Ireland: Lockdown pushes recovery into H2 - Vaccine roll-out and Brexit deal give optimism from H2 onwards - NTMA
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Ireland: Lockdown pushes recovery into H2 Vaccine roll-out and Brexit deal give optimism from H2 onwards February 2021
Index
Page 3: Summary
Page 8: Macro
Page 20: Fiscal
Page 28: NTMA Funding
Page 42: Structure of Irish Economy
Page 53: Brexit
Page 58: Property
Page 65: Other Data
2
Summary Considerable Covid shock cushioned by structure of economy and large fiscal response
Economic performance uneven as strict lockdown in place
currently; H2 will see positive impact of vaccine rollout
GDP remained positive in 2020 Unemployment increase as Value added from ICT & pharma
but domestic sectors hit lockdown impacts Q1 has given Ireland resilience
35% 700 200.0
30% 180.0
600
25% 160.0
20% 500 140.0
15% 120.0
400
100.0
10%
300 80.0
5%
60.0
0% 200
40.0
-5%
100 20.0
-10%
0.0
-15% 0
1998
2005
2000
2003
2008
2010
2013
2015
2018
2020
-20%
2017
2005
2007
2009
2011
2013
2015
2019
GVA: Multinational dominated
Unemployment claimants sectors (€bns)
Domestic Demand GDP (Index, Jan 20 = 100)
GVA: Domestic sectors
Source: CSO
* Domestic demand series accounts for multinational activity and known as modified final domestic demand
(excludes inventories)
4
** Whether those on government income supports are unemployed is statistically debatable. Some will have
left the labour force, others are just temporarily furloughed.
Ireland used 2014-19 growth to improve debt sustainability;
added fiscal room that will now be needed to fight Covid
Run of primary surpluses Debt position reversed in 2020 Debt fell from 166% to 95% of
ended; GG deficit c. €19bn national income pre-Covid
10 180%
160%
5 Debt-to-GNI*
(108% 2020f; 95% in 2019) 140%
0
120%
-5 Debt-to-GG Revenue 100%
(259% 2020f; 230% in 2019) 80%
-10
60%
-15
Average interest rate
40%
(1.9% 2020f, from 2.2% in 2019)
-20 20%
Debt-to-GDP 0%
-25 1995 2000 2005 2010 2015 2020f
1995 2000 2005 2010 2015 2020f
(63% 2020f, from 57% in 2019)
GG Balance Primary Balance Debt to GNI* Debt to GDP
Source: CSO, Department of Finance
^ due to GDP distortions, Debt to GDP is not representative for Ireland, we suggest using other 5
measures listed.
Covid-19 and Ireland: significant hit to domestic economy
followed by powerful policy response
Recession Exposure Policy
Ireland (ex. Multinationals) is in Ireland’s domestic economy hit Significant stimulus announced
recession. hard like others but equivalent to 19% of GNI* over
internationally-traded sectors 2020 and 2021
Current lockdown will impact (Pharma/ICT) have thrived
on Q1 data but smaller than ECB and Fed actions should cap
initial lockdown. Vaccine gives The worst case scenarios for interest costs and allow
optimism from H2 onwards. Brexit avoided by UK-EU FTA necessary fiscal room
6
NTMA has indicated a funding plan of €16 - €20bn for 2021;
€5.5bn already funded this year
Flexibility 10 years AA-
Ireland has large cash balances Weighted average maturity of Ireland has been affirmed in AA
and a year free of maturing debt one of longest in Europe space by S&P
bonds in 2021
The ECB’s first QE program On relative basis, hit to Ireland
In addition to bond funding, enabled NTMA to extend debt less than for other countries
Ireland will receive €2.5bn in maturities and reduce interest given multinationals, relatively
EU Sure funding in 2021. cost. Now ECB buying in large smaller domestic share of
amounts with few limitations economy and tourism
7
Section 1: Macro Multinationals raced ahead in 2020; domestic sectors hit badly but aided by policy response
Current lockdown having intended effect – case numbers
trending better; lockdown in effect until at least Mar 5
14 day cumulative Covid-19 cases/deaths Ireland case numbers versus other countries
per 100k of population (per 100k of population)
1,400 25 1,600
2021 Q1
1,200 lockdown 1,400
20
1,200
1,000
2020Q4 1,000
lockdown 15
800 800
600
600
10
400
400
200
5
200 -
Aug-20
Apr-20
Nov-20
Mar-20
Jul-20
Sep-20
Jan-21
Feb-21
May-20
Dec-20
Jun-20
Oct-20
- -
Nov-20
Apr-20
Jul-20
Aug-20
Sep-20
Jan-21
Feb-21
Mar-20
Dec-20
Jun-20
Oct-20
May-20
Ireland France Germany
Italy Spain US
Cases Deaths (RHS)
UK
Source: DataStream 9
Sector breakdown for 2020 Q1-Q3 – Multinationals racing
ahead, domestic side hit hard
30%
22% Domestic sectors hit badly – 26% of economy in
these four categories
20% 16%
12%
10%
3% 2% 2%
0%
-10%
Two sectors least
-20% impacted are -14% -15%
-18%
dominated by FDI
-30%
-40%
-50%
-51%
-60%
Industry ICT Agri, Fish Real Estate Public, Educ Fin & Construction Prof, Distribution, Arts & other
(incl. & Health Insurance science, Transport,
pharma) technical Hotels and
Restaurants
GVA Growth (Q1-Q3 2020, constant prices)
10
Source: CSOOn a relative basis Ireland performed well in 2020 – thanks
to ICT (tech) and pharmaceutical firms
Real GDP up 3.0% Y-o-Y in 2020 for Ireland: Real MFDD down 6.6% Y-o-Y in 2020: MFDD
GDP overstates impact of multinationals understates impact of multinationals
4% 0%
2% -2%
0%
-4%
-2%
-6%
-4%
-8%
-6%
-10%
-8%
-10% -12%
-12% -14%
NL
NL
EA
Italy
Italy
Norway
Sweden
Denmark
Belgium
France
Denmark
Sweden
Belgium
France
Australia
Finland
UK
Finland
UK
S Korea
US
Austria
S Korea
US
Austria
Germany
Germany
Ireland
Ireland
Canada
Japan
Japan
Portugal
Portugal
Switzerland
Switzerland
Y-o-Y impact to GDP (Q1-Q3, 2020 constant prices) Y-o-Y MFDD impact (Q1-Q3 2020, constant prices)
Source: CSO, DataStream 11
Note: MFDD for Ireland is modified for multinational activity by Ireland’s Central Statistics Office (CSO). For
other countries MFDD = Domestic demand = Consumption + Government (current) spending + InvestmentLabour market data shows stark Covid-19 impact;
lockdowns has seen a reversal in unemployment rate
