Ireland: Begins 2020 in best shape since early 2000s - January 2020 Second straight budget surplus in 2019 - NTMA
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Ireland: Begins 2020 in best shape since early 2000s Second straight budget surplus in 2019 January 2020
Index
Page 3: Summary
Page 8: Macro
Page 23: Fiscal & NTMA funding
Page 38: Brexit
Page 46: Long-term fundamentals
Page 57: Property
Page 63: Other Data
Page 72: Annex (GDP distortions explainer)
2
Summary Full employment as debt sustainability improves
Domestic economy growing: averaging 4%+ since 2014
Dramatic drop in Employment (000s) well
True growth healthy
unemployment rate above 2008 peak
30% 18.0 200
25% 16.0
16.0 100
20%
14.0
0
15%
12.0
10% -100
10.0
5%
-200
0% 8.0
-300
-5% 6.0
-10% -400
4.0 4.8 2008 2011 2014 2017
-15%
2.0 Non-Construction Employment
Construction Employment
0.0
GDP Underlying* 1999 2003 2007 2011 2015 2019 Total Employment vs 2008 peak
* Underlying series is modified final domestic demand (excludes inventories) 4
Ireland is improving its debt sustainability year-by-year
Two years of budget Ireland is improving its debt Debt headed below 100% of
surplus (€bn) dynamics by the month national income
10 180%
Debt-to-GNI* 160%
5
(100% 2019f, from 166% peak)
140%
0
120%
-5 Debt-to-GG Revenue 100%
(243% 2019f, from 353%)
-10 80%
-15 60%
Average interest rate 40%
-20 (2.3% 2019f, from 5.1%)
20%
-25
0%
2019f
1998
1995
2001
2004
2007
2010
2013
2016
2019f
1995
1998
2001
2004
2007
2010
2013
2016
Debt-to-GDP^
GG Balance Primary Balance
(59% 2019f, from 120%)
Ireland (GNI*) Ireland (GDP)
^ due to GDP distortions, Debt to GDP is not representative for Ireland, we suggest using other 5
measures listed.
Main risks are external and outside of Ireland’s control
Brexit US Tax
Deal is likely to be passed in UK Ireland is still a “high beta” bet on Corporation tax reform may
parliament meaning the the US economy, impact Ireland's economic model
immediate risk is gone. in particular its ICT sector. in the medium term.
The catch for Ireland is that US is in the late stage of its The OECD BEPS II process is set to
Britain reverts to WTO rules in the economic cycle, although interest be completed by end 2020
end and diverges from EU regs. rate cuts may extend its duration
6
Funding range of €10-14bn for 2020 – down from 2019
€10-14bn 10 years AA-
Funding range is €10-14bn for One of the longest weighted Ireland has been upgrade to AA
the coming year average maturities in Europe space by S&P
Ireland has €20bn+ in outflows The NTMA used ECB QE to Ireland’s debt sustainability has
in 2020, so the NTMA will run extend debt maturity, reduce been improving and Brexit risk
down some of its cash buffer interest cost and repay the IMF has receded
7
Section 1: Macro Economy still healthy, but manufacturing has softened in line with global conditions
Labour market best illustrates Ireland’s growth story –
Ireland is close to full employment
Unemployment rate: down to 4.8% Employment growth consistently above 2%;
in December 2019 from peak of 16% average net jobs increase of 15K a quarter
18.0 60 6.0%
16.0 40 4.0%
14.0 20 2.0%
12.0 0 0.0%
-20 -2.0%
10.0
-40 -4.0%
8.0
-60 -6.0%
6.0 2.3m people
-80 employed -8.0%
4.0
Ireland back to -100 -10.0%
2.0 unemployment levels 2005 2007 2009 2011 2013 2015 2017 2019
seen pre-crisis Total Employment (Quarterly net chg, 000s)
0.0
1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 Total Employment (Y-o-Y growth rate, RHS)
Source: CSO 9
High-skill employment an important driver; though labour
participation rate has been slow to recover
High-skill employment has grown sharply Labour participation has not yet fully
(index, 100 = end 2008) recovered as young stay in school
130 68%
67%
120
66%
110 65%
64%
100
63%
90 62%
61%
80
60%
Rate inflated pre-crisis by
70 59% migrant construction workers
2006 2008 2010 2012 2014 2016 2018
58%
High Skill Other 1998 2001 2004 2007 2010 2013 2016 2019
Source: Eurostat; CSO 10
High sk0ill jobs include the ISCO08 defined groupings Managers, Professionals, Technicians and
associate professionalsWage growth evident in 2019 but uneven across sectors
Wage growth a driver for increase in … but disparities remain across sectors
compensation of employees…
12% 7% 70
10% 65
6% 60
8% 5% 55
6% 50
4% 45
4%
3% 40
2% 35
0% 2% 30
-2% 1% 25
20
-4% 0% 15
Arts & Rec
Industry
IT
Fin, Insurance & RE
Total
Public admin
Transport/Storage
Wholesale/Retail
Health
Prof, science & tech
Accom & Food
Construction
Education
Admin & Support
-6%
-8%
-10%
Hours worked Hourly wage
Employment Other Compensation 4Q average hourly earnings y-o-y Q2 2019
COE growth (y-o-y) 2019 Q3 average annual earnings (€000, RHS)
Source: Eurostat, CSO 11Despite being late cycle, inflation is low; Ireland’s Phillips
Curve might be starting to bite
Inflation (%) in Ireland similar to rest of euro At full employment, wage growth could
area currently – Brexit ref. impact has gone become an issue if Brexit outcome is benign
4 12.0%
3 10.0%
y = -0.7267x + 0.0943
Nominal COE growth per head
2 R² = 0.8
8.0%
1 6.0%
0
4.0%
-1
2.0%
-2
0.0%
-3 Unemployment
-2.0% reached 5% in
-4 Q3 2019
-4.0%
2.0% 5.0% 8.0% 11.0% 14.0% 17.0%
HICP Ireland HICP Euro Area Unemployment Rate
Source: CSO, Eurostat Source: CSO, NTMA analysis; Non-Agriculture employment /wage
data on yearly basis (1999-2018)
12GDP distortions mean we need to look to other metrics;
Irish recovery evident when looking at GNI*
GNI* was €197bn in 2018; 7.3% higher than GNI* growth rate averaged 8% in 2013-2018
in 2017 (current prices or cash basis) (current prices or cash basis)
350 40%
GNI* is 61% of
300 GDP 30%
250
20%
200
10%
150
0%
100
-10%
50
-20%
0
1995 1999 2003 2007 2011 2015
GDP GNI* GDP Growth GNI* Growth
Source: CSO 13
Note: See annex for discussion on the GDP distortions from 2015 onwardsWhen looking for price-adjusted timely data, modified final
domestic demand is the best measure
In real terms underlying growth in Ireland MFDD measure driven by consumption;
averaged 4.3% since 2014 investment slowed by Brexit uncertainty
15% 10.0%
10%
5.0%
5%
0.0%
0%
-5.0%
-5%
-10.0%
-10%
-15% -15.0%
1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2006 2008 2010 2012 2014 2016 2018
Modified Domestic Demand MFDD (MDD ex stocks) Investment Consumption Govt MFDD
Source: CSO
Note MDD measure used here includes private consumption, government consumption, building 14
investment, elements of machinery & equipment investment, elements of intangible asset investment.
