Ireland Overview November 2011

Transcription

1 Global Markets Ireland Overview November 211 TREASURY SPECIALISTS PRODUCTS RESEARCH DEVELOPED FOR YOU the treasury specialists

2 Produced by the Bank of Ireland Economic Research Unit

3 Contents SECTION ONE Ireland by numbers 2 SECTION TWO Irish economy - growth returns in a Economic recovery underway 5 2b Exports continue to outperform 6 2c Challenging domestic environment 7 2d Special feature: Could the slow down in global growth materially impact on Ireland s export led recovery? 11 SECTION THREE Government finances - stabilising 12 3a Budget 211 broadly on target 13 3b Ireland s implementation of EU/IMF Programme of Financial Support remains on track 14 3c Irish banking system - significant progress achieved 15 1

4 section one Ireland by numbers Source: 2

5 1. Irish economy by numbers GDP overview - recovery taking hold (annual volume change) (e) 212(f) GDP -7.% -.4% 1.5% 2.2% - Q1 (q-o-q) - Q2 (q-o-q) - Q3 (q-o-q) - Q4 (q-o-q) 1.5% -.4%.2% -1.4% 1.9% 1.6% Reuters consensus forecast 1.3%* 1.5%* Irish Government forecast 1.% 1.6% GNP -9.8%.3% 1.% 1.5% * Reuters consensus External sector - export demand remains resilient (e) 212(f) Annual export (bn) Real export growth (annual volume change) -4.2% 6.3% 5.% 4.% Annual import (bn) Real import growth (annual volume change) -9.3% 2.7% 2.% 2.% Total exports/imports as a % of GDP 166% 183% 187% 19% Merchandise/services export split 53.6%/46.4% 52.9%/47.1% 52.%/48.% 51.%/49.% EUR/GBP average for year Competitiveness - Irish unit labour costs (annual volume change) -2.4% -6.9% -3.1%* -1.2%* Balance of Payments (m) -4, , 1,5 * EU Commission Government finances - underlying finances on track (e) 212(f) General Government Balance (% of GDP) -14.2% -32.% -1.3% -8.6% Exchequer Balance (m) -24,641-18,745-25,43-17,315 Exchequer Balance (% of GDP) -15.3% -12.% -16.4% -1.9% Tax take (m) 33,43 31,753 34,45 36,26 % change in tax take (annual volume change) -19.% -3.9% 8.5% 5.3% General Government Debt (% of GDP) 65.2% 92.6% 15.5% 114.3% Consumption/investment - challenging domestic environment (e) 212(f) Personal consumption (annual volume change) -6.9% -.8% -2.5% -1.% Retail sales (annual volume change) -13.8% 1.4% -2.3%* -.8%* Total investment (annual volume change) - Buildings and construction (annual volume change) - Machinery & equipment (annual volume change) -28.7% -31.6% -2.4% -24.9% -3.3% -14.5% -1.5% -15.% -5.% House completions (number of housing units) 26,42 14,62 11, 11, * Reuters consensus Labour market - unemployment stabilising (e) 212(f) Total labour force (s) 2, , ,115 2,115 Total employment (s) 1, , ,815 1,82 Total employment (annual change %) -8.1% -4.2% -1.8%.3% Unemployment (% of labour force) 11.8% 13.6% 14.2% 13.9% Inflation - set to ease (e) 212(f) CPI (annual average change) -4.5% -1.% 2.7% 1.7% HICP (annual average change) -1.7% -1.6% 1.2% 1.% Source: CSO, Irish Department of Finance, EU Commission and Bloomberg. Forecasts by Bank of Ireland ERU unless stated. All Government finance forecasts by Irish Department of Finance. 2.5% -5.% 15.% 3