True unemployment rate is uncertain: At end-Q3, adjusted employment was
Covid-19 adjusted rate 25%* in January estimated just below 2.1m
35 2.4
millions
30 2.3
2.2
25
2.1
20
2.0
15
1.9
10
1.8
5 1.7 Actual hours worked down
5.4% y-o-y in Q3, an
0 1.6 improvement from -22% in Q2
2012
2005
2006
2007
2008
2009
2010
2011
2013
2014
2015
2016
2017
2018
2019
2020
2021
1.5
2004
1998
1999
2001
2002
2005
2007
2008
2010
2011
2013
2014
2016
2017
2019
2020
Unemployment
Covid-19 Adjusted Unemployment
Total Employment Covid Adjusted
Source: CSO
* The CSO have estimated the upper bound of the unemployment rate at 25% in January. The CSO
have urged caution around labour market data given the likelihood of revisions and the unique nature 12
of employment status for some people in the pandemic.800k on schemes in January as strict lockdown in place;
supports help maintain aggregate household income
January numbers increased by lockdown; Supports have meant aggregate household
numbers will fluctuate in H1 2021 income has been more than maintained
1.2 100
Millions
1 90
80
0.8
70
0.6
60
0.4 50
0.2 40
0 30
20
10
Temporary Wage Subsidy Scheme/Employment Wage 0
Subsidy Scheme 2019 Q1-Q3 2020 Q1-Q3
Pandemic Unemployment Payment Other Disposable Income Social Protection
Source: Revenue, DEASP, CSO 13Consumption fell sharply in Q2 despite incomes being
maintained
Consumption sharply hit in Q2 – down 22% Retail sales numbers in Q4 volatile on
y-o-y: Q3 saw rebound lockdown and re-opening
30 20% 40% 2020Q2 2020Q4
lockdown lockdown
15% 20%
25
10% 0%
20 5%
-20%
0%
15 -40%
-5%
-60%
10 -10%
-80%
-15%
5 -100%
-20%
2019M01
2019M03
2019M05
2019M07
2019M09
2019M11
2020M01
2020M03
2020M05
2020M07
2020M09
2020M11
0 -25%
1997 2000 2003 2006 2009 2012 2015 2018
Consumption Growth (Y-o-Y, RHS) All Retail Food Retail
Consumption (€bns, LHS) Bars Department Stores
Source: CSO
14Savings rate increased sharply in Q2 due to forced
savings; H2 saw spending return close to 2019 levels
Gross household saving rates jump in Q2 – January lockdown leads to a significant fall in
Ireland larger than most spending but still less than the trough in April
24 10%
5%
20
% of Disposable Income (4Q MA)
0%
-5%
16
-10%
-15%
12
-20% Spending in January decreased
-25% by 15% y-o-y
8
-30%
-35%
4
-40%
Jul-20
Apr-20
Feb-20
Mar-20
Sep-20
Nov-20
Jan-20
Aug-20
Jan-21
May-20
Dec-20
Jun-20
Oct-20
0
2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Spending on debit and credit cards (y-o-y change)
Ireland EA-19 UK
Source: Eurostat, ONS, CSO ; CBI, Eurostat; CBI
15
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 dataInvestment hit as construction sector has moved in & out
of lockdown; open in Q4 lockdown but closed in Q1
Building and construction investment by Another surge of IP into Ireland in 2019-2020
40% hit in Q2 2020 but rebounded in H2 – helps ICT but distorts investment picture
300 10 200
9 180
250 160 Four-quarter
8
sum (€bns)
7 140
200
6 120
100
150 5
80
4
100 60
3
40
2
50 20
1
0
2010
1996
1998
2000
2002
2004
2006
2008
2012
2014
2016
2018
2020
0 0
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
Building Investment Other Domestic Investment
Construction Employment (000s) Distortions (mainly IP) Modified GFCF
Building GFCF (€bn RHS) Total GFCF
Source: CSO; NTMA calculations 16PMI – All three PMIs fell in January on the back of
lockdown
Ireland’s Composite PMI has tended to be a Manufacturing holding up better than
good guide for MDD – PMI averaged 50 in Q4 services
65 70 2020Q2 2021Q1
lockdown lockdown
60 R² = 0.61 60
55 50
Composite PMI
50 40
45 30
40
20
35
10
30
0
Jan-18
Jan-19
Jan-20
Jan-21
Apr-19
Apr-18
Apr-20
Jul-18
Jul-19
Jul-20
Oct-18
Oct-19
Oct-20
25
-20% -15% -10% -5% 0% 5% 10% 15%
Modified Domestic Demand y-o-y change Services Manufacturing Composite
17
Source: Markit, NTMA analysisExternal environment supportive – 2021 should see the
global economy rebound given large stimulus & vaccines
Oil price drop assisting Ireland’s economy –
2020 2021
Ireland is a pure price taker
Maximum Maximum 100 8
EA Monetary Policy
accommodative accommodative
90 7
EU Fiscal Policy Expansionary Expansionary 80
6
70
Maximum Maximum
US Monetary Policy 5
accommodative accommodative 60
50 4
US growth Covid-19 shock Rebound
40 3
Significantly down 30
Oil price Unclear 2
despite rebound 20 significant drop in import
cost in 2015/16 reversing 1
10
Covid-19 shock; Brexit resolved; in 2017/18
UK growth
Brexit unresolved Rebound 0 0
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Euro Growth Covid-19 shock Rebound
Brent Oil €/Barrel
Strengthening vs.
Euro currency Unclear Mineral Fuels Imports (RHS, 12m rolling, €bns)
Dollar
Source: NTMA analysis, DataStream, CSO 18Ireland has used 2014-19 recovery period to repair private
sector balance sheets – especially households
Household debt ratio has decreased due to Legacy of 2008-12 financial crisis is on the
deleveraging and increasing incomes Government balance sheet
40 400%
20 350% Economic growth has
allowed smooth private
- 300% sector deleveraging
-20
250%
-40
200%
-60
150%
-80
100%
-100
50%
-120
NL
Italy
Denmark
Greece
France
Sweden
Belgium
UK
Poland
Finland
Portugal
Germany
Slovenia
Austria
Czech Rep
Ireland
Romania
Spain
EA19
0%
Public and Private Private debt (% of Public debt (% of
debt (% of GNI*) GNI*) GNI*)
10 year pp change in HH Debt/Disposable Income ratio 2003 2008 2013 2020H1
Source: Eurostat (2019 versus 2009) 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.Section 2: Fiscal Ireland’s economic structure has meant revenues held up in 2020 despite Covid-19
Fiscal policy response was large and swift in 2020;
Conservatism in Budget 2021 allows for continued flexibility
Response Revenues Debt
Total fiscal response of €38bn Ireland’s economic structure has Debt ratios will reverse due to
over 2020 and 2021 (19% of meant revenues have held up Covid.