See annex for more detail.Economy has been driven by multinational growth – in
particular ICT; tech grew 26% in year to Sept 2019
Breakdown of the Irish economy by sector – Information and communication sector has
Industry (pharma) and ICT are 40% of GVA expanded rapidly in recent years
Other, 2.6% 30%
25%
P Admin, 20%
Educ & Industry,
Health, 27.2% 15%
Prof, Admin 11.4%
10%
and Support
, 11.6% 5%
Financial, 0%
Construction
8.0% + Real Estate, -5%
9.1%
-10%
Dist, trans,
ICT, 17.1% hotels, rest., -15%
13.0% 1997 2000 2003 2006 2009 2012 2015 2018
ICT % of Economy (GVA adjusted for 2015 distortions)
ICT Sector (GVA 4Q y-o-y)
Source: CSO (2018)
Note GVA figures adjusted for distortions in 2015. A depreciation charge was subtracted from 15
industry GVA in 2015 and onwards to take account of multinational effects.Manufacturing is declining like elsewhere in the world;
services are robust but growth has decelerated
Manufacturing PMIs across the globe Ireland’s PMIs slipping much like rest of
declined in 2019 globe – services above 50 however
PMI PMI 70
Country
Dec 2018 Dec 2019
65
EU 51.5 46.4
60
France 49.7 50.4
55
Germany 51.5 43.7
50
Italy 49.2 46.2
Japan 52.6 48.4 45
Spain 51.1 47.4 40
UK 54.3 47.5 35
US 53.8 52.4
30
World 51.4 50.1 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019
Services Manufacturing Composite
16
Source: BloombergConsumer spending growth consistent around 3%
Private consumption expanded by Ireland’s consuming faster than Euro Area
3.3% in 2018 – steady trend emerging peers
12% 115 12%
105 10%
9%
8%
95
6%
6%
85
3% 4%
75
2%
0%
65 0%
-3% 55 -2%
-4%
-6% 45
1997 2000 2003 2006 2009 2012 2015 2018 -6%
Consumption Growth (4Q Y-o-Y) 1997 2000 2003 2006 2009 2012 2015 2018
Consumption (€bns, RHS) Ireland Euro Area
Source: CSO; Eurostat 17Crucially the recovery was not driven by credit; debt
reduction ended as recently as 2018
Lending for house purchase only edging Modified investment led solely by building &
into positive territory construction; mach. & equipment is sluggish
40 50%
35 40%
30
30%
25
20 20%
15 10%
10
0%
5
-10%
0
-5 -20%
-10 -30%
-15
-40%
2013
2014
2004
2005
2006
2007
2008
2009
2010
2011
2012
2015
2016
2017
2018
2019
1997 2000 2003 2006 2009 2012 2015 2018
Credit advanced to Business (y-o-y) Investment Building & Construction
Lending for house purchase (y-o-y) Investment ex B+C
Source: CBI; CSO 18
Note: Credit to business series excludes financial intermediation and property related credit
Note: Modified investment excludes impact of imports of intangible and aircraft leasing assetsPrivate debt levels remain elevated but Ireland has used
recovery period to repair balance sheets
Household debt ratio has decreased due to Legacy of crisis is on the Government
deleveraging and increasing incomes balance sheet not the private sector’s
220 400%
200
350%
180
160 300%
Economic growth has
140 250% allowed smooth private
120 sector deleveraging
200%
100
80 150%
60 100%
40
50%
20
0 0%
Debt (€Bns) Disposable Income Debt-to-Income Public and Private Private debt (% of Public debt (% of
(€Bns) Ratio (%) debt (% of GNI*) GNI*) GNI*)
2008 2013 2018 2003 2008 2013 2018
Source: CBI Source: CBI data, CSO
Note: Private debt includes household and Irish-resident enterprises (ex. financial intermediation) 19
CBI quarterly financial accounts data used for household and CSO data for nominal government
liabilities.Savings rate around EU average – pointing towards
households being more prudent
Gross household saving rate lower than Interest burden down to well below 4% of
peak but close to EU average disposable income from peak of 11%
16 14%
14 12%
% of Disposable Income (4Q MA)
% of disposable Income
12 10%
10 8%
6%
8
4%
6
2%
4
0%
2 2003 2005 2007 2009 2011 2013 2015 2017 2019
0 Ireland EA-19
2002 2004 2006 2008 2010 2012 2014 2016 2018 Germany Spain
Italy Netherlands
Ireland EU-28 EA-19 UK
Source: Eurostat, ONS, CSO ; CBI, Eurostat NTMA calculations
20
Note: Gross Savings as calculated by the CSO has tended to be a volatile series in the past, some
caution is warranted when interpreting this dataExternal environment worst since 2012 for Ireland? Brexit
deal would alleviate short term risks
2015 2016 2017 2018 2019 2020f
EA Monetary Less Accommodative
Accommodative Accommodative Accommodative Accommodative
Policy accommodative in Q4
US Monetary Accommodative Further Easy policy
Accommodative Accommodative Easing
Policy but tightening tightening continuing
Stimulative due YC inversion, but Labour market
US growth Stimulative Less stimulative Stimulative
to fiscal package still growing strength
Rising on
Oil price Falling Falling Rising Falling Flat y-o-y
tensions?
Brexit risks
Less favourable;
UK growth Stimulative Growth slowing Growth slowing Brexit risks reduced for
Brexit impact
2020
Euro Growth Stimulative Stimulative Stimulative Slowing growth Sluggish Unimpressive
No change y-o-y
Euro currency Very Helpful Helpful Headwind Neutral Neutral?
v. £; weaker v $
21Export growth has rebounded in 2019; Ireland is living
within its means
Goods exports outside MNC-dominated Current account is distorted heavily by
sectors rebounding (y-o-y change) MNEs: modified CA is consistent with GNI*
50% 20%
40%
15%
30%
10%
20%
10% 5%
0% 0%
-10%
-5%
-20%
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 -10%
Exports 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Chemical Products and Computer Services Current Account (% of GNI*)
Exports ex. Chem & Comp Modified Current Account (% of GNI*)
Source: CSO, NTMA calculations
Nominal values, exports excludes contract manufacturing.