6 4 section two Irish economy - growth returns in 211

7 2a. Economic recovery underway GDP in Q2 surprised to the upside, rising by 1.6% for the quarter. The growth rate for Q1 has been revised up to 1.9% bringing annual growth for the quarter into positive territory at.3% with the Q2 figure standing at 2.3%. This marks the first period of consecutive quarterly gains in GDP since 26 and with a cumulative rise in H1 of 3.5%, Ireland has had the second fastest rate of growth in the Euro Area for the first six months of 211 Positive GDP growth in Q1 and Q s.a. % qoq % yoy Exports still remain the main driver of that expansion and although growth in that sector has slowed of late, the slowdown has been offset by a more rapid deceleration in imports -1 Q1 7 Q2 7 Q3 7 Q4 7 Q1 8 Q2 8 Q3 8 Q4 8 Q1 9 Q2 9 Q3 9 Q4 9 Q1 1 Q2 1 Q3 1 Q4 1 Q1 11 Q2 11 Graph shows: Seasonally adjusted quarterly GDP growth and annual GDP growth Source: CSO Despite the recovery, employment continues to fall, albeit at a much slower pace than has been seen in the recent past While domestic demand continues to be weak, there were a few encouraging signs in Q2 with consumer spending and investment increasing for the quarter However, it is likely that consumer spending will remain subdued going forward with continued falls in discretionary spending due to: - high unemployment - a modest decline in average earnings and - a decline in real income Irish Economy Forecasts (%) (e) 212 (f) Personal Consumption Government Consumption Capital Formation Exports Imports GDP GNP Source: CSO, BoI ERU forecasts Much is made of the rise in the savings ratio evident in recent years but we believe the ratio has not changed much this year. However, we do not expect the savings ratio to fall significantly in the near term Capital spending has grown strongly in the first half of the year, adding to the growth momentum, and at some 22bn the inflow of Foreign Direct Investment in the first six months of the year already exceeds the total for last year as a whole We expect GDP to expand in 211 by 1.5% which will be driven by export growth and some positive movement in stock building although investment will continue to be weighed down by a further decline in building and construction this year Positive GDP growth in 211 would represent the first annual expansion since 27 and add to the momentum differentiating Ireland from other countries under Troika programs 5

8 2b. Exports continue to outperform External demand continues to drive growth, with exports now equal to 1% of GDP. Exports rose by 1% in Q2, while imports fell by.6%, hence net exports contributed 1.5% to GDP growth in the quarter Export growth has slowed of late from an annual growth rate of 6.1% in Q1 to 4.9% in Q2 but the slowdown in imports has been more pronounced, with growth falling to.1% in Q2 from 4.3% in Q1 With weak domestic activity already assumed in the short term, risks to the Irish economy probably lie more on the external front, given the slowdown in the major developed economies. A more pronounced deceleration in international trade represents a clear downside risk to our forecast However, our expectation is that the global economy will continue to expand and the IMF are expecting global growth to average 4% this year and next. Should that growth materialise it will offer strong support for Irish exports. On that basis we forecast exports to grow by 5% this year Ireland continues to maintain a strong mix of high value merchandise and services exports, which have proven resilient in the past when growth in the global economy has weakened. In 29, in the grip of a global recession, Irish exports fell by 4.2% while Euro Area exports fell by 12.8% Ireland has improved its competitive position since 29 as evidenced by the fall in unit labour costs vis-à-vis the EU average The Irish economy is currently going through a rapid rebalancing process. This is clear in the balance of payments data, with Ireland posting a meaningful current account surplus in 21 for the first time since 1999 We are currently forecasting that Ireland will post a current account surplus of c.e1bn for 211 Exports remain resilient Q4 9 Q1 1 Q2 1 Q1 8 Q2 8 Q3 8 Q4 8 Q1 9 Q2 9 Q3 9 Q3 1 Q4 1 Q1 11 Q2 11 Graph shows: Export growth year-on-year (volume terms) Source: CSO Composition of Irish exports for 21; services, chemicals and pharma of increased importance Graph shows: Merchandise and Service Exports adjusted for Balance of Payments terms Source: CSO Substantial gains in Irish Unit Labour Costs Ireland EU-27 Chemicals and Pharmaceuticals (31%) Other Merchandise Exports (22%) Service Exports (47%) Graph shows: nominal unit labour cost, for Ireland & EU 27 countries, whole economy Source: EU Commission, Autumn Forecasts 6