GNI*) is large despite Covid-19
Ireland has responded to Covid Strength of both Corporate and Gross Government debt 57% of
with first attempt at counter- Income tax revenues from GDP at end-2019 but close to
cyclical fiscal policy in its 100 Multinational sectors has helped 95% of GNI*. Ratios will revert to
year history sustain government coffers c.63% and 108% for end-2020
21Total fiscal response of €38bn over 2020/21 (19% of GNI*) is
large; contingency may not be needed but available
€bn 2020 2021 % GNI* Description
Taxation Measures 4.1 3.4 0.7 2.1
• Warehousing/Deferrals 2.0 2.0 0.0 1.0 Corporate Tax, VAT, Stamp duty tax deferrals
Temporary VAT decrease; hospitality VAT decrease,
• Other 2.1 1.4 0.7 1.1
CRSS
Expenditure Measures 28.7 16.8 11.9 14.1
• Social Protection PUP/TWSS extended into 2021; TWSS transforming
13.6 10.4 3.2 6.7
(income supports) into EWSS
• Health 4.4 2.5 1.9 2.2 Covid-19 capacity expenditure
Business supports, Grants, Education, Arts, Tourism
• Business Supports 1.0 0.9 0.1 0.5
and Transport
• Housing, Local Govt 1.2 1.1 0.1 0.6 Commercial Rates waivers
Help-to-Buy, other grants and aids, Recovery Fund,
• Other 8.5 1.9 6.6 4.2
Covid contingency response
Total Direct Supports 32.8 20.2 12.6 16.2
Credit Guarantee Scheme, Pandemic Stabilisation
Indirect supports 5.0 5.0 0.0 2.5
and Recovery Fund, other schemes
Total Supports 37.8 25.2 12.6 18.7
Source: Department of Finance 22Fiscal discipline in evidence in last decade – after Covid-19
stimulus ends Ireland plans to narrow its deficit again
Gen. Govt. Balance (€bn) will be in Revenues holding up despite pandemic;
significant deficit in 2020/21 expenditure is increasing (Central Govt.)
10 30%
25%
5
20%
0 15%
10%
-5
5%
-10 0%
-15 -5%
2020
GGB % of GDP -5.5% -10%
-20 GGB % of GNI* -9%
-15%
-25 -20%
2020 vs 2019
Income tax VAT Excise duties
GG Balance Primary Balance Corporation tax Total Revenue Total Expenditure
Source: CSO; Department of Finance 23Gross Government debt c. 62% of GDP at end-2020 but
close to 108% of GNI*
Debt-to-GNI* had dropped since last crisis; Primary balance main contributor to debt
could increase 20pp in coming years ratio deterioration
180% 15.0%
160% 10.0%
5.0%
140%
0.0%
120%
-5.0%
100%
-10.0%
80% -15.0%
60% -20.0%
40% -25.0%
~
-30.0%
20% -40%
0%
1995 1999 2003 2007 2011 2015 2019 Primary Balance (% of GNI*)
Debt to GNI* Debt to GDP Debt Stabilising PB (% of GNI*)
Source: CSO; Department of Finance, NTMA analysis 24CT revenue cushioned by 2019 payments and defensive
nature of Pharma and ICT; income tax protected also
Corporation tax (CT) receipts continue to Progressiveness of income tax system and
rise – have nearly tripled in 6 years sector mix limits hit to overall receipts
24% 14.0 40%
20% 12.0 35%
10.0 30%
16%
8.0 25%
12%
6.0 20%
8% 15%
4.0
4% In 2019, 40% of CT paid 2.0 10%
by 10 companies
0% - 5%
2021f
1997
1995
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019
0%
Corporation Tax (€bns, RHS)
Corporation Tax (% of tax revenue)
Corporation Tax (% of GG Revenue) % of taxable income cases % of income tax collected
Source: Department of Finance, Revenue, NTMA analysis
Note: Most affected sectors include construction, wholesale and retail trade, transport, accommodation 25
and food service activities, real estate activities, professional, scientific and technical activities;
administrative and support service activities, arts, entertainment and recreationNTMA’s job is to finance the cash deficit (EBR) but it’s best
to use accruals-based GGB for comparison to peers
Methodological
EBR and GGB (€bns) usually minor – gap is EBR GGB
Differences
larger currently
Accounting basis Cash (exchequer) Accrual
10 Financial
Included Excluded
transactions
0
Subset of Central Includes all of
Scope
Govt. Central & Local
-10
Intra-Government
No Yes
Consolidation
-20
2020 2021 Comments
This is the deficit in cash terms that the
-30 EBR -12.3 -17.6 NTMA must finance each year
Prom. Note capital Accruals can relate to interest, taxes, other
transfer to recap Adjust for Accruals 3.1 0.4 expenditures
-40
banks hit GGB in Transactions between the Exchequer and
Exclude Equity &
2010 but not EBR -4.6 -1.5 NAMA, CBI and other govt. entities: this
Loan Transactions benefits funding req.
-50 (non-cash Archaic funding structure of social insurance
expenditure) Social Insurance
-2.2 -0.6 in Ireland is outside Exchequer. Consolidated
Fund in GGB
-60
Semi State, ISIF, Dividends and profits from government
-0.2 -0.2 entities
other funds
Local Govt. -1.0 -0.9 Local governments fund themselves
GG Balance EBR Outturn different than forecast for EBR walk.
Unspecified -1.8 This category is a placeholder until further
information is available
Most complete metric for fiscal position.
