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External Background
• US economy still has considerable momentum
• Japan continues to show most positive signs in over
a decade
• China still growing strongly
• UK struggling, but outlook positive
• Euro Zone continues to improve
• Solid external background
The Risks
• Oil Prices
• US twin deficits
• Currency instability
• Too much aggression from paranoid ECB
Financial Conditions
• ECB rate tightening to continue
• 1% by end-2007
• Another 0.5% from Fed, BOE could cut
• Exchange rate markets very stable
• Euro should make some gains against sterling &
dollar
Equity Markets
• Strong momentum has carried over to 2006
• Markets not concerned about risks
• Focused on solid economic & earnings fundamentals
• Euro Zone markets continue to be favoured
• Japan has struggled, but has potential
• US not promising too many dramatics
• Irish market retains solid fundamental support
• 2006 another good year for equity investors &
pension funds
Equity Markets
2005
2006 So Far
S & P 500
3.1%
3.8%
FTSE 100
16.8%
6.3%
German DAX 26.7%
9.1%
NIKKEI
40.7%
1.3%
ISEQ
18.9%
7.8%
The Irish Economy
• Strong momentum has carried over to 2006
• Consumer spending, Construction & Business
Investment strong
• Exports/Manufacturing finding life challenging
• Strong public finances, another ‘budget bonanza’ in
December
• SSIAs will exert considerable influence over next
year
• Growth prospects 2006 & 2007 good
Forecasts
2005e
2006f
2007f
GDP
4.5%
5.2%
4.7%
GNP
4.8%
4.9%
4.4%
Consumption
5.8%
7.0%
6.5%
Investment
8.0%
7.0%
6.0%
Exports
3.0%
4.8%
4.5%
Inflation
2.5%
2.7%
2.6%
Unemployment 4.4%
4.3%
4.4%
Housing
Completions
79,000
73,000
80,974
SSIAs – The Facts
• 1.14 million holders
• €14,000 per person on average
• €16 bln to hit streets in 12-month period commencing
May 2006
• 10% GDP, 22% Consumer Spending
• Have SSIAs succeeded in creating savings habit, or
are we about to witness a monumental spending
binge?
• Too soon to tell !
Employment Changes
SECTOR
Q4 2003 to Q4 2005
Agriculture
-8,100
Other Production
-9,100
Construction
+52,600
Hotels & Restaurants
+100
Financial & Business Services +31,700
Wholesale & Retail Trade
+28,500
Education
+9,800
Health
+15,700
TOTAL
+151,700
Price Changes (Jan’00-Jan ’06)
Overall CPI
+24.1%
Food
+13.3%
Health
+53.7%
Childcare
+59.4%
Health Insurance
+69.2%
Clothing & Footwear
-21.4%
Electricity
+52.7%
Water Supply & Refuse Charges
+239.3%
The Big Economic Issues
• Future labour supply
• Infrastructure & Public Services
• IT Capability
• Quality of labour force
• Globalisation
• Unbalanced nature of economic
development/Threats to rural economic sustainability
• The Housing Market
Housing Market
• Very strong performance in 2005
• Very strong start to 2006
• Demand forces still very strong
• Supply response very strong
• Market has to be approaching equilibrium
• Prospects of hard landing remote
• Economy has heavy dependence on housing market
Market in 2005
• Prices up by 9.3%
• Net new mortgage lending +€21.9 bln, +28.5%
• 80,957 completions
• Mortgage debt 61.5% GDP
• Mortgage Debt 116% of disposable incomes
• Rental growth picking up again
• Demand driven by inward migration, strong
household formation, improved affordability &
investors
LTV New Houses
LTV Second Hand Houses
PermanentTsb House Prices
The Market in 2006
• Frenetic start to 2006
• Demand forces to remain strong
• Interest rates will have no more than a modest
sobering effect
• SSIAs will have an important influence
• Completions of around 79,000
• Prices set to rise by 7%
• Residential housing will be an important driver of
activity once again
Significance of Housing Market
• Construction activity & direct employment
• Construction output valued at €30 bln, Housing 65%
• Mortgage market has grown from €25 bln to €100 bln
in 6 years
• Major driver of financial sector employment
• Important contributor to tax take directly & indirectly
• VAT €2.6 bln, & Stamps €800 mln
• Equity market effect
• Housing stock valued at €530 bln, significant
consumer ‘wealth effect’
House Prices & Consumer Confidence
Is Economy too Dependent?
• Yes & No
• Residential housing having a major impact on
economic activity
• Significant setback to market would have very
negative effect on overall economy
• Activity is justified by the ‘fundamentals’
• Risk of significant setback low, but not immaterial
• Policy imperative to create other sustainable
activities!
ANY QUESTIONS