9 Mar 7 Jun 7 Sep 7 Dec 7 Mar 8 Jun 8 Sep 8 Dec 8 Mar 9 Jun 9 Sep 9 Dec 9 Mar 1 Jun 1 Sep 1 Dec 1 Mar 11 Jun 11 Sep 11 2c. Challenging domestic environment Domestic economy showing tentative signs of recovery due to a surprise increase in domestic demand in Q2 but the consumer environment remains insipid. Domestic demand increased in Q2 boosted by a.3% advance in consumer spending despite the weakness in core retail sales in the quarter Much is made of the rise in the Irish household savings ratio in recent years but the key driver of consumer spending in 211 will be the squeeze on real incomes. Household disposable income has been falling and looks set to continue to do so despite the pace of decline in both employment and earnings easing of late Irish GDP component weighting GDP component Personal Consumption 53% 53% 53% Government Consumption 17% 17% 17% Investment 2% 15% 12% Exports 88% 91% 97% Imports -78% -76% -79% Graph shows: GDP component weighting in real terms Source: Bank of Ireland ERU Consumer spending increases in Q2 1 Other factors - rising taxes, a fall in transfers and inflation - will continue to impinge on disposable incomes as austerity measures bite, adversely impacting on household spending -1-2 Overall, personal consumption is forecast to fall by c.2.5% for 211 Capital spending rose for a second consecutive quarter rising 6.4% in Q2 following a 2.4% advance in Q1. This increase was largely driven by spending on machinery and equipment with building and construction recording a marginal advance Q4 9 Q1 1 Q2 1 Q1 8 Q2 8 Q3 8 Q4 8 Q1 9 Q2 9 Q3 9 Q3 1 Q4 1 Q1 11 Q2 11 Graph shows: Personal Consumption growth quarter-on-quarter Source: CSO Nonetheless, capital spending was down an annual 14.3% in Q2, despite the quarterly advance. The negative carryover effects from 21 mean we are still forecasting a 1% fall in capital investment in 211 Government spending has fallen in each of first two quarters of the year and we expect this to continue in the second half with Government spending forecast to fall by 3.5% in 211 and 2% 212 as the Government continues with its program of austerity measures Consumer confidence remains at low ebb The inventory cycle has also had a significant negative impact on GDP in recent years; however stocks rose sharply in Q2, and we now expect a positive contribution to annual GDP from this component Graph shows: Consumer confidence Source: ESRI Overall domestic demand is forecast to decline by 3.9% in 211 and.7% in 212 7

10 Unemployment stabilising Employment still falling as unemployment steadies Irish employment peaked (in seasonally adjusted terms) in Q1 28 at 2.14m and has fallen consistently since, declining to 1.82m in Q2 of 211 Unemployment appears to be stabilising at over 14% after peaking at 14.8% in November of 21. Unemployment, based on the live register, has ranged between 13.9% and 14.4% in every month since the beginning of this year Employment % change Employment (% Change) Unemployment rate (rhs) Unemployment % change The pace of job losses has slowed appreciably with employment falling by just 3, (.2%) in Q2, from over 7, in Q1 and 17, in Q2 21. Construction, manufacturing and public administration are still shedding labour, however the hotel and retail sectors saw job gains, along with finance, transport and health A notable feature of the downturn is the substantial increase in Irish emigration which picked up to 76, in the twelve months to April 211, from 65, a year earlier. Immigration also rose, however, to 42, from 31,, so leaving net emigration broadly unchanged at c.34, Graph shows: Average annual unemployment rate as a % of total labour force Average annual % change in total persons employed Source: CSO, ERU forecasts Unemployment stabilising The participation rate, notably in the younger age group, has fallen significantly as more people are staying in education. Migration has also played a role in the fall in the participation rate as a high proportion of non-irish nationals leave after becoming unemployed 2 Jan 9 Feb 9 Mar 9 Apr 9 May 9 Jun 9 Jul 9 Aug 9 Sep 9 Oct 9 Nov 9 Dec 9 Jan 1 Feb 1 Mar 1 Apr 1 May 1 Jun 1 Jul 1 Aug 1 Sep 1 Oct 1 Graph shows: Unemployment rate as a % of total labour force Source: CSO Nov 1 Dec 1 Jan 11 Feb 11 Mar 11 Apr 11 May 11 Jun 11 Jul 11 Aug 11 Sep 11 The prospects for a return to rapid employment gains are not good given that most growth will be export orientated and more labour intensive domestic demand will remain weak It will be a while before a fall in the unemployment level is seen as significant employment growth can only happen once the export orientated recovery becomes broad based 8