GGB -19.0 -20.5 Use this for deficit comparison with other
Source: CSO, nations 26
Department of Finance,
NTMA analysisNeed to assess other metrics apart from debt to GDP when
analysing debt sustainability
2020 F GG debt to GG revenue % GG interest to GG rev % GG debt to GDP %
Greece 411.7% 6.1% 207.1%
Italy 332.7% 7.5% 159.6%
Portugal 316.1% 6.9% 135.1%
Spain 292.8% 5.8% 120.3%
Cyprus 272.7% 5.7% 112.6%
Ireland 264.0% 4.6% 63.1%
Belgium 234.5% 4.1% 117.7%
France 220.1% 2.6% 115.9%
EA19 218.8% 3.4% 101.7%
Slovenia 182.2% 3.8% 82.2%
EU28 177.2% 3.5% 79.4%
Austria 175.8% 2.9% 84.2%
Germany 154.1% 1.5% 71.2%
Slovakia 149.2% 3.0% 63.4%
Netherlands 142.2% 1.4% 60.0%
Finland 134.3% 1.4% 69.8%
Source: EU Commission forecasts
Ireland 107.8% Debt to GNI* ratio in 2020 expected (Budget 2021) 27Section 3: NTMA Funding Flexibility in funding strategy due to smooth maturity profile and no 2021 bond redemptions
NTMA has indicated a funding plan of €16 - €20bn for 2021;
€5.5bn already funded this year
Flexibility 10 years AA-
Ireland has large cash balances Weighted average maturity of Ireland has been affirmed in AA
and a year free of maturing debt one of longest in Europe space by S&P
bonds in 2021
The ECB’s first QE program On relative basis, hit to Ireland
In addition to bond funding, enabled NTMA to extend debt less than for other countries
Ireland will receive €2.5bn in maturities and reduce interest given multinationals, relatively
EU Sure funding in 2021. cost. Now ECB buying in large smaller domestic share of
amounts with few limitations economy and tourism
29Flexibility helped by smoother maturity profile and no bond
redemptions in 2021
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
30
2027-33 range although these may be subject to change.Near-term redemptions much lower than last four years;
lower borrowing costs also provides NTMA with flexibility
NTMA issued €92.5bn MLT debt since 2015; Even with extra Covid-19 borrowings, NTMA
13.2 yr. weighted maturity; avg. rate 0.83% might not match supply in 2017-2020 period
7.0 27 80
€ Billions
6.0 24
5.5 70
5.0 21
3.9 18 60
4.0
2.8 15
3.0 7Y 50
10Y 12
2.0 1.5 15Y
9 40
0.8 0.9 1.1 0.9
1.0 6
0.2
10Y 10Y -0.3 30
0.0 5Y 5Y 10Y 7Y 5Y 12Y 3
12Y
8Y 10Y 16Y 30Y 10Y 20Y 15Y 10Y
-1.0 30Y 0 20
2012201320142015201620172018201920202021
10
Auction
Syndication 0
Weighted Average Yield % (LHS) Issuance (2017-2020) Redemptions (2021-2024)
Source: NTMA 31
Only showing marketable MLT debt (auctions and syndications). Other issuance such as inflation
linked bonds, private placement and amortising bonds occurred but not shown.The NTMA has taken advantage of QE to extend debt
profile since 2015
Various operations have extended the …Ireland (in years) now compares
maturity of Government debt … favourably to other EU countries
20 12
18
16 10
14
8
12
10 6
10.9 10.9 10.4
8
6 4 7.9 7.8 7.3 7.3 7.0 6.8 6.5 6.5
4
2
2
0 0
2015 2016 2017 2018 2019 2020 IR AT BG ES FR NL DK IT BD FN PT
Weighted Average Maturity Issued (Years) Govt Debt Securities - Weighted Maturity
EA Govt Debt Securities - Avg. Weighted Maturity
Source: NTMA; ECB Note: Data excludes programme loans. 32Various sources of funding will be used to meet Covid-19
borrowing requirements: cash balance and flexibility key
€24
• No bonds mature in 2021. The last of the UK
Run-down of cash: 1
bilateral loan matures in 2021. Other: 4
Other: 1
€20
Sure: 2.5
• The Exchequer Borrowing Requirement (EBR) for UK Bilateral: 0.5
2020 was lower than expected at €12.3bn. €16
• Thus, NTMA entered 2021 with a larger cash
€12
balance of €17.4bn.
Bond
EBR: 18 issuance:
• NTMA expects to utilise the EU SURE scheme for a €8 18
diversified source of funding in 2021 (c. €2.5bn).
• End year cash balances are currently forecasted at €4
€16bn.
€-
Funding Requirements Sources of Funding (€bn)
Source: NTMA
(€bn)
Notes:
Rounding may affect totals as some figures have been rounded up to the nearest €bn.
1. In its 2021 Funding Statement of December 2020, the NTMA outlined its plan to issue €16-€20bn in
long term government bonds. €18bn is reflected as an indicative estimate in the chart.
2. Other funding needs includes provision for the potential bond/FRN purchases and general
contingencies.
3. Other funding sources includes retail (State Savings), private placements and EIB loan drawdowns.
4. SURE refers to the European instrument for temporary Support to mitigate Unemployment Risks in
33
an Emergency.
5. EBR is the Department of Finance’s estimate of the Exchequer Borrowing Requirement for 2021.In addition to PSPP, ECB’s PEPP with its flexibility (no
limits) & size (€1.85trn) will underpin Irish bond market
6 70
€ Billions
5 PEPP monthly IGB purchases running 60
at roughly €1.2bn a month
50
4
40
3
30
2
20
1 10
0 0
Q1 2021f
Q2 2021f
Q3 2021f
Q4 2021f
Q1 2015
Q2 2015
Q3 2015
Q4 2015
Q1 2016
Q2 2016
Q3 2016
Q4 2016
Q1 2017
Q2 2017
Q3 2017
Q4 2017
Q1 2018
Q2 2018
Q3 2018
Q4 2018
Q2 2019
Q3 2019
Q4 2019
Q1 2020
Q2 2020
Q3 2020
Q4 2020
Q1 2019
PSPP Net IGB purchases (LHS) PEPP/PSPP net purchases (LHS)
Cumulative Net ECB Purchases (RHS)
Source: ECB, NTMA Calculations
Notes:
Forecasts sees Ireland’s capital key of 1.69% and assumes 90% of new purchases will be for public sector 34
assets with 7% of public sectors assets being supranational issuers.Diverse holders of Irish debt – sticky sources account for
over 50%; will increase further with Eurosystem’s PEPP
Ireland roughly split 80/20 on non-resident “Sticky” sources - official loans, Eurosystem,
versus resident holdings (Q3 2020) retail - make up over 50% of Irish debt
250
200
Other Debt
(incl. IGBs - 150
Official) Private Non
27% Resident
100
33%
Retail, 50
Resident
IGBs -
11%
Private 0
2010
2017
2007
2008
2009
2011
2012
2013
2014
2015
2016
2018
2019
2020
Resident
Eurosystem
23% Short term 5%
2%
IGBs - Private Non Resident IGBs - Private Resident
IGBs - Private Non Resident IGBs - Private Resident Short term Eurosystem
Short term Eurosystem Retail Other Debt (incl. Official)
Retail Other Debt (incl. Official) 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- 35
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 five syndications Average over last five syndications
7.6%
10.0%
15.2%
10.6% 34.2%
24.8%
42.0% 9.2%
45.0%
Ireland UK
Fund/Asset Manager Banks/Central Banks*
US and Canada Continental Europe
Pensions/Insurance Other Nordics Asia & Other
Source: NTMA 36