Modified CA=CA less (IP Depreciation + Aircraft Leasing Depreciation + Redomiciled Incomes + R&D
Services Exports) adding back (Imports of related to Leasing Aircraft + R&D related IP and services 22
Imports). Significant caution should be exercised when viewing Ireland’s current account data. MNC’s
action distort metrics heavily.Section 2: Fiscal & NTMA funding Ireland likely to have recorded second straight budget surplus in 2019
Funding range of €10-14bn for 2020 – down from 2019
€10-14bn 10 years AA-
Funding range is €10-14bn for One of the longest weighted Ireland has been upgrade to AA
the coming year average maturities in Europe space by S&P
Ireland has €20bn+ in outflows The NTMA used ECB QE to Ireland’s debt sustainability has
in 2020, so the NTMA will run extend debt maturity, reduce been improving and Brexit risk
down some of its cash buffer interest cost and repay the IMF has receded
24Maturity profile: IMF repayment and FRN buy-backs have
reduced refinancing risk; Green diversifies investor base
20
18
16
14
12
10
Billions €
8
6
4
2
0
Bond (Fixed) EFSM EFSF Bond (Floating Rate) Green Other (incl. Bilateral)
Source: NTMA
Note: EFSM loans are subject to a 7-year extensions. It is not expected that Ireland will refinance any
of its EFSM loans before 2027. As such we have placed the pre-2027 EFSM loan maturity dates in the
25
2027-30 range although these may be subject to change.The NTMA took advantage of QE to extend debt profile
Various operations have extended the …Ireland (in years) now compares
maturity of Government debt … favourably to other EU countries
20 12
€ Billions
18
16 10
14
8
12
10
6
8 10.6 10.4 10.2
6 4 8.8
7.8 7.7 7.7 7.6
4 6.9 6.6 6.4 6.3
2 2
0
2026
2020
2021
2022
2023
2024
2025
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036-40
2041-45
2046-50
2051-53
0
Debt Prefunded
Long-term Extensions since 2014
Govt Debt Securities - Weighted Maturity
Debt Profile EA Govt Debt Securities - Avg. Weighted Maturity
Source: NTMA; ECB *excludes programme loans. Ireland’s maturity including these 26
loans is still similarFunding requirements will be met by mix of new issuance
and rundown of cash
€24
Two bonds mature in 2020, the first in April and
Other: 3
the second in October.
€20 UK Bilateral 2 Run-down
of cash: 8
Four of the remaining five tranches of the UK
bilateral loan mature in 2020. €16
Other: 1
Intra Govt. 1
Exchequer Borrowing Requirement could be ST paper: 1
€12
smaller than estimated if Brexit withdrawal Redemption
agreement is ratified by UK. of Bonds: 17
€8
Existing cash balances will be run down to meet Bond
Issuance: 12
part of the 2020 funding requirement. €4
EBR: 2
€-
Funding Requirements (€bn) Sources of Funding (€bn)
Notes:
Short Term Paper (ST paper) = Net growth in marketable short-term debt (Treasury Bills and Commercial Paper).
Intra Govt .funds = Expected growth in funding from domestic public sector sources.
Other funding requirements includes general contingency provision e.g. for potential Floating Rate Note purchases.
Other sources Includes other cash inflows and expected European Investment Bank loan drawdowns.
Mid-point of €10bn-€14bn bond funding range is used for illustrative purposes. 27ECB policy and NTMA’s funding strategy have lowered the
State’s interest burden
NTMA issued €69bn MLT debt since 2015; Interest costs forecasted pre-QE to be
14.1 yr. weighted maturity; avg. rate of 1.04% c.€10bn; will drop below €5bn by end 2019
6.0 18 10
€ Billions
5.5
5.0 15
8
3.9
4.0 12
6
2.8 10Y 10Y
3.0 9
12Y 12Y
15Y 30Y 4
2.0 1.5 6
0.8 0.9 1.1 0.9
1.0 3 2
5Y 5Y 10Y 7Y 5Y
8Y 10Y 16Y 30Y 10Y 20Y
0.0 0
0
2012 2013 2014 2015 2016 2017 2018 2019 2020f
2020
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2021
Auction
Syndication GG interest (€bns) SPU 2014 Estimates
Weighted Average Yield % (LHS) 2019-2021 Latest Estimates
Source: NTMA, CSO, Department of Finance 28
Only showing marketable MLT debt (auctions and syndications). Other issuance such as inflation
linked bonds, private placement and amortising bonds occurred but not shown.Diverse holders of Irish debt – sticky sources account for
over 50%
Ireland roughly split 80/20 on non-resident “Sticky” sources - official loans, Eurosystem,
versus resident holdings (H1 ‘19) retail - make up over 50% of Irish debt
250
200
Other Debt
(incl. IGBs -
Official) Private Non 150
22% Resident
35% 100
50
10%,
Resident
0
7%,
Eurosystem Resident Other Debt (incl. Official) Retail
21% Eurosystem Short term
Short term IGBs - Private Resident IGBs - Private Non Resident
4%
Total Debt (€bns)
Source: CSO, Eurostat, CBI, ECB, NTMA Analysis
IGBs excludes those held by Eurosystem. Eurosystem holdings include SMP, PSPP and CBI holdings of
FRNs. Figures do not include ANFA. Other debt Includes IMF, EFSF, EFSM, Bilateral as well as IBRC- 29
related liabilities. Retail includes State Savings and other currency and deposits. The CSO series has
been altered to exclude the impact of IBRC on the data.Investor base for Government bonds is wide and varied
Investor breakdown: Country breakdown:
Average over last 5 syndications Average over last 5 syndications
6.0%
Other, 13.4%
10.2%
Pensions/ Fund/Asset
Insurance, 26.4%
Manager,
14.2% 37.2%
Banks/
Central 45.0% 6.9%
Banks,
38.4%
Ireland UK
US and Canada Continental Europe
Nordics Asia & Other
Source: NTMA 30Late cycle risks mixed for Ireland: yield curve sets
recession clock ticking but central banks are now easing
US yield curve has inverted (albeit only PSPP restarting + re-investment means ECB
slightly so far): could be waiting a while yet will be active In IGBs in 2020
6% 40 3.5
€ Billions
5% 35 3.0
4% 30
2.5
25 Reinvest-
3% ment 2.0
20 included
2%
1.5
15
1%
1.0
10
0%
5 0.5
-1%
0 0.0
Q1 2015
Q3 2015
Q1 2016
Q3 2016
Q1 2017
Q3 2017
Q1 2018
Q3 2018
Q1 2019
Q3 2019
Q1 2020f
Q3 2020f
-2%
-3%
1972
1975
1978
1981
1984
1987
1990
1993
1996
1999
2002
2005
2008
2011
2014
2017
PSPP IGB purchases (RHS)
US 10 year bond yield minus 3m Treasury bill yield Cumulative Purchases (LHS)
Source: DataStream, ECB 31
*Shaded areas indicate recessionary periods in the USIreland recorded full budget surplus for first time in 11
years in 2018: another one likely for 2019
Gen. Govt. Balance in surplus but might Revenue surge has helped Ireland balance
slip into deficit in case of no-deal Brexit the books since 2015 (€bn)
10% 100
€ Billions
90
5% 80
70
0% 60
50
-5% 40
30
-10% 20
10
-15% Surplus is back 0
2019f
2021f
2007
1995
1997
1999
2001
2003
2005
2009
2011
2013
2015
2017
due to CT windfall
-20%
GG Expenditure (ex-banking recap)
GG Revenue
GGB (% of GNI*) GGB ex. CT receipts (% of GNI*) GG Revenue 10yr rolling average
Source: CSO; Department of Finance 32Ireland has improved its debt dynamics: next step is to