11 Rate of inflation set to decline in 212 Irish inflation, as measured by the CPI, has eased of late from the highs seen in the early months of the year, falling to 2.8% in October from 3.2% in April. The acceleration in Irish inflation in the early part of 211 largely reflected higher energy costs and a rise in mortgage interest payments We expect a reacceleration of inflation in the near term but for it to be much lower in 212 Inflation set to ease in (e) 212(f) Quarter Quarter Quarter Quarter Annual HICP Graph shows: annual % change in CPI on a quarterly basis + annual HICP % change Source: CSO, BoI ERU forecasts It was expected the rise in mortgage interest payments would continue to be a significant factor in the year ahead, on the assumption that the European Central Bank ( ECB ) would continue to tighten policy. However, the ECB have halted interest rate increases and reversed policy at the November meeting cutting interest rates by.25% The indications are that the ECB may implement further interest rate cuts in the near future. This could have a significant impact on inflation and we may see the mortgage interest rate contribution to inflation act to push the rate down Energy and other commodity prices may fall given the slowdown in global growth and the investor flight from speculative assets However, a fall in the euro against the dollar may limit the scale of any falls in domestic retail energy costs. Indeed, utility bills in Ireland are set to rise sharply in the next few months but petrol and home heating oil is unlikely to rise further near term Inflation is expected to fall back to below 2% in 212 and to average 1.7% for the year as a whole, given the weakness in consumer spending. Higher administered prices and excise duties in the 212 Budget pose as an upside risk 9

12 Property prices do not yet appear to have stabilised and the most recent data points to continuing declines. A bottom to the residential property market does not appear to be imminent. Prices in Q3 declined by 3.8% and we expect the average house price will decline by 1.5% for the year as a whole However, consensus forecasts suggest that the trough in the housing market will come next year, while the OECD s latest housing model also indicates the bottom will come at that time Judging by the mortgage data in Ireland, the demand for house purchases remains weak. However, according to the CSO, rents have stabilised implying that the demand for housing as a whole may be picking up again Net mortgage lending continues to decline as the stock of mortgages is falling due to redemptions outstripping new loans Housing market remains weak Peak Change from peak Last Quarter CSO House Price Index Q % -3.8% Q3 11 Daft.ie Q2 7-47% -3.5% Q3 11 Dept. of Environment Q3 6-3% -2.7% Q4 1 Private Rents (CSO) Apr %.4% Q3 11 Graph shows: % change in house prices Source: ESRI, Daft.ie, Department of Environment Heritage and Local Government, CSO PTSB/ESRI change in national average house price Daft.ie change in national average asking price Dept. Environ change in national average second hand house price Private rents, change in private rents in CPI index Substantial improvement in affordability The number of house completions is expected to be c.11, this year. This is lower than the Department of the Environment assumed depreciation figure which means the net housing stock in Ireland is now actually falling On our models, affordability is at its strongest for a decade. However the decision on whether to buy or rent is influenced by other factors such as the economic outlook and expectations on near term house price changes, with both acting as negative influences at this time Graph shows: Measure of affordability over time Source: Bank of Ireland ERU While declining average earnings are having a small adverse impact on affordability, this has been dwarfed by the fall in house prices and lower interest rates over the past number of years According to our affordability model, the average new 25-year mortgage in 21 cost 28% of income to service from a high of over 44% at the peak of the cycle, and as such is below the average since 1975 While the bottom of the housing market may come next year, the uncertainty about the economic outlook in general and unemployment in particular, is likely to remain a key factor in dampening demand. A long term recovery in the housing market is very much dependent on an improvement in the unemployment rate over time 1