* Does not include ECB. ECB does not participate on primary market under its various asset purchasing
programmesIrish Sovereign Green Bonds (ISGB) - €6.1bn issued with
€3.9bn allocated to green projects
• Launched 2018 February 2021 Update
• Based on ICMA Green Bond Principles – Use of proceeds • €6.1bn nominal outstanding (€6.5bn cash
model
• Governed by a Working Group of government equivalent)
departments and managed by the NTMA • €3.9bn allocated to eligible green projects
• Compliance reviews by Sustainalytics since inception
• €2.6bn remaining to be allocated to eligible
expenditure in 2020
• Issuance through two syndicated sales and
one auction
• Pipeline for eligible green expenditure
remains strong
• ISGB 2019 Allocation Report
• ISGB 2017/2018 Impact Report
Irish Rail train at Avoca on the Dublin to Rosslare route. Heavy rail was allocated some €400m from
ISGBs in 2019
37Allocation of ISGB funding has focused on Water/Waste
management and transportation
€2,300
Allocation per eligible green category 2019
€2,200
€2,100 Built Environment/
€2,000 energy efficiency
11%
€1,900
Clean transportation
€1,800 35%
Allocation €million
2017/8 2019 2020frcst
Climate change
adaptation
Management of living
natural resources and
42% land use
1%
Renewable energy
8%
3%
Sustainable water and
Construction of the new water treatment plant at Vartry (March 2020) wastewater
management
38Irish Sovereign Green Bond Impact Report 2018: Some 50 Impact
measures reported
Some highlights from Report*
• Built Environment/ Energy Efficiency
– Energy saving (GigaWattHours) : 621.06
– GHG emissions reduced/ avoided in tonnes
of CO2 : 150.5
– Number of homes renovated : 27,549
• Clean Transportation
– Number of public transport passenger
journeys : 268.66 million
– Additional km of cycling infrastructure works
(feasibility/ design/ screening phase) : 85km
– Take-up of Grant Schemes/ Tax foregone
provided (number of vehicles) : 15,712
• Climate Change Adaptation (2017 and 2018)
– Number of properties protecting from
flooding on completion : 7,403
– Amount of damages/ losses avoided on
completion : €658 million
Waterford Greenway
*For a more detailed break-down please see the ISGB 2017/ 2018 Impact
39
Report hereIrish Sovereign Green Bond Impact Report 2018: Some 50 Impact
measures reported
Some highlights from Report
• Environmentally Sustainable Management of Living
Natural Resources and Land Use
– Number of hectares of forest planted : 4,025
– Number of hectares of peatlands restored :
203
• Renewable Energy
– Number of companies (including public sector
organisations) benefitting from SEAI Research
& Innovation programmes as lead, partner or
active collaborators : 68
– Number of SEAI Research & Innovation awards
benefitting research institutions : 52
• Sustainable water and wastewater management
– Water savings (litres of water per day) : 79.1
million
– New and upgraded water treatment plants :
10
– New and upgraded wastewater treatment
plants: 11
– Length of water main laid (total) : 416km
– Length of sewer laid (total) : 74km
Irish peatlands
40Ireland rated in “AA” category by Standard & Poor's
Date of last
Rating Agency Long-term Short-term Outlook/Trend
change
Standard & Poor's AA- A-1+ Stable Nov 2019
Fitch Ratings A+ F1+ Stable Dec 2017
Moody's A2 P-1 Stable Sept 2017
DBRS Morningstar A(high) R-1 (middle) Stable May 2020
R&I A+ a-1 Stable Jan. 2021
41
Source: NTMASection 4: Structure of Irish economy Multinationals distort Irish economy picture but have added resilience during Covid-19
Multinational activity has distorted Ireland’s data;
notwithstanding those issues, MNCs have real impact
Multinationals dominate GVA: profits are booked Domestic side of economy adds jobs; MNCs
here but overstate Irish wealth generation add GVA/high wages
Arts & Other
1% Share of Share of Gross Weekly
Share of
Wage Bill GVA Earnings € (Q4
Employment
(2019) (2019) 2019)
Public sector
10% Agriculture 4.5% 1% 1% N/A
Industry (incl.
Professional
Industry (incl.
12.2% 14% 35% 916
services Pharma.)
Pharma)
11%
35%
Construction 6.2% 4% 3% 821
Real estate
7% Dist., Tran,
25.4% 20% 11% 571
Hotel & Rest
ICT (Tech) 5.4% 8% 15% 1,241
Financial &
insurance
Financial 4.5% 8% 6% 1,235
Dist, tran,
6% hotel & rest ICT (Tech)
Real Estate 0.4% 1% 7% 730
11% 15% Professional 10.8% 13% 11% 810
Agri, forest & Public Sector 25.6% 28% 10% 836
Construction fish
3% 1%
Arts & Other 5% 2% 1% 514
Source: CSO 43Sizeable inflows of intellectual property into Ireland by
tech. & pharma. in recent years: exports & jobs created
Ireland is a leader in Computer Services; Enormous inflows of IP assets into Ireland
Exports have trebled since 2014 since 2015 on the back of BEPS reforms
140 18.0% 300
120 16.0%
14.0% 250 c.€500bn in
100 IP assets
€billions, Constant prices
12.0% transferred
80 10.0% 200 to IE since
8.0% 2015
60
6.0% 150
40
4.0%
20 2.0% 100
0 0.0%
2006
2014
2005
2007
2008
2009
2010
2011
2012
2013
2015
2016
2017
2018
2019
50
Computer Services Exports (€bn) 0
Chemical Products (€bn) 1995-2014 2015 2016-19
% of World Computer Services Exports (RHS) 2015 once-off IP assets increase estimate
% of World Chemical Products Exports (RHS) Fixed Capital Investment - IP assets
Source: IMF, UN Comtrade, CSO, NTMA Economics Calculations 44Ireland has deftly navigated the changing global economy
landscape this century (adjusted GVA for Ireland)
Euro Area manufacturing base hollowed out The digitalisation of the economy: Ireland
over time: Ireland less impacted than most able to grow its tech sector in recent years
2 3
0 2.5
Ireland: 3% of EA19
-2 2 tech sector wages
but only 1.4% of
-4 1.5
EA19 population
-6 1
-8 0.5
-10 0
-12 -0.5
-14 -1
Italy
Estonia
Italy
Estonia
Cyprus
Cyprus
Belgium
France
Latvia
Belgium
Ireland*
Greece
Greece
Austria
France
Finland
Latvia
Ireland*
Malta
Finland
Austria
EA 19
Malta
Slovenia
Slovenia
EA 19
Germany
Slovakia
Lithuania
Lithuania
Germany
Slovakia
Netherlands
Netherlands
Spain
Portugal
Spain
Portugal
Luxembourg
Luxembourg
Manufacturing GVA: pp change in share of economy since Tech Sector GVA: pp change in share of economy since
1999 1999
Source: Eurostat, NTMA calculations
* Ireland’s GVA data has been adjusted to strip out the distortionary effects of some of the
multinational activity that occurs in Ireland. Specifically a profit proxy is removed from the GVA
data for the sectors in which MNCs dominate (parts of Manufacturing, ICT, and renting and leasing