follow others and run a GGB surplus for many years
In recent years Ireland has run primary 2019 GGB Deficit/Surplus (% of GDP)
surpluses that reduced debt ratios forecasts; Ireland moving up the ranks
15.0% Cyprus
Netherlands
10.0% Luxembourg
Malta
5.0% Germany
Bulgaria
Ireland(GNI*)
0.0% Slovenia
Denmark
-5.0% Greece
Sweden
Austria
-10.0% Lithuania
Czech Rep
-15.0% Croatia
Estonia
Finland
-20.0% Portugal
Surplus is back Slovakia
-25.0% Latvia
due to CT windfall EA
~ EU28
-30.0% Belgium
-40% UK
Poland
Spain
Italy
France
Primary Balance (% of GNI*) Romania
Debt Stabilising PB (% of GNI*) -4 -2 0 2 4
Source: CSO; Department of Finance, EU Commission forecasts, NTMA calculation 33
Note: Debt Stabilising primary balance is the primary balance it is necessary to run in a year to keep
the debt-to-GNI* ratio from rising given the average interest rate and growth in that year.Gross Government debt likely close to 59% of GDP at end-
2019; 100% of GNI*; reality somewhere in between
Ireland’s net debt position converging with Debt-to-GNI* ratio is high but has declined
gross debt as EDP assets are run down quickly
140% 180%
120%120%
120% 111% 160%
104%
100% 33% 30% 140%
86% 32% 18%
77% 74% 120%
80% 68%
19% 64%
62% 11% 9% 59% 57% 56% 100%
60% 9%
9% 8%
25% 80%
90% 86%
40% 80% 87%
67% 66% 65% 59% 60%
55% 51%
20% 37%
40%
0%
20%
0%
Net Debt/GDP Cash Balances/EDP assets 1995 1999 2003 2007 2011 2015 2019f
GG Debt/GDP Debt to GNI* Debt to GDP
Source: CSO; Department of Finance 34It’s best to analyse Irish debt with broad range of metrics
2018 GG debt to GG revenue % GG interest to GG rev % GG debt to GDP %
Greece 377.9% 6.3% 181.2%
Italy 291.7% 7.6% 134.8%
Portugal 284.1% 7.5% 122.2%
Cyprus 256.5% 6.0% 100.6%
Ireland 250.2% 5.7% 63.6%
Spain 249.1% 5.9% 97.6%
UK 219.3% 5.9% 85.9%
Belgium 194.7% 3.9% 100.0%
EA19 184.7% 3.7% 85.9%
France 183.9% 2.9% 98.4%
EU28 178.4% 3.8% 80.4%
Slovenia 158.9% 3.9% 70.4%
Austria 151.4% 3.1% 74.0%
Germany 133.2% 1.9% 61.9%
Netherlands 120.3% 1.9% 52.4%
Source: Eurostat, Department of Finance
104% Debt to GNI* ratio in 2018 35Corporation tax revenue keeps surprising positively, but
each year the concentration risk increases
Corporation tax receipts have more than Sectors with large MNC presence dominate
doubled in four years the CT receipts
24.0% 12.0 100%
90%
20.0% 10.0 80%
70%
16.0% 8.0
60%
12.0% 6.0 50%
40%
8.0% 4.0 30%
In 2018, 45% of CT paid 20%
4.0% by 10 companies 2.0
10%
0%
0.0% -
2011 2012 2013 2014 2015 2016 2017 2018
2019f
2009
1995
1997
1999
2001
2003
2005
2007
2011
2013
2015
2017
Manufacturing ICT
Corporation Tax (€bns, RHS) Financial & insurance Admin & support services
Corporation Tax (% of tax revenue) Wholesale & retail trade Other
Source: Department of Finance, Revenue 36S&P restores “AA” grade – for first time in a decade
Date of
Rating Long- Short- Outlook/
last € Billion 2016 2017 2018
Agency term term Trend
change
Currency and deposits
Standard Nov (mainly retail debt) 21.3 21.6 21.6
AA- A-1+ Stable
& Poor's 2019
Securities other than shares,
exc. financial derivatives 124.2 130.7 134.2
Fitch Dec
A+ F1+ Stable - Short-term (T-Bills, CP etc)
Ratings 2017 2.4 2.9 3.1
- Long-term (MLT bonds)
121.8 127.8 131.1
Sept
Moody's A2 P-1 Stable Loans
2017 55.2 49.0 50.3
- Short-term 0.7 0.5 0.6
R-1 March - Long-term
DBRS A(high) Stable (official funding) 54.6 48.5 49.7
(middle) 2016
General Government Debt
200.7 201.3 205.9
EDP debt instrument assets
Jan. 24.9 27.3 28.6
R&I A a-1 Stable
2017 Net Government debt 175.8 174.0 177.3
37
Source: NTMA, CSOSection 3: Brexit “Hard Brexit” risk has de-escalated but cliff edges may keep appearing
Brexit deal solves many issues for Ireland but does not
eliminate the risk of a hard Brexit
Northern Ireland border issued solved if UK-EU Future trading relationship
current deal is ratified by UK parliament unresolved
• Northern Ireland will remain within the UK • After the withdrawal agreement is sorted we
Customs Union but will abide by EU Customs enter the transition period, which is slated to
Union rules – dual membership for NI. finish at the end of 2020.
• No hard border on the island of Ireland – customs • The UK government has stated its intention to
border will be in the Irish sea. Goods crossing seek a free-trade arrangement for the long term.
from ROI to NI will not require checks but goods
going to UK will. • This is a departure from Theresa May’s
government position which kept all of the UK in
• Complex arrangements will be necessary to the EU customs union and kept many regulations
differentiate between goods going to NI and aligned.
those travelling through NI to UK or vice versa.
Customs checks at ports, VAT and tariff rebates • The upshot is that the trading relationship will be
and alignment of regulations will be needed. more distant, making negotiations difficult.
• All of this is backed by a complex consent • There is only one year to negotiate what normally
mechanism, which allows Stormont to opt-out takes several years. Risk of hard Brexit if the
under simple majority at certain times. transition period is not extended.
39Negatives of hard Brexit outweigh positives in short-term,
although opportunities may appear longer term
Cons Pros
Short term Short term
• Major trade disruption from tariffs, customs • None, bar cheaper domestic food prices?
checks and documentation (red tape)
Long term
• Regions suffer severe recession in agriculture and • Fiscal help from Europe is likely; selective temporary
UK-focused manufacturing; tourism might suffer waiving of State Aid rules?
• Confidence shock to business and households • FDI influx from UK, as multinationals avoid turmoil;
UK’s reputation might be tarnished
• Liquidity may dry up in property market Financial services (passporting lost by UK)
Other multinationals - especially
• Fiscal surplus will turn to deficit, challenging 3% IT and business services
of GDP limit in worst case
• Commercial property occupancy could rise; there
Long term may also be an influx of well paid workers
• Lower consumer spending thanks to higher • Gradual partial trade recovery
inflation when tariffs dominate the FX benefit Irish companies may steal EU market share from
British ones (and finally diversify)
• Political economy cost (loss of ally in the EU) Import substitution (especially in food)
40Whichever type of Brexit materialises, trade is likely to be
negatively impacted
% of Goods Services Total
Irish/UK trade linkages will suffer following Brexit
total (2018) (2018) (2018) The UK is the second largest single-country
export destination for Ireland’s goods and
Exp. Imp. Exp. Imp. Exp. Imp. the largest for its services
At the same time, Ireland imports c. 20% of
US 27.9 18.5 11.6 25.4 18. 23.1 its goods from the UK.