13 2d. Special feature: Could the slowdown in global growth materially impact on Ireland s export led recovery? As a small and open globalised economy, Ireland is uniquely situated to benefit from an upturn in global activity. This position can also represent a downside risk to growth when global growth weakens. The global economy has cooled over the course of this year and the debt crisis in Europe has renewed fears that the world economy may slip back into recession The data since the start of the year has indicated that economic activity has been slowing in major economies to varying degrees. However, in contrast to 29 where the global economy contracted by.7%, growth for 211 & 212 is forecast to be 4% p.a. That said, Ireland s mix of pharmaceutical, chemical and professional service exports should hold up well as growth slows. In addition, the authorities of our major trading partners have taken strong action in order to stimulate their economies and reduce the risk of recession Ireland is a strong export performer on the global stage and export growth should remain at healthy levels in the coming years in the context of an export led recovery Positive global growth ahead Ireland s major trading partners are the UK, US and Euro Area. While those areas are experiencing slowing growth this year, positive growth rates for this year and next are forecast Given that growth in our major trading partners is slowing from the rate we saw in 21, the assumption is that Irish export growth will moderate this year Graph shows: GDP growth Source : IMF September 11 WEO World US Euro Area UK Actions taken by Monetary and Fiscal Authorities Europe The powers of the EFSF have been extended to allow the Fund purchase sovereign debt and to leverage its effective firepower. A new aid deal for Greece was agreed which includes some debt write of. Interest rate cuts and maturity extensions on financial aid packages were agreed. Finally, the ECB has resumed bond purchases, cut interest rates and increased liquidity provisions to banks. United Kingdom The Bank of England has restarted its quantitative easing program raising the total of its asset purchase scheme by 75bn to 275bn with further increases to asset purchases if the situation demanded it. The Bank has kept its interest rate at.5% with no increase priced in until 213. United States The Federal Reserve has extended their forward guidance, pledging to keep interest rates at near % until at least mid 213. The Fed also announced Operation Twist which extends the maturity of its securities holding which should put downward pressure on longer term interest rates. According to the Fed, this should contribute to a broad easing in financial conditions and thus provide additional stimulus to support the economic recovery. 11

14 12 section three Government finances stabilising

15 3a. Budget 211 broadly on target The Government s public finances appear to have stabilised but further progress is required to ensure Ireland s debt burden is sustainable. The General Government deficit in 21 was 32.6% of GDP which reflected extraordinary banking sector support measures while the underlying deficit was c.11.5% of GDP for the year The Government is on track to post a General Government deficit of 1.3% of GDP for 211, which is lower than the 1.6% target set by the ECOFIN council last December The Budget for 211 remains broadly on target. Tax receipts are just.7% short of their target for the first ten months of 211 with the shortfall mainly down to the weakness of VAT, reflecting the poor consumer environment at the moment Irish Government Deficit as a % of GDP General Current Capital Excluding bank support measures in 9 and 1 reduces the GGD to 11.8% and 11.5% respectively Source: Department of Finance Medium Term Fiscal Statement General based on general government debt standards, Current and Capital based on Exchequer standards (i.e. totals will not sum) Taxes vs Spending 25 Corporation tax and income tax are also short of their targets to the end of October. This position, however, could be down to timing issues as a significant portion of self assessment and corporation taxes are received later in the year Spending is also behind profile to the end of October. Current expenditure is 1.6% below target while capital spending is 12.5% down from target in the same period Current Spending Tax Revenue Q1 7 Q2 7 Q3 7 Q4 7 Q1 8 Q2 8 Q3 8 Q4 8 Q1 9 Q2 9 Q3 9 Q4 9 Q1 1 Q2 1 Q3 1 Q4 1 Q1 11 Q2 11 Q3 11 Excluding the once off payment relating to banking sector support measures, the exchequer deficit up to the end of October is 1.8bn lower than it was for the same period in 21 The Government intends to reduce the General Government deficit to <3% of GDP by 215. This is estimated to involve another 12.4bn in austerity measures over the next four years, of which 3.8bn in adjustments will take place next year Under the current plan, General Government debt will peak at just over 118% of GDP in 213, before starting to fall back declining to 113% by 215 Graph shows: annual percentage change in tax revenues and current spending Source: Irish Department of Finance Government Deficit - set to decline Graph shows: General Government Balance % of GDP The red line represents Stability & Growth Pact 3% deficit limit Source: Irish Department of Finance 13