services). Unadjusted Ireland’s figures are +7.1pp (manufacturing) and +6.5pp (tech sector).Adjusting for MNC profits, underlying economy was robust
pre-Covid: MNCs add real substance to IE economy
Ireland’s income = wages (all sectors) + Pre-Covid, Ireland had a robust underlying
domestic sectors profits + tax on MNC profits economy; compared favourably to EA
MNC sectors 250
contributed
€17bn CoE in ‘19 200 Index, Constant
prices, 100 = 2008
150
Comp of
Employee,
100
€100bn ,
MNC Sector
30%
Profits, 50
€142bn ,
43% 0
Three MNC sectors
contributed €5bn
in CT in 2019 Domestic MNC Sector Profits
Sector
Profits, Domestic Sector Profits
€90bn , 27% Compensation of Employee
Real GVA ex. MNC Sector Profits
Real GVA - EA19
Source: CSO, NTMA calculations (Nominal 2019 data used in left chart)
Ireland’s GVA data has been adjusted to strip out the distortionary effects of some of the
46
multinational activity that occurs in Ireland. Specifically a profit proxy is estimated for the sectors
in which MNCs dominate (MNC sectors = part of Manufacturing, ICT, and renting and leasing
services).The result of such high value MNC activity in Ireland:
Ireland less impacted by Covid - in particular the tax base
GDP overstates Ireland’s progress but is still a good Multinational sectors critical for Income tax
barometer for Revenue, in particular CT and IT
and Corporation tax: proven true in 2020
Income Revenue
Elasticity GG Revenue Tax Corporate Tax Ex. CT 100%
MDD 0.96 0.93 2.26 0.86 90%
GDP 1.08 1.03 1.33 1.05 80%
70%
40% 60%
30%
20% 50%
10% 40%
0% 30%
-10%
-20% 50% of CT, PAYE, VAT 20%
-30% comes from five least 10%
-40% impacted sectors* 0%
-50%
-60% VAT PAYE CT Three taxes
Industry (excl.
Information and
Agriculture, Forestry and
Real Estate Activities
Public Admin, Education
Financial and Insurance
Construction
Professional, Admin and
Distribution, Transport,
Arts, Entertainment and
Hotels and Restaurants
Communication
Construction)
combined
Support Services
Other Services
Other Sectors
and Health
Activities
Fishing
Financial and Insurance
Admin + support (incl. Aircraft Leasing)
ICT (tech sector)
% of CT, PAYE, VAT y-o-y change in GVA, Q1-Q3 2020 Manufacturing (incl. Pharma)
Source: CSO, Revenue, NTMA Calculations
* Agriculture sector pays minimal tax 47
Elasticity based on 1995-2019 data.
E = (annual % change in tax)/(annual % change in growth variable)On a relative basis Ireland performing better than most EU
peers during Covid - thanks to ICT and pharma firms
The Irish wage bill is not going to be as ICT sector has acted as a bulwark in
impacted as other countries protecting incomes in Ireland
Latvia Ireland
Lithuania UK
France Latvia
Spain Sweden
Netherlands Finland
UK Luxembourg
Malta France
Cyprus Malta
Sweden Netherlands
Portugal
Luxembourg Germany
Denmark Denmark
Austria EU 27
EA 19 Cyprus
Finland EA 19
EU 27 Slovakia
Slovenia 40% of Lithuania
Belgium wage bill in Spain
Greece most Austria
Italy Belgium
Ireland affected Slovenia
Slovakia sectors Italy
Germany Portugal
Greece
30 35 40 45 50
0.0 2.0 4.0 6.0 8.0 10.0
Compensation of Employee in most affected sectors (% of
total) % of Compensation of Employee % of Employment
Source: Eurostat (2019)
Note: Most affected sectors include construction, wholesale and retail trade, transport, 48
accommodation and food service activities, real estate activities, professional, scientific and technical
activities; administrative and support service activities, arts, entertainment and recreationOECD’s BEPS 2.0 process could impact the business tax
landscape globally – agreement may come in mid-2021
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 would probably Is the minimum rate taxed at a global (firm)
reduce Ireland’s corporation tax base but it is level or on a country-by-country basis?
impossible to predict the size of the impact.
• These questions are as yet unanswered. If the
• Nothing has been decided yet. There are minimum rate agreed is greater than the 12.5%
disagreements across countries. OECD has revised rate that Ireland levies, it might erode this
the deadline to mid-2021. country’s comparative advantage.
49Outside of sector makeup, Ireland’s population helps
growth potential: Age profile younger than the EU average
Ireland’s population estimated at 4.98m in Ireland’s population will remain younger
2020: younger population than EU than most of its EA counterparts
70% Japan
Greece
60% Portugal
Italy
Spain
50%
Germany
Finland
40% France
Denmark
30% Ireland
UK
Belgium
20% China
Canada
10% Sweden
USA
World
0%Migration has improved Ireland’s human capital; post-
Covid migration to be closer to zero given travel bans
Latest Census data show net migration Migration inflow particularly strong in highly
positive since 2015 – mirroring economy educated cohort – work in MNCs attractive
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
2003
1987
1989
1991
1993
1995
1997
1999
2001
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
51
Source: CSOIncome equality has improved: Ireland’s progressive
system the main driver and cushioned the economy in 2020
Lower inequality (1985-2015): economic rise Progressive system means Ireland is around
reduced GINI coefficient unlike others the OECD average for GINI after tax
0.06 0.8
Lower GINI score means more
0.7
0.04 equal society
0.6
0.02 0.5
0.4
-
0.3
(0.02) 0.2
(0.04) 0.1
0
Denmark
Belgium
France
Italy
Latvia
Greece
Norway
Sweden
Austria
Poland
USA
Chile
South Africa
Slovenia
Iceland
Estonia
Finland
Germany
Australia
Russia
Israel
UK
Mexico
Costa Rica
Canada
Ireland
Slovakia
Czech Rep
Lithuania
Hungary
Netherlands
Portugal
Japan
Luxembourg
Spain
Korea
Turkey
Switzerland
(0.06)
(0.08)
Italy
France
Denmark
Belgium
Norway
Sweden
Greece
USA
Finland
Austria
Germany
Ireland
UK
Japan
Portugal
Netherlands
Canada
Spain
Switzerland
Luxembourg
Pre Taxes and Transfers
GINI Coefficient (Post Taxes and Transfers)
Source: IMF, OECD 52Section 5: Brexit “Hard Brexit” risk eliminated by free trade agreement leaving smaller long term impact
Following intense negotiations, a Free Trade Agreement
was agreed in December 2020 allowing for tariff free trade
Main points of FTA
• From January 1, the UK becomes a “third country” outside the EU’s single market and customs union. As
such without a free trade agreement, trade would be subject to tariffs and quotas.