Ireland’s trade with the UK is labour intensive
UK* 11.5 21.7 15.7 9.6 13.8 13.6
The UK might only account for 14% of
Ireland’s total exports, but Ireland is more
NI 1.6 1.6 n/a n/a n/a n/a dependent than that because those UK-
reliant sectors are labour intensive
EU-27 38.8 37.4 29.4 26.8 33.5 30.3 SMEs account for over 55% of Irish exports to the
UK. They are likely to be more adversely affected
China 3.9 5.9 2.6 1.5 3.1 3.0 than larger companies by the introduction of tariffs
and barriers to trade
Other 21.8 22.4 43.3 38.3 30.7 31.1
41
Source: CSO 2018 * UK data includes Northern Ireland
NTMA calculations; Data does not include contract manufacturingAgri-food and tourism most at risk from trade barriers
Agriculture has not diversified from the UK Tourism numbers linked to FX moves
60% 30% 20%
Agri. exports to UK
15%
50% 20%
10%
40% 10%
5%
30% 0% 0%
All other goods
20% -5%
exports to UK -10%
-10%
10%
-20%
-15%
0%
-30% -20%
2010
2013
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2016
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
% of Irish Agri Exports going to UK Euro/Sterling (y-o-y, Lagged 3Qs, RHS)
% of Other Irish Goods Exports going to UK Visitors to IE from UK (y-o-y)
42
Source: CSO, Datastream EikonFan chart of hard Brexit impact on Ireland – the most
severe forecast puts Ireland into recession
The hit from the baseline for various Impact on GNI* growth under various
forecasts of a hard Brexit forecasts of hard Brexit
1% 10%
0%
5%
-1%
-2% 0%
-3%
-5%
-4%
-5% -10%
-6%
-15%
-7%
2020 2022
Baseline DOF/ESRI GNI* (Deal Scenario) DOF/ESRI
Central Bank BoE implied (disruptive) Central Bank BoE implied (disruptive)
BoE implied (disorderly) BoE implied (disorderly)
43
Source: CSO, various forecasters – GNI* shown has been deflated to produce a real GNI* seriesHard Brexit impact estimates all show similar story –
return to WTO rules would be negative for Ireland
Forecast vs. no Brexit Short term Medium term Long term
baseline (2 years) (5 years) (10-15 years)
Department of Finance
-2.4% -3.3% -5.0%
(ESRI)
-7.0%
Copenhagen Economics -2.0 to 2.5% -4.5% (of which -4.9% is due to
regulatory divergence)
Central Bank of Ireland -4.0% - -6.0%
Bank of England
-5.0% -6.2% -6.2%
“disruptive” (implied)
Bank of England
-6.3% -8.2% -8.2%
“disorderly” (implied)
UK Treasury range (implied) - - -5.0 to 7.2%
44
Source: ESRI, Copenhagen, Bank of England, UK treasury
Implied uses the impact on UK GDP and an elasticity measure of 0.8 to calculate the impact on Irish GrowthMany financial institutions have already announced that
they will expand or set up in Dublin after Brexit
FDI: Ireland may benefit Companies that have indicated jobs to be
moved to Ireland
Ireland could be a beneficiary from displaced FDI.
The chief areas of interest are
Financial services
Business services
IT/ new media.
Dublin is primarily competing with Frankfurt,
Paris, Luxembourg and Amsterdam for financial
services.
Ireland’s FDI opportunity will depend on the
outcome of post-exit trade negotiations. The UK
(City of London) is almost certain to lose its EU
passporting rights on exit, so there may be more
opportunities in time.
45Section 4: Long term fundamentals Ireland’s long run future looks bright thanks to its favourable demographics
Much rebalancing has taken place – Ireland’s structural
growth drivers have reasserted
Gross National Income* at current prices Ireland’s GNI* per capita hit 2007 levels and
(1995=100) compares favourably to EA
320 45,000
300 "Celtic Tiger" Credit/Prop Bubble Recovery
1994-2001 erty Bubble Burst 40,000
280
260 35,000
240
220 30,000
200 25,000
180
160 20,000
140
15,000
120
100 10,000
80
5,000
60
40 -
20
0
1995 2000 2005 2010 2015 2020f Ireland (GNI*) EA 19 (GDP) Germany (GDP)
47
Source: CSO, EurostatIreland’s population profile healthier than the EU average
Ireland’s population was 4.92m in 2019 – Ireland’s population will remain younger
over 200,000 more than 2011 Census than most of its EA counterparts
2.0% Japan
1.8% % of population in age cohort Spain
Italy
1.6% Portugal
1.4% Greece
Germany
1.2% France
Belgium
1.0% Finland
0.8% Canada
Denmark
0.6% 25% of Ireland’s UK
population aged 17 or Ireland
0.4% below versus 19% for EU China
0.2% Sweden
USA
0.0% WorldFavourable population characteristics underpin debt
sustainability over longer term: next 10 years look healthy
Percentage of population: Ireland’s has The consequence is that working-age
relatively more young people and fewer old population expected to grow (2020-2029)
70%
India
US
60%
Ireland
Denmark
50% UK
Spain
40% Belgium
Netherlands
30% France
Austria
20% EU
Euro area
10% China
Italy
0% GermanyOpenness to immigration has been beneficial to Ireland
Latest Census data show net migration Highly educated migrants moving to Ireland
positive since 2015 – mirroring economy “Reverse Brain Drain”
150 3.0% 120
100 2.0% 90
60
50 1.0%
30
0 0.0%
0
-50 -1.0%
-30
-100 -2.0%
-60
1995
1987
1989
1991
1993
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019
-90
Emigration (000s)
Immigration (000s) -120
Net Migration (000s) Third level Other Education Net Migration
Net Migration (% of Pop, RHS) 2009-2013 2015-2019
50
Source: CSOOpenness to trade is also central to Irish success – led by
services exports; Brexit may hinder export-led growth
Cumulative post-crisis total exports (4Q sum Ireland benefits from export
to end-2008 = 100, current prices) diversification by destination
290 190.00
% of Goods Services Total
270 170.00 total (2018) (2018) (2018)
250 150.00
Exp. Imp. Exp. Imp. Exp. Imp.