16 3b. Ireland s implementation of the EU/IMF Programme of Financial Support remains on track The Government has been resolute in their determination to take whatever steps necessary to ensure continued progress on Programme implementation with a view to ultimately restoring Ireland s fiscal sovereignty. In carrying out their review, teams from the EC, ECB and IMF evaluated performance against set targets for the fourth quarter of the Programme. The evaluation focused on macro economic outlook, fiscal developments, progress on commitments in restructuring of the financial sector and structural reform. The review team concluded that the Programme was on track and all measures contained within have been fully implemented. The team particularly identified the following developments made in each of the key areas on review: Macroeconomic environment - economic growth in H1 stronger than expected However, slowdown in key trading partners is likely to cool export growth Domestic demand to fall at a faster rate than previously forecast Real GDP growth expected to be 1.1% in 211 and c.1% in 212 Financial sector reforms - key initial phase as announced in March 211 has been implemented Recapitalisation of banking sector completed at a lower cost than expected due to private investor participation and burdensharing with holders of subordinated bank debt Deleveraging of banking sector progressing as planned Further progress needed in these areas to allow banks fulfil essential role in economy Fiscal consolodation - authorities committed to reducing Ireland s debt by bringing General Government Deficit to below 3% GDP in 215 Budget 212 will make progress in this regard by targeting a deficit of 8.6% GDP in 212 Authorities to update medium-term fiscal consolidation plan with supporting measures to be provided by 212 Budget The measures (guided by Comprehensive Review of Expenditure) should enable savings to be made in targeted manner rather than through across-the-board cuts Structural reforms to support job creation and growth being implemented Sectoral wage agreements being prepared to help reduce unemployment Legislative changes being introduced to enhance competition in medical, legal and pharmaceutical sectors with view to lowering costs The positive results provide further evidence of the steps being taken by the Government to restore public finances and return Ireland to sustainable growth. The Program remains well financed and improvements in the terms of EU lending have strengthened Ireland s financing and debt outlook Department of Finance press release 2 October 211 Programme implementation continues to be strong Statement by the European Commission, ECB, & IMF on the review mission to Ireland 2 October

