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Aib — The Irish Economic Update – Very Robust Growth

17 slides from Aib's investor presentation, November 2015

1. Slide 1: The Irish Economic Update – Very Robust Growth

   The Irish Economic Update – Very Robust Growth November 2015 Oliver Mangan Chief Economist April 2013 AIB aibeconomicresearch.com 1

2. Slide 2: Irish recovery gains very strong momentum

   Irish recovery gains very strong momentum  Irish economy boomed from 1993 to 2007 with GDP up by over 250% – Celtic Tiger  Very severe recession in Ireland in 2008-2009. GDP fell by 8% and GNP down 10%  Collapse in construction activity and banking system, severe fiscal tightening, high unemploym

3. Slide 3: Very strong data as growth rate hits 7%

   Very strong data as growth rate hits 7%  GDP grew by 2.1% in Q1 and 1.9% in Q2 2015, up by 7% year-on-year  Strong export growth in 2015, up by 3% in Q1 and 5.4% in Q2, (14% yoy in H1)  Good Mfg PMI data in 2015 – averages 55.5 year-to-date  Industrial production rising strongly. OECD leading in

4. Slide 4: Very robust Irish growth

   Very robust Irish growth Irish Growth Rates Ireland Mfg and Services PMIs (YoY %, 3 Quarter Moving Avg.) 70 10.0 65 7.5 Services GNP 60 5.0 55 2.5 Manufacturing GDP 50 0.0 45 -2.5 40 -5.0 35 -7.5 30 -10.0 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Q1 2006 Q1 2007 Q1

5. Slide 5: Labour market improving – strong jobs growth

   Labour market improving – strong jobs growth Year Average 2012 2013 2014 2015(f) 2016(f) 2017(f) Unemployment Rate % 14.7 13.1 11.3 9.5 8.3 7.3 Labour Force Growth % -0.6 0.4 -0.3 0.6 1.2 1.4 Employment Growth % -0.6 2.4* 1.7 2.7 2.5 2.5 Net Emigration : Year to April (‘000) 34.4 33.1 21.4 11.6 5.0

6. Slide 6: Impressive performance by exports

   Impressive performance by exports  Ireland a very open economy – exports, driven by Exports as % of GDP 2014 huge FDI, equated 114% of GDP in 2014 Finland UK  Major gains in Irish competitiveness since 2009 Germany  Exports rise strongly as FDI broadens export base France Italy and global economy

7. Slide 7: Impact of FDI on economy (Source IDA)

   Impact of FDI on economy (Source IDA) KEY FDI IMPACTS ON THE IRISH ECONOMY - 1,050 multinational companies - €121bn Exports (70% of Irish exports) - 161,000 Jobs in FDI, 275,000 in total - 70% of Corporation Tax - €11bn Spending on services/materials - €8bn in Payroll - 67% of Business R&D expenditu

8. Slide 8: Strong rebound by domestic economy

   Strong rebound by domestic economy  Domestic economy contracted by 20% from 2008-12 9.0 Core Domestic Spending* (% Yr-on-Yr)  Collapse in construction was big drag on GDP - fell 6.0 3.0 from 13.5% of GDP in 2005-07 to 5.3% by 2012  0.0 Construction has turned around – moderate recovery -3.0 in pl

9. Slide 9: House prices rise as shortages emerge in market

   House prices rise as shortages emerge in market  Housing output fell by 90% but now past the bottom % 3 National House Price Inflation % 30 of cycle  2 20 Bulk of the new housing stock overhang eliminated  1 10 House prices declined sharply – fell by over 50% 0 0 between their peak in late 2007 a

10. Slide 10: House building rising slowly from very depressed levels

    House building rising slowly from very depressed levels  Housing completions at 11,000 in 2014, up from % 30 Housing Repayment Affordability * 8,300 in 2013. Should rise to some 13,000 in 2015  26 House building still at very low levels. Way below 22 previous peak of near 90,000 completions  Dema

11. Slide 11: AIB Model of Potential Housing Demand

    AIB Model of Potential Housing Demand Calendar Year 2010 2011 2012 2013 2014 2015 2016 Household 22,000 17,000 14,000 15,000 16,500 18,000 19,000 Formation of which Indigenous 26,000 23,000 20,500 19,000 18,000 17,500 17,000 Population Growth Migration Flows -7,000 -9,000 -9,500 -7,000 -4,500 -3,000

12. Slide 12: Gov debt ratio falling, private sector deleveraging

    Gov debt ratio falling, private sector deleveraging Gross Gen Gov Debt (% GDP) 140 % Gov Debt Interest (% GDP) 10 120 8 100 80 6 60 4 40 2 20 0 0 2008 2009 2010 2011 2012 2013 2014 2015(f) 2016(f) 2017(f) 2018(f) 1980 1985 1990 1995 2000 2005 2010 2015 Source: Dept of Finance Source: NTMA; Dept of F

13. Slide 13: Budget deficit falls to very low level

    Budget deficit falls to very low level  Some €30bn (18% of GDP) of fiscal tightening General Government Balance* (% GDP) 2 implemented in 2008-2014 period  0 Budgetary policy turns mildly expansionary -2 in 2015 and 2016 -4  Budget deficit of 2% of GDP likely in 2015 -6 with a deficit of 1% or be

14. Slide 14: Key factors driving recovery to remain in place

    Key factors driving recovery to remain in place  Good pick-up in demand in key export markets, including the Eurozone  Big influx of new FDI leading to even bigger export base at over 110% of GDP  Large competitiveness gains made in past six years as wages and prices fell  Sharp decline of the e

15. Slide 15: Economy can continue to grow strongly

    Economy can continue to grow strongly  The contraction on the domestic side of economy is % 8 Irish GDP Growth well over and the sector is now expanding strongly 6  Labour market on steadily improving path 4  Construction picking up from very depressed levels 2  Fiscal tightening at an end, with

16. Slide 16: AIB Irish Economic Forecasts

    AIB Irish Economic Forecasts % change in real terms unless 2012 2013 2014 2015 (f) 2016 (f) 2017 (f) stated GDP 0.2 1.4 5.2 6.0 5.0 4.5 GNP 1.6 4.6 6.9 5.5 4.5 4.0 Personal Consumption -0.8 -0.3 2.0 3.0 3.0 3.0 Government Spending -2.2 1.4 4.6 2.5 2.0 2.0 Fixed Investment 8.6 -6.6 14.3 14.5 7.0 7.0

17. Slide 17: Risks to the Irish economic recovery

    Risks to the Irish economic recovery  Main risks to Irish recovery no longer internal but external mainly relating to global growth  Recovery in the global economy still quite moderate, especially in the Eurozone, with on-going risks and headwinds. Ireland vulnerable to any shocks which would hit

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