230 130.00
US 27.9 18.5 11.6 25.4 18. 23.1
210 110.00
190 90.00
UK* 11.5 21.7 15.7 9.6 13.8 13.6
170 70.00
150 50.00 NI 1.6 1.6 n/a n/a n/a n/a
130 30.00
EU-27 38.8 37.4 29.4 26.8 33.5 30.3
110 10.00
90 -10.00
China 3.9 5.9 2.6 1.5 3.1 3.0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Contract Manufacturing* Services Other 21.8 22.4 43.3 38.3 30.7 31.1
Goods ex. CM Exports
Source: CSO, NTMA calculations , * Contract manufacturing proxy 51Ireland is relatively competitive now; we need to avoid
repeat of the mid-2000s
Nominal Labour Cost Ratio – IE vs Euro Area Unemployment back towards 1999-2007
level, but wage growth lower
115 7.0%
6.0% 2019
110 forecast
5.0%
2019f
105 4.0%
3.0%
100
2.0%
95 Ireland still competitive 1.0%
versus
The Euro Area 0.0%
90 Unemployment Comp. of Emp. per
2002 2004 2006 2008 2010 2012 2014 2016 2018 employee growth
Annual Averages (1999-2007)
Source: Eurostat, NTMA analysis *Ratio = IE Nom. Labour
Source: CSO, Eurostat, NTMA calculations
Costs/ EA Nom. Labour Costs
52Ireland is a good place to live and do business
Ireland is close to OECD norms socially Ireland scores well on metrics such as
property rights and government efficiency
100 Ireland
95 UN Goal – Ireland Normalised
OECD
90 Peace, Justice and Actual (world
Average
Strong institutions Figure leader =
85
100)
80
Overall - 87.5 75.8
75
Corruption Perception Index
70 73.0 79.4 73.5
(0-100)
65 Government Efficiency
4.8 74.8 52.8
60 (1-7)
Homicides (per 100,000
55 1.1 97.8 96.1
people)
50 Prison population
Gender Decent work Reduced Sustainable 80.0 87.8 74.6
(per 100,000 people)
Equality and economic Inequalities Cities and
growth Communities Property Rights (1-7) 6.1 94.8 73.1
Ireland (World leader = 100) OECD Average Population who feel safe
75.0 73.7 67.4
walking alone at night (%)
Source: United Nations SDG project 530
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.1
Slovakia
Slovenia
Czech Rep
Iceland
Finland
Denmark
Norway
Belgium
more equal society
Hungary
Lower GINI score means
Sweden
Austria
Poland
Netherlands
France
Source: OECD
Germany
Switzerland
Luxembourg
Canada
Ireland
Estonia
GINI Coefficient (Post Taxes and Transfers)
Italy
Australia
Portugal
Russia
Greece
Japan
Spain
Israel
Latvia
UK
Korea
Pre Taxes and Transfers
Lithuania
USA
Income equality – Ireland’s very progressive system
Turkey
Chile
Mexico
Costa Rica
means income equality is around OECD average after tax
South Africa
54Ireland reformed its corporate tax code to meet global
standards; the 12.5% rate is fixed Government policy
Ireland’s part in OECD (BEPS 1.0) corporate Ireland’s role in EU actions on corporate tax
tax reform reform
• Ireland has been a strong supporter of the BEPS • Ireland agreed two Anti-Tax Avoidance Directives
process since inception. (ATADs) with its fellow EU Member States in 2016
and 2017. The Anti-Tax Avoidance Directives
• Removal of known tax avoidance structures such represent binding commitments to implement
as the “Double Irish”, “the Single Malt” and three significant BEPS recommendations into Irish
“stateless companies”. law as well as two additional anti-avoidance
• Ireland is best in class on tax transparency and measures.
exchange of information. Ireland is one of only 23 • Three out of five required components of the
jurisdictions to have been found to be fully ATADs are now in effect as of 1st Jan 2019:
compliant with new international best practice by Controlled-Foreign Company (CFC) rules, Exit Tax
the Global Forum on Tax Transparency and and General Anti-Abuse Rules (GAAR).
Exchange of Information.
• Ireland continues to engage positively at both EU
• Ireland introduced Country-by-Country Reporting and OECD level on tax issues.
in 2015. The State also ratified the BEPS
multilateral instrument in domestic legislation
which will update the majority of Ireland’s tax
treaties to be BEPS compliant.
55OECD’s BEPS 2.0 process could impact the tax landscape
globally – one to watch in 2020.
Pillar One : proposal to re-allocate taxing Pillar Two: proposal for minimum global tax
rights on non-routine profits
• The OECD has proposed further corporate tax • Pillar Two - the basic idea is to introduce a
reform - a BEPS 2.0. minimum tax rate with the aim of reducing
incentives to shift profits.
• BEPS 2.0 looks at two pillars. The first pillar
focuses on proposals that would re-allocate taxing • Where income is not taxed to the minimum level,
rights between jurisdictions where assets are held there would an “income inclusion rule” which
and the markets where user/consumers are operates as a ‘top-up’ to achieve the minimum
based. Non-routine profits could - to some - rate of tax.
degree be taxed where customers reside.
• The obvious questions arise:
• Under such a proposal, a proportion of profits what is the appropriate minimum tax rate?
would be re- allocated from small countries to who will get the ‘top-up’ payment?
large countries. Such a proposal will reduce Is the minimum rate taxed at a global (firm)
Ireland’s corporation tax base but it is impossible level or on a country-by-country basis?
to predict the size of the impact.
• These questions are as yet unanswered. If the
• Nothing has been decided but proposals are minimum rate agreed is greater than the 12.5%
currently in the public consultation phase. rate that Ireland levies, it would erode this
country’s comparative advantage.
56Section 5: Property Residential property prices have started to cool as supply comes online
House prices have plateaued over the last year
House prices have stabilised 20% Office prices have diverged from retail and
below their peak (100 in 2007) industrial (peak = 100)
120 120
100 100
80 80
60
60
40
40
20
20
0
0
1996 1999 2002 2005 2008 2011 2014 2017
National Excl. Dublin Dublin Retail Office Industrial
Source: CSO; MSCI data 58Housing supply still below demand; but price inflation
has moderated as supply is catching up
Housing Completions above 22,000 in 2018 New dwellings* make up 80% of housing
but still low historically (000s) completions: some debate about the rest
100 30000
90
25000
80
70 20000
60
15000
50
40 10000
30
5000
20
10 0
2011 2012 2013 2014 2015 2016 2017 2018 2019f
0
1970 1978 1986 1994 2002 2010 2018 New dwelling completion Unfinished
Nationally Dublin ex. Dublin Reconnection Non-Domestic
All connections
Source: DoHPCLG, CSO, NTMA Calculations
* Housing completions derived from electrical grid connection data for a property. Reconnections 59
of old houses or connections from “ghost estates” overstate the annual run rate of new building.Demand has picked up since 2015; credit slowly
increasing as cash buyers become less important
Mortgage drawdowns rise from deep Non-mortgage transactions still important
trough (000s) but closer to 40% of total
120 20 80.0%
Thousands
18 70.0%
100 16
60.0%
14
80
12 50.0%
60 10 40.0%
8 30.0%
40 6
20.0%
4
20
2 10.0%
0 0 0.0%
Q2 2015
Q4 2010
Q2 2011
Q4 2011
Q2 2012
Q4 2012
Q2 2013
Q4 2013
Q2 2014
Q4 2014
Q4 2015
Q2 2016
Q4 2016
Q2 2017
Q4 2017
Q2 2018
Q4 2018
Q2 2019
2006 2008 2010 2012 2014 2016 2018
Residential Investment Letting
Mover purchaser Non-mortgage transactions
Mortgage drawdowns for house purchase
First Time Buyers Non-mortgage transactions % of total (RHS)
Source: BPFI *4 quarter sum used Source: BPFI; Residential Property Price Register
60Residential property prices have steadied in recent
quarters; rents continue to increase
Residential property prices have rebounded Rents are well above previous peak – out of
strongly since 2012 but steadied in 18/19 line with prices
30% 180
160 Rents now well
20% above prices
140
10% 120
100
0%
80
-10% Prices were
60 above rents
-20% 40
20
-30%
0
2006 2008 2010 2012 2014 2016 2018
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
National (Y-o-Y %) Ex Dublin (Y-o-Y %)
Dublin (Y-o-Y %) Rents (100 = 2005) Price
Source: CSO; RTB 61Irish house price valuation metrics continue to rise but
remain below 2008 levels; most countries are expensive
Deviation from average price-to-income ratio (Q1 2019, red dot represent Q1 2008)
60%
40%
20%
0%
-20%
SD BG NL NW OE DN LX FR ES IE PT EA UK FN BD GR IT
Deviation from average price-to-rent ratio (Q1 2019, red dot represent Q1 2008)
80%
60%
40%
20%
0%
-20%
SD NW BG UK DN FR LX ES IE NL OE FN EA BD PT GR IT
Source: OECD, NTMA Workings 62
Note: Measured as % over or under valuation relative to long term averages since 1980.Section 6: Other data Ireland’s banks now among strongest in Europe – complete reverse of late 2000s
Ireland has legacy banking-related assets – equity in
banks and expected NAMA surplus
• Banks continue to be profitable: income, cost and balance sheet metrics are much improved.