• Under the deal, goods trade between the two blocs will remain free of tariffs.
However, goods moving between the UK and the EU will be subject to customs and other controls, and
extra paperwork is expected to cause disruptions.
Due to these non-tariff barriers, Brexit will likely result in less trade.
• Under the deal, services trade between the two blocs will continue but again could be hampered.
The Agreement provides for a significant level of openness for trade in services and investment.
But providing services could be hampered. For example, UK service suppliers no longer have a
“passporting” right, something crucial for financial services. They may need to establish themselves in
the EU to continue operating.
• The deal means less cooperation in certain areas compared to before Brexit. Financial and business services
are only included to a small extent. Cooperation on foreign policy, security and defence will be lower also.
• Brexit is likely to result in less trade in the long run between the EU and the UK but the deal does avoid the
worst case scenarios: Hard Brexit has been averted and the economic impact to Ireland will be modest.Impact of Brexit on Ireland will be net negative but deal
means the shock is smaller and spread over long horizon
Modelled impact on output versus No Brexit IE trading partners: UK important for good
baseline: FTA reduces impact significantly imports (land bridge) & services exports
0 % of Goods Services Total
total (2019) (2019) (2019)
-1 Exp. Imp. Exp. Imp. Exp. Imp.
-2 US 30.8 15.5 15.8 18.6 21.9 17.9
-3 UK
8.9 20.6 15.8 6.9 13.5 10.6
(ex NI)
-4
NI 1.4 1.9 n/a n/a n/a n/a
-5
EU-27 37.1 36.7 29.8 19.8 32.8 23.8
-6
China 5.9 5.8 2.8 1.3 4.0 2.3
-7
2020 2021 2022 2023 2024 2025
Other 15.9 19.4 35.9 53.4 27.8 45.5
FTA WTO Disorderly No-Deal
55
Source: CBI, NTMA analysisOne possible offset to Brexit impact is FDI inflows into IE;
service suppliers in UK may need to re-establish in EU
FDI: Ireland benefitting already Companies that have indicated jobs have or
will 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.
The UK (City of London) has lost significant
degree of access to EU market so there may be
more opportunities in time.
2019 figures from the IDA have shown that at
least 70 investments into Ireland have been
approved since the announcement of Brexit.
56Withdrawal Agreement in 2019 solves Northern Ireland
border issues
Main points of Withdrawal Agreement
• The withdrawal agreement is a legally binding international treaty which works in tandem with the free
trade agreement.
• Northern Ireland will remain within the UK Customs Union but will abide by EU Customs Union rules –
dual membership for NI.
• No hard border on the island of Ireland: the customs border will be in the Irish sea. Goods crossing
from Republic of Ireland to Northern Ireland will not require checks, but goods that are continuing on
to the UK mainland will.
• Complex arrangements will be necessary to differentiate between goods going to NI and those
travelling through NI to UK or vice versa. Customs checks at ports, VAT and tariff rebates and alignment
of regulations will be needed.
• All of this is backed by a layered consent mechanism, which allows Stormont to opt-out under simple
majority at certain times.
57Section 6: Property Property market in 2020 showed fewer transactions, completions; prices less affected
House prices had plateaued before the virus arrived; Covid
price impact was minimal with December seeing price jump
House prices have stabilised 20% Covid-19 impact: transactions, approvals
below their peak (100 in 2007) down sharply initially; prices stable
120 Level
Jul Aug Sep Oct Nov
(y-o-y % change)
100
3,327 2,927 4,227 5,463 4,007
# of transactions
80
(-39.7%) (-42.1%) (-17.2%) (-1.8%) (-38%)
60 3,397 3,875 4,621 5,207 4,336
# of mortgage
approvals
(-33.8%) (-11.0%) (20.8%) (15.4%) (29%)
40
134.4 134.5 134.7 135.5 136.0
Residential Property
20 Price Index
(-0.7%) (-0.9%) (-0.9%) (-0.4%) (1%)
0 114.0 114.2 114.6 114.0 114.0
2006
2005
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Private Rent Index
(-1.4%) (-1.8%) (-2.6%) (-3.2%) (-3%)
National Excl. Dublin Dublin
Source: CSO; BPFI, PPR, Department of Housing 59Housing supply still below demand; supply was catching
up before Covid-19 slowed market
12.0
Average annual New Dwelling
10.0 housing demand Completions (last four
(2020-2030) quarters)
8.0
State 33.6 19.7
6.0 GDA 17.2 10.5
Ex-GDA 16.5 9.2
4.0
• Greater Dublin Area (Dublin + Mid East)
2.0
requires the majority of needed dwellings.
-
• On average, 9,200 housing units are
demanded a year in the regions that are
not currently funded by markets.
Average annual housing demand (2020-2030)
New Dwelling Completions (last four quarters)
Source: CSO; NTMA analysis 60Covid-19 has impacted supply for 2020 and 2021
Housing supply picked up pre-Covid:
Housing Completions* close to 25,000 in
coronavirus to hamper supply for 2020/21
2020; 20,000+ in new dwelling completions
30000 30000
25000 25000
20000
20000
15000
15000
10000
10000
5000
5000
0
2015 2016 2017 2018 2019 2020 0
New dwelling completion Unfinished 2017 2017 2018 2018 2019 2019 2020 2020 2021 2021
Reconnection Non-Domestic Starts (advanced 12 months)
All connections Completions (new dwellings)
Source: DoHPCLG, CSO, NTMA Calculations
* Housing completions derived from electrical grid connection data for a property. Reconnections of 61
old houses or connections from “ghost estates” overstate the annual run rate of new building.