17 3c. Irish banking system - significant progress achieved The objective of the 85bn financial assistance package agreed with the EU/IMF last November was to support the Irish economy and ensure a functioning healthy banking system. To address the issues and restore market confidence in the Irish banking system, the Programme outlined a number of measures designed to restructure, recapitalise and deleverage. The Central Bank of Ireland carried out capital (PCAR) and liquidity (PLAR) stress tests on four Irish banks. The results of which were published on 31 March 211 The Irish Government has made significant progress in repairing the banking system and right-sizing it relative to the needs of the Irish economy On 26 October 211, the EBA announced a 16bn capital requirement for European banks as part of the agreed EU recapitalisation plans to reach 9% Core Tier 1 ratio Results show Irish banks do not require additional capital under the higher standard now required This outcome reinforces the robust and conservative nature of the 211 PCAR exercise which has also been evidenced in Irish banks accessing term funding from international markets this year The progress made by Ireland in addressing the issues facing the banking sector will be critical to the recovery of the broader economy going forward Key highlights of PCAR and PLAR exercise 211 Progress Made Restructure Two pillar banks to remain - Bank of Ireland and a merged AIB and EBS with a restructured IL&P also playing a role in the Irish banking landscape Legal merger of AIB and EBS Building Society completed on 1 July 211, well ahead of the end September 211 schedule Sale of Irish Life proceeding Merge Anglo Irish Bank and Irish Nationwide Building Society (INBS) for orderly wind down Recapitalise A total of 24bn capital required by the banks stress tested in order to remain above a Core Tier 1 ratio of 1.5% in the base scenario & 6% in an adverse stressed scenario Deleverage Merger of Anglo Irish Bank and INBS to form Irish Bank Resolution Company (IBRC) completed on 1 July 211 well ahead of its scheduled end December 211 deadline Recapitalisation of the banking sector substantially completed by end July target Cost to the state of the 211 bank recapitalisation reduced to net c. 16.4bn through initiatives such as burdensharing on subordinated debt and the sourcing of private capital for BoI Aggregate loan to deposit ratio for Irish banking system of 122.5% by end 213 c. 7bn of non-core assets identified for disposal via redemptions and controlled asset sales, more than 8% of which are located outside Ireland Each bank to divide operations into core and non-core functions with assets in non-core division to be rundown or sold in line with deleveraging plans agreed with the Central Bank Deleveraging process kick started with a number of asset sales finalised The authorities are pushing forward financial sector reforms which are at the heart of Ireland s response to the crisis. IMF 2 September 211 But there are many reasons to be optimistic- the recapitalisation of the banks, banks receiving private capital, the economy recovering and growth returning this year Amandeu Altafaj-Tardio European Commission spokesperson 1 September 211 At this stage, I think its fair to say that there is a growing consensus that a line has now been drawn in the sand...and with the additional PCAR capital, Irish banks are now amongst the best capitalised banks anywhere in the world. Michael Noonan, Minister for Finance 27 October

18 Disclaimer This document has been prepared by the Economic Research Unit at Bank of Ireland Global Markets ( GM ) for information purposes only and GM is not soliciting any action based upon it. GM believes any information contained herein to be accurate but GM does not warrant its accuracy and accepts no responsibility, other than any responsibility it may owe to any party under the European Communities (Markets in Financial Instruments) Regulations 27 as may be amended from time to time, and under the Financial Services Authority rules (where the client is resident in the UK), for any loss or damage caused by any act or omission taken as a result of the information contained in this document. No prices or rates mentioned are bids or offers by GM to purchase or sell any currencies, securities or financial instruments. Except as otherwise may be specifically agreed, GM has not acted nor will act as a fiduciary, financial or investment adviser with respect to any currency or derivative transaction that it has executed or will execute. Any decision made by a party after reading this document shall be on the basis of its own research and not be influenced or based on any view expressed by GM. This document does not address all risks. Any party should obtain independent professional advice before making any investment decision. Any expressions of opinion reflect current opinions as at 11 November 211. This publication is based on information available before this date. This document is property of GM. The content may not be reproduced, either in whole or in part, without the express written consent of a suitably authorised member of GM staff. Bank of Ireland is regulated by the Central Bank of Ireland. In the UK, Bank of Ireland is authorised by the Central Bank of Ireland and authorised and subject to limited regulation by the Financial Services Authority. Details about the extent of our authorisation and regulation by the Financial Services Authority are available from us on request. Bank of Ireland incorporated in Ireland with limited liability. Registered Office - Head Office, 4 Mespil Road, Dublin 4, Ireland. Registered Number - C-1. 16

19 Contact details Dr Dan McLaughlin Chief Economist dan.mclaughlin@boigm.com Patrick Mullane Economist patrick.mullane@boigm.com Michael Crowley Senior Economist michael.crowley@boigm.com Joanne Guerin Debt Investor Relations joanne.guerin@boigm.com

20 DUBLIN LONDON BELFAST STAMFORD Colvill House, Talbot Street, Dublin 1, Ireland Bow Bells House, 1 Bread Street, London EC4P 4BF, UK 1 Donegall Square South, Belfast BT1 5LR, UK 3 First Stamford Place, Stamford CT 692, USA +353 () () () DOC263-2 Nov211