• Interest rates on mortgages and to SMEs are still high compared to EU thanks to legacy issues and the
slow judicial process in accessing collateral.
• An IPO of AIB stock (28.8%) occurred in June 2017. This returned c. €3.4bn to the Irish Exchequer to
be used for debt reduction. Further disposal of banking assets will depend on market conditions.
All three pillar banks are profitable
Net Interest Margin Profit before Tax
3.0% 1.4
2.5% 1.2
1
2.0%
0.8
1.5%
0.6
1.0% 0.4
0.5% 0.2
0.0% 0
AIB BOI PTSB AIB BOI PTSB
2017 2018 2019H1 2017 2018 2019H1
64
Source: Annual reports of banks - BOI, AIB, PTSB
Profit measures are before exceptional items (2019H1 annualised)Domestic bank cost base reduced over time
Cost income ratios improve dramatically… … and IE banks* below EU average
90%
150% 144% 80%
70%
123%
125% 60%
50%
100% 40%
88%
30%
69% 20%
75% 65%
10%
54%
0%
50%
LV SK ES PL DK GR PT NL HU SI GB FI IS IE IT EU AT LU BE FR CY DE
Staffing (000s) halved post crisis
25%
30
0% 26
20
AIB BOI PTSB
2012 2013 2014 2015 16
10
2016 2017 2018 2019 H1 10 10
5 2
0
Source: Annual reports of Irish domestic banks AIB BOI PTSB
2008 2019H1
Source: Annual reports of Irish domestic banks, EBA 65
* EBA data includes three domestic banks as well as Ulster Bank, DEPFA & Citibank.Capital ratios strengthened as banks were slimmed down
and consolidated
Loan-to-deposit ratios have fallen
CET 1 capital ratios (Jun 2019) significantly as loan books were slashed
25% 200
180
160
20%
140
120
15% 100
80
10% 20.3% 60
16.8% 17.3% 40
14.9% 13.6% 14.4% 20
5%
-
Loan-to- Loans (€bn) Loan-to- Loans (€bn)
0% Deposit % Deposit %
CET1 % (Transitional) CET1 % (Fully Loaded) AIB BOI
AIB BOI PTSB Dec-10 Dec-18
Source: Published bank accounts Source: Published bank accounts
Note: “Transitional” refers to the transitional Basel III required for CET1 ratios
66
“Fully loaded” refers to the actual Basel III basis for CET1 ratios.Pillar banks sold non-performing loans during 2018, as
asset quality continues to improve
All 3 Pillar banks (€bn) Dec-17 Dec-18 Non-performing exposures % of total loans1 (loss provision % of NPE)
Total Loans 162.4 158.2 Dec-17 Dec-18 Book (€bn)
Non-performing Exposures 22.0 12.7 BOI Irish Residential Mortgages 11.0(24) 9.5(21) 23.7
UK Residential Mortgages 1.9(14) 2.3(15) 21.7
(NPE as % of Total) 13.5% 8.0%
Irish SMEs 15.4(46) 11.2(49) 7.6
Provisions 7.3 4.4 UK SMEs 8.6(42) 6.1(53) 1.6
(Provisions as % of book) 4.4% 2.8% Corporate 3.0(69) 2.6(60) 10.3
CRE - Investment 17.9(43) 10.7(44) 7.7
(Provisions as % of Impaired) 33.2% 34.6%
CRE - Land/Development 39.4(55) 14.0(54) 0.6
Consumer Loans 2.1(98) 2.1(140) 5.1
8.3(36) 6.3(35) 78.4
Loan Asset Mix (3 banks Dec 18)
Corporate/ Mortgage AIB Residential Mortgages 14 10.1 (20) 32.3
SME
SMEs/Corporate 11 5.2 (36) 19.6
25%
CRE 33 18.0 (29) 7.9
Consumer Loans 18 11.1 (50) 3.1
16 9.6 62.9
Consumer
5%
60% PTSB Residential Mortgages 21.7(44) 8.8(39) 12.4
Buy-to-let Mortgages 21.8(64) 12.9(113) 4.0
10% Commercial 30.3(104) 33.3(76) 0.2
CRE
Consumer Loans 15.4(92) 7.5(112) 0.3
21.7(50) 10.0(64) 16.9
Source: Published bank accounts
1 Non-performing exposures include impaired loans, loans past due greater than 90 days but not 67
impaired, and Forborne Collateral RealisationsIrish residential mortgage arrears are still improving; but
there are legal bottlenecks to normalisation
Mortgage arrears (90+ days) Repossessions**
20% 12.0 PDH Arrears 3500 6.0%
18% 10.0 (by thousands)
16% 8.0 3000 5.0%
14% 6.0
4.0 2500
12% 4.0%
10% 2.0
0.0 2000
8% 3.0%
-2.0
6% 1500
-4.0
4% 2.0%
-6.0 1000
2% -8.0
0% 1313131313131313131 1.0%
3412341234123412341234123412341234123412
500
09 10 11 12 13 14 15 16 17 18 19 10 11 12 13 14 15 16 17 18 19 0 0.0%
PDH + BTL (by balance) Over 90 days 90-180 days 13 14 15 16 17 18 19
181-360 days 361-720 days
PDH + BTL (by number) PDH BTL % of MA90+ (RHS)
>720 days Total change
Source: CBI
• Non-bank entities now hold 13 per cent of all PDH mortgage accounts outstanding; 11 per cent are held by regulated retail credit
firms, with the remaining 2 per cent held by unregulated loan owners. Credit Servicing Firms hold 22 per cent of all PDH mortgages
in arrears over 720 days
* Over 40% of those cases in arrears > 720 days are also in arrears greater than five years. 68
** Four quarter sum of repossessions. Includes voluntary/abandoned dwellings as well as court ordered
repossessionsNAMA has repaid its senior debt of over €30bn; likely to
deliver surplus of around €4bn – half of which in 2020
• NAMA’s operating performance is strong
Acquired 12,000 loans (over 60,000 saleable property units) related to €74bn par
of loans of 780 debtors for €32bn
NAMA continues to generate net profit after impairment charges.
• It has repaid 100% of €30.2bn of original senior debt
NAMA exceeded its senior debt redemption targets well ahead of schedule. It remains on course,
subject to market conditions, to redeem its small amount of subordinated debt by 2020.
• NAMA could deliver a surplus for Irish taxpayers of about €4bn, according to its management team - if current
market conditions remain favourable.
The surplus is already factored into the budgetary arithmetic. NAMA plans to return €2bn of the €4bn
to the Exchequer in 2020.
• NAMA initiative to develop up to 20,000 housing units by 2020 – subject to commercial viability.
Progress has been strong so far: 11,700 units were completed in 2014 – 2019;
Another 1,900 are under construction or have had funding approved;
A further 4,500 have planning permission granted.
