit growth has decelerated and will weaken further
Private Sector Credit Growth (% Change y/y)
35
Total
Mortgage
Non-Mortgage
29
23
17
11
Source: UB, Central Bank of Ireland
5
Dec-00
Dec-01
15 May 08 – Page 28
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Dec-02
Dec-03
Group Economics
Dec-04
Dec-05
Dec-06
Dec-07
Key themes for 2008
•
•
•
•
•
•
Consumer spending less buoyant
Investment significantly negative
But exports are now positive
So GNP growth will be 0.5% and inflation
should trend down to 4.4%
Employment will still grow by 0.5%
Things should improve in 2009 once the
housing adjustment is out of the way
15 May 08 – Page 29
© Ulster Bank
Group Economics
Forecast Summary
2006
2007
CSO
UB
CONSUMER
5.7
INVESTMENT
2008
CON1
2009
CB2
UB
6.0
3.4
3.1
1.4
EXPORTS
4.4
IMPORTS
CB
UB
2.0
3.0
1.5
-7.5
-15.7
1.2
2.1
7.8
5.6
5.5
5.9
4.5
4.4
6.5
3.9
2.5
4.6
4.5
GNP
6.5
5.0
2.0
1.9
0.5
3.1
3.2
2.0
CPI
4.0
4.9
4.0
3.2
4.4
2.5
1.6
2.8
HICP
2.7
2.8
3.5
2.9
3.5
2.5
2.2
2.5
EMPLYMNT
4.4
3.3
0.5
0.5
1.6
-0.4
UNEMP RATE
4.4
4.5
6.03
5.9
5.7
6.03
6.0
6.5
NEW HOUSES
88k
78k
48k
50k
42.5k
45k
45k
42.5k
1 Consensus Forecast from Reuters, 2 Central Bank, 3. December estiamate
Mar
02 06 08
– Page
6
15 May
– Page
© Ulster Bank
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30
Ulster Bank
Group
Group
Economics
Presented by Pat Mc Ardle
CON
Website
www.ulsterbank.com/economics
Contact us
economics@ulsterbank.com
15 May 08 – Page 31
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