**2020 completions forecasted down 20% on 2019Demand could fall off given lower migration and rising
unemployment – demand may drop below 30,000 in ST
Mortgage drawdowns (000s) rose from Non-mortgage transactions still important;
deep trough before Covid-19 impact transactions hit in Q2/Q3 but rebound in Q4
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%
20 4
2 10.0%
0
0 0.0%
2006 2008 2010 2012 2014 2016 2018 2020
Q2 2011
Q2 2018
Q4 2010
Q4 2011
Q2 2012
Q4 2012
Q2 2013
Q4 2013
Q2 2014
Q4 2014
Q2 2015
Q4 2015
Q2 2016
Q4 2016
Q2 2017
Q4 2017
Q4 2018
Q2 2019
Q4 2019
Q2 2020
Q4 2020
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
62Covid-19 impact on prices muted as both supply and
demand impacted, but rents have come off highs
Dublin house prices unmoved in 2020 Rents are well above previous peak but have
fallen in recent months
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
2005 2007 2009 2011 2013 2015 2017 2019
2009
2010
2005
2006
2007
2008
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
National (Y-o-Y %) Ex Dublin (Y-o-Y %)
Dublin (Y-o-Y %) Rents (100 = 2005) Price
Source: CSO; RTB 63Irish house price valuation metrics remained well below
2008 levels throughout last cycle
Deviation from average price-to-income ratio (Q2 2020, red dot represent Q1 2008)
60%
40%
20%
0%
-20%
BG SD OE NL LX NW DN FR ES IE PT EA UK BD GR FN IT
Deviation from average price-to-rent ratio (Q2 2020, red dot represent Q1 2008)
100%
80%
60%
40%
20%
0%
-20%
SD NW BG UK LX FR DN ES NL IE OE FN EA BD PT GR IT
Source: OECD, NTMA Workings 64
Note: Measured as % over or under valuation relative to long term averages since 1980.Section 7: Banks & other Ireland’s banks among best capitalised in Europe – complete reverse of late 2000s
Ireland’s pillar banks in relative good shape to weather
Covid-19 storm
• Banks profitable before Covid-19: income, cost and balance sheet metrics 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: used
for debt reduction. Further disposal of banking assets unlikely in the short term given low valuations
• Irish banks had paid dividends in recent years.
All three pillar banks were profitable in recent years, Covid impact in H1
Net Interest Margin Profit before Tax
3.0% 1.5
2.5% 1
2.0% 0.5
1.5%
0
1.0% AIB BOI PTSB
-0.5
0.5%
-1
0.0%
AIB BOI PTSB -1.5
2017 2018 2019 2020 H1 2017 2018 2019 2020 H1
66
Source: Annual reports of banks - BOI, AIB, PTSBIreland’s banks are among the best capitalised in Europe
12
Estonia
Leverage Ratio (fully phased-in definition )
11
10
IE
9
Greece
Cyprus
8
Lithuania
7 MT
LX
Italy
6 Spain
FR
5
Germany
4
10 12 14 16 18 20 22 24 26 28 30
Common equity Tier 1 ratio [%]
Source: ECB consolidated banking data (Q3 2020)
Note: Leverage Ratio = Tier 1 capital/Total leverage exposure; CET1 = Common tier 1 capital/total risk 67
exposures. “Fully loaded” refers to the actual Basel III basis for CET1 ratios.Capital ratios strengthened as banks shrunk and
consolidated in last ten years
CET 1 capital ratios allow for amble Loan-to-deposit ratios have fallen
forbearance in 2020 significantly as loan books were slashed
20% 200
18% 180
160
16%
140
14%
120
12% 100
10% 80
17.3% 16.4% 60
8%
13.8% 14.6% 13.6% 13.9% 40
6%
20
4%
-
2% Loan-to- Loans (€bn) Loan-to- Loans (€bn)
Deposit % Deposit %
0%
CET1 % (Dec 2019) CET1 % (June 2020) AIB BOI
AIB BOI PTSB Dec-10 Dec-19
Source: Published bank accounts Source: Published bank accounts
Note: “Transitional” refers to the transitional Basel III required for CET1 ratios
68
“Fully loaded” refers to the actual Basel III basis for CET1 ratios.Domestic bank cost base has risen due to Covid
Cost income ratios increased … … IE banks* below EU average pre-Covid
90%
150% 80%
144%
70%
123% 60%
125%
50%
40%
100%
88% 30%
79% 20%
75% 66% 10%
63%
0%
NO
DK
DE
MT
PL
PT
NL
SK
SI
FI
EU
FR
SE
EE
GR
ES
GB
AT
LT
CZ
RO
LV
IS
HU
IE
IT
LU
BG
HR
CY
BE
50%
Staffing (000s) halved post crisis
25% 30
20 26
0%
AIB BOI PTSB 16
10
10 10
2012 2013 2014 2015 2016 5 2
0
2017 2018 2019 2020 H1 AIB BOI PTSB
2008 2019
Source: Annual reports of Irish domestic banks, EBA 69
* EBA data includes three domestic banks as well as Ulster Bank, DEPFA & Citibank.Irish residential mortgage arrears may reverse course in
2020/2021
Mortgage arrears (90+ days) Repossessions*
20% 12.0 3500 6.0%
18% 10.0
3000 5.0%
16% 8.0
PDH Arrears
14% 6.0 (by thousands) 2500
4.0%
12% 4.0
2000
10% 2.0
3.0%
8% 0.0 1500
6% -2.0 2.0%
4% -4.0 1000
2% -6.0 1.0%
500
0% -8.0
10 11 12 13 14 15 16 17 18 19 20 10 11 12 13 14 15 16 17 18 19 20 0 0.0%
Over 90 days 90-180 days 13 14 15 16 17 18 19 20
PDH + BTL (by balance)
181-360 days 361-720 days
PDH + BTL (by number) PDH BTL % of MA90+ (RHS)
>720 days Total change
Source: CBI
* Four quarter sum of repossessions. Includes voluntary/abandoned dwellings as well as court ordered 70
repossessionsThe European Commission’s ruling on Apple annulled in
court; further appeal by EC means case continues
• Back in 2016, the EC had 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.
The Irish Government closed this provision on December 31st 2014.
• Apple appealed the ruling, as did the Irish Government. The General Court granted the appeal in July,
annulling the EC’s ruling.
• This case had nothing to do with Ireland’s corporate tax rate. It related to whether Ireland gave unfair
advantage to Apple with its tax dealings. The General Court has judged no such advantage occurred.
• The Commission has decided to appeal to a higher court: the European Court of Justice. This process
could still be lengthy. Pending the outcome of the second appeal, the €13bn plus EU interest will
remain in an escrow fund.
• The NTMA has made no allowance for these funds in any of its planning throughout the whole
process. There is no need to adjust funding plans given the decision by the General Court in July or by
the Commission’s decision to appeal.
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