More NAMA information available on www.nama.ie 69The European Commission’s ruling on Apple’s tax
affairs does not change the NTMA’s funding plans
• The EC has ruled that Ireland illegally provided State aid of up to €13bn, plus interest to Apple. This
figure is based on the tax foregone as a result of a historic provision in Ireland’s tax code. This was
closed on December 31st 2014.
• This case has nothing to do with Ireland’s corporate tax rate. In its press release the EC stated: “This
decision does not call into question Ireland’s general tax system or its corporate tax rate”.
• Apple is appealing the ruling, as is the Irish Government. This process could be lengthy. Pending the
outcome of the appeal, Apple has paid approximately €13bn plus EU interest (c. €2bn) into an escrow
fund.
• Bank of New York Mellon has been selected for the provision of escrow agency and custodian services
to hold and administer the fund.
• Amundi, BlackRock Investment Management (UK) Limited and Goldman Sachs Asset Management
International have been selected for the provision of investment management services for the fund.
• As the funds will be held in escrow pending the outcome of the appeal, the NTMA has made no
allowance for these funds.
70Government’s NDP outlines green projects; aim to cut CO2
emissions by at least 80% by 2050
1 in 5 euros in the National Development Plan
(NDP) to be spent on green projects
Sustainable Transition to a
Management Low carbon
Sustainable and Climate
Total:€23
Mobility of Water and billion (13%
Environmental Resilient
€8.6 billion Resources Society of GNI*)
€6.8 billion €7.6 billion
Further details are available at ntma.ie Source: National Development Plan 71
2018-2027Annex Explanatory charts about the distortions to Ireland’s National Accounts
Distortions to GDP/GNP make them sub-optimal
indicators of economic performance
Substantial activity from multinationals Reclassification of several companies and
distorts the national accounts “onshoring” of IP led to step change in GDP
30% 350
25% c.35% increase in
300
nominal GDP in 2015
20%
250
15%
10% 200
5%
150
0%
-5% 100
-10% 50
0
Change in Inventories External Channel 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Modified Domestic Demand GDP Nominal GDP (€bns) Nominal GNP (€bns)
Source: CSO; Department of Finance 73The change in capital stock resulted in large increase in
net exports – mostly through contract manufacturing (CM)
240
The capital stock expanded in 2015 by c. €300bn or c. 220
40%. This is due to: 200 Contract
180 manufacturing
Re-domiciling/inversions of several multinational proxy*
companies 160
140
The “onshoring” of IP assets into Ireland by
120
multinationals 100
The movement of aircraft leasing assets in Ireland. 80
60
Goods produced by the additional capital were mainly 40
exported. Complicating matters, the goods were 20
produced through “contract manufacturing”. 0
1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
CM occurs where a company in Ireland engages another
National accounts exports Trade data exports
abroad to manufacture products on its behalf.
Crucially, the foreign contract manufacturer supplies a manufacturing service to the Irish entity but the
overseas contractor never takes ownership of the product. When the product is sold abroad, a change of
economic ownership takes place between Ireland and the country where the product is sold. This export is
recorded in Ireland’s statistics even though it was never produced in Ireland.
Little or no employment in Ireland results from this contract manufacturing.
Source: CSO 74Investment distorted by multinationals importing
intellectual property (IP) into Ireland
Investment (4Q sum, €bns)
• Investment is above the pre-crisis level due to 140
MNCs importing intangibles into Ireland.
120
100
• Ireland has become an ICT hub in recent years
80
with this investment impacting the real economy.
60
40
• However the recent sharp increase in intangibles
investment overstates Ireland’s position and 20
should be discounted accordingly.
0
2006
1996
1998
2000
2002
2004
2008
2010
2012
2014
2016
2018
Building Investment Other Investment
Distortions Modified GFCF
Total GFCF
Source: CSO, 75GNI* is a better measure of underlying economic activity
than GDP/GNP; best as a level rather than a growth metric
National Account – 2015 2016 2017 2018
• GDP headline numbers do not reflect the “true” Current Prices
growth of Ireland’s income due to MNCs. (€, y-o-y growth rates)
Gross Domestic Product 262.8bn 271.7bn 297.1bn 324.0bn
• Reasons for 2015-18 MNC distortions:
(GDP) (34.9%) (3.4%) (9.4%) (9.4%)
Re-domiciling/inversions of several minus Net Factor Income
multinational companies from rest of the world
The “onshoring” of IP assets into Ireland = Gross National Product 200.8bn 220.6bn 234.9bn 253.1bn
by multinationals (GNP) (22.9%) (9.9%) (6.5%) (7.7%)
The movement of aircraft leasing assets add EU subsidies minus 1.2bn 1.0bn 1.1bn 1.1bn
in Ireland. EU taxes
= Gross National Income 202.0bn 221.6bn 236.0bn 254.2bn
• By modifying GNI to take account of these factors, (GNI) (22.9%) (9.7%) (6.5%) (7.7%)
GNI* gives us a better understanding of the minus retained earnings -4.7bn -5.8bn -4.5bn -5.0bn
underlying economy. of re-domiciled firms
minus depreciation on -30.1bn -35.3bn -42.5bn -46.3bn
foreign owned IP assets
minus depreciation on -4.6bn -4.9bn -5.1bn -5.4bn
aircraft leasing
= GNI* 162.7bn 175.6bn 184.0bn 197.5bn
(9.4%) (8.0%) (4.7%) (7.3%)
Source: CSO 76Modified Domestic Demand (MDD) – which ignores
exports - is best cyclical indicator
15%
GNI* is useful but not timely. MDD and MFDD are
released on a quarterly and real basis.
10%
MDD ignores the net exports channel. It also omits
aircraft leasing and IP imports from investment.
5%
The measure includes:
Private and government consumption
Building investment 0%
Some machinery & equipment investment
Some intangible asset investment -5%
Value of physical changes in stock. This last piece
is impacted by MNCs and is quite volatile.
-10%
MDD has Ireland growing negatively in Q1 2019
mainly due to volatility in stocks.
-15%
When stocks are excluded, (i.e. using Modified Final 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019
Domestic Demand) real underlying growth was 2.6% Modified Domestic Demand MFDD (MDD ex stocks)
in Q3 2019. Since 2014, annual growth has averaged
4.3% when looking at MFDD.
Source: CSO, four quarter sum growth rate used to strip out substantial quarterly volatility. 77
Note MDD includes inventories. Large inventories in Q4 2016 added a further degree of volatility into
MDD data.Disclaimer
The information in this presentation is issued by the National Treasury Management Agency (NTMA) for
informational purposes. The contents of the presentation do not constitute investment advice and should
not be read as such. The presentation does not constitute and is not an invitation or offer to buy or sell
securities.
The NTMA makes no warranty, express or implied, nor assumes any liability or responsibility for the accuracy,
correctness, completeness, availability, fitness for purpose or use of any information that is available in this
presentation nor represents that its use would not infringe other proprietary rights. The information
contained in this presentation speaks only as of the particular date or dates included in the accompanying
slides. The NTMA undertakes no obligation to, and disclaims any duty to, update any of the information
provided. Nothing contained in this presentation is, or may be relied on as a promise or representation (past
or future) of the Irish State or the NTMA.
The contents of this presentation should not be construed as legal, business or tax advice.
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