East Region Committee Event

Ireland, Property 2014, Where Next?

17 June 2014

Dr Loretta O’Sullivan Chief Economist, Bank of Ireland

The Irish Economy: Recent

developments &

outlook

Loretta O’Sullivan

Chief Economist

Bank of Ireland

The Institute of

Banking

June 2014

Disclaimer

This document has been prepared by the Economic Research Unit at The Governor and Company of the Bank

of Ireland (“BOI”) for information purposes only and BOI is not soliciting any action based upon it. BOI

believes the information contained herein to be accurate but does not warrant its accuracy nor accepts or

assumes any responsibility or liability for such information. Any decision made by a party after reading this

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before making any investment decision. Expressions of opinion contained in this document reflect current

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Overview

I. Recovery underway

II. The outlook

III. Final remarks

3

Overview

I. Recovery underway

II. The outlook

III. Final remarks

4

The recovery …

5

2007

2008

2009

2010

2011

2012

2013

-8

-6

-4

-2

0

2

4

6

% (constant prices)

GDP growth

... is following the typical path for a

small open economy

6

Exports recover

Investment picks up

Employment rises

Consumer spending improves

7

Exports supported by …

35

37

39

41

43

45

2007 2008 2009 2010 2011 2012 2013

€bn (constant prices)

Exports

Pre-crisis peak

Crisis low point

c. 9% above pre-crisis peak

(seasonally adjusted)

8

… competitiveness and …

Ireland Greece

Spain

Portugal

US

Euro AreaPoland France

Italy

Germany

UK

-15

-10

-5

0

5

10

15

20

Change 2009-15,

%

Unit labour costs ↑

Unit labour costs ↓

9

… a recovery in trading partners

20

10

20

10

20

10

20

11

20

11

20

11

20

12

20

12

20

12

20

13

20

13

2013

20

14

20

14

20

14

20

15

20

15

20

15

-1

0

1

2

3

4

Real GDP,

annual change, %

Destination for c. 2/5th of Irish exports

c. 1/5th of exports c. 1/5th of exports

10

Investment has rebounded …

2007

2008

2009

2010

2011

2012

2013

-40

-30

-20

-10

0

10

20

30

Annual change, % (constant prices)

Building Machinery & equipment (excl. planes) Investment

11

… with scope for further increases …

0

5

10

15

20

25

30

35

1970 1980 1990 2000 2010

%

Investment as a share of GDP

Long run average

12

… including on the residential side

0

20

40

60

80

100

1990 2000 2010

000s of units

Residential investment

com plet ed

13

Employment is increasing …

2007

2008

2009

2010

2011

2012

2013

-9

-5

-1

3

7

0

4

8

12

16

Annual change, %

%

Employment (rhs)Unemployment Rate (lhs)

14

… and broadening out across sectors ...

-10

0

10

20A

gri

cultu

re

Acc

om

modatio

n a

nd

food

Pro

fess

ional,

scie

ntif

ic a

nd

tech

nic

al

Co

nst

ruct

ion

Info

rmatio

n a

nd

com

munic

atio

n

Adm

inis

trativ

e

Educa

tion

Public

ad

min

istr

atio

n

Tra

nsp

ort

atio

n

Indu

stry

Oth

er

Fin

an

cial,

insu

rance

and

real

est

ate

Hea

lth a

nd s

oci

al w

ork

Whole

sale

and r

eta

il tr

ade

000s,

annual c

hange Employment by sector in Q1 2014

15

… and regions ...

-5

0

5

10

15

20

25

30

Dublin South-East BMW Mid-East Mid-West South-West

000s, annual change

Employment by region in Q1 2014

16

… which will support consumer spending

2007

2008

2009

2010

2011 2012 2013

Q1 2014

-20

-15

-10

-5

0

5

10

Annual change, % (constant prices)

Consumer Spending Retail Sales

Overview

I. Recovery underway

II. The outlook

III. Final remarks

17

18

Healthy order books ...

40

45

50

55

60

65

70

2012 2013 2014

Index

New Export Orders - Manufacturing PMI

New Export Orders - Services PMI

> 50: expansionary territory

19

... point to stronger export growth

3.54.3

-6

-2

2

6

10

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2011 2012 2013 2014 2015

Annual change, %

Exports

(constant prices)

20

Improving business sentiment ...

0

20

40

60

80

Total Dublin Rest of Leinster Munster Connaught/Ulster

Confidence in situation facing business over the next 12 months

More Less No difference

Net49

Net40

Net48

Net47

Net59

21

... and construction activity ...

30

40

50

60

70

2012 2013 2014

Index

Construction PMI

> 50: expansionary territory

22

... supporting investment

11 11

-25

-15

-5

5

15

25

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2011 2012 2013 2014 2015

Annual change, %

Investment

(constant prices)

23

Rise in confidence ...

50

60

70

80

90

2012 2013 2014

Index

Consumer Sentiment (3 month moving average)

24

... and further employment gains ...

2.2 2.0

11.5

10.4

-6

-4

-2

0

2

4

10

12

14

16

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

2011 2012 2013 2014 2014 2015

Annual change, %%

Employment (rhs) Unemployment Rate (lhs)

25

... to feed through to consumer spending

1.2 1.4

-4

-3

-2

-1

0

1

2

3

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2011 2012 2013 2014 2015

Annual change, %

Consumer Spending

(constant prices)

26

Positive and more balanced growth

2.43.2

-12

-8

-4

0

4

8

2008 2009 2010 2011 2012 2013 2014 2015

Annual change, %

Contributions, % pt

Net Exports

Domestic Demand

GDP

(constant prices)

Overview

I. Recovery underway

II. The outlook

III. Final remarks

27

In a nutshell

o Typical recovery path

o Broadening out of activity to continue ...

o ... supporting the labour market

o Positive growth this year & next

28

29

BOI Economic Research Unit forecasts (May 2014)

Economic Outlook 2013 (e) 2014 (f) 2015 (f)

% change unless otherwise stated

Consumer Spending -1.1 1.2 1.4

Government Spending -0.5 -2.0 -1.5

Investment 4.2 11.0 11.0

- Construction 12.5 11.7 13.4

- Machinery & Equipment -4.8 10.0 8.0

Exports 0.2 3.5 4.3

Imports 1.0 3.3 3.9

GDP -0.3 2.4 3.2

GNP 3.4 3.0 2.7

Employment 2.4 2.2 2.0

- Annual increase in numbers employed 44,000 42,000 39,000

Unemployment Rate (%, annual average) 13.1 11.5 10.4

Inflation 0.5 0.5 1.3

Thanks for your attention

30

Data sourced from the CSO, European Commission,

IMF, Department of the Environment , Community and

Local Government, Investec, Bank of Ireland, Ulster

Bank and KBC/ESRI

The latest BOI ERU Outlook on the Irish

Economy can be found at:

http://corporatebanking.bankofireland.com/fs/doc/

publications/general-publications/bank-of-ireland-

the-outlook-may-2014.pdf