Ireland s market recovery continues, evidenced by normal issuance in January 2013 and positive reaction to Promissory Note deal

Transcription

1 IRELAND: REGAINING CREDITWORTHINESS Ireland s market recovery continues, evidenced by normal issuance in January 2013 and positive reaction to Promissory Note deal John Corrigan, CEO NTMA IAPF Conference, March 14 th 2013

2 Economy stable since end 2009 (Q1 1995= 100) Celtic Tiger Construction bubble Slow recovery Bubble burst 100 Q Q Q Q Q Q Q Q Q Q Q Source: CSO Nominal GDP Nominal GNP Real GDP Real GNP 2

3 Ireland s PMI now much stronger than euro area s Ireland is exposed to relative outperformance of US economy Jan 06 Jul 06 Jan 07 Jul 07 Jan 08 Jul 08 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 Jan 13 Points difference between Ireland and Euro Area PMI composite Source: Markit; Bloomberg; NCB 3

4 PMI new export orders: services show fastest growth on record Exports benefitting from relatively acyclical 35 composition 30 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Jan 10 Jan 11 Jan 12 Jan 13 Source: Markit; NCB; CSO Manufacturing Services 4

5 Labour market improving, but still weak Employment growth for two successive quarters stems the recent decline 2,200 2,100 2,000 Unemployment rate falls for three consecutive quarters Thousands 1,900 1,800 % 10 8 Persons 1,700 1,600 1,500 1,400 Q Q Q Q Q Source: CSO Q Q Q Q Q Unemployment Rate Long Term Unemployment Rate (NSA) Source: CSO 5

6 House prices rise for first time in five years, but risks remain for 2013 (peak: Sep 2007 = 100) Lack of new supply and expiry of mortgage interest relief stopped market decline in Jan 05 Jul 05 Jan 06 Jul 06 Jan 07 Jul 07 Jan 08 Jul 08 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 Jan 13 Source: CSO All country Dublin 6

7 Investment as a % GDP at all time low LR average Investment at < half of long run average share of economic activity: this will ultimately recover Source: CSO 7

8 Ireland s BoP current account surplus reflects largescale rebalancing of economy (4QMA % GDP) 6% 4% Highest quarterly surplus on record in Q (4.3% of GDP) 2% 0% 2% 4% 6% 8% Q Q Q Q Q Q Q Q Q Q Q Source: CSO 8

9 Ireland s competitive position vastly different to the other non core countries Unit Labour Costs (Q1 2001=100) Current AccountBalance (% GDP) Ireland has few structural rigidities 2% 0% 2% 4% 6% 8% 10% 12% Q Q Q Q Q Q Spain Greece Ireland Italy Portugal Source: ECB 14% 16% Spain Greece Ireland Italy Portugal Source: DataStream 9

10 Ireland s HICP Inflation has undershot that of the euro area since Differential implies further competitiveness improvements versus euro area IE EA 17 Source: Eurostat 10

11 Ireland continues to attract foreign investment (average FDI inflows per annum as a share of GDP, ) For the last 3 years of data, Ireland has had 3 rd strongest FDIinflows when scaled by GDP or GNP GNP 5 0 Sources: UNCTAD World Investment Report 2012; IMF WEO database; CSO; NTMA 11

12 Fiscal consolidation thus far... % of GDP Now complete Still to come % 5.9% 2.7% 3.4% 2.4% 2.1% 1.8% 1.1% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% Budgetsinfinaltwo two years: 3bn (2014) and 2bn (2015) Source: Department of Finance: Budgets 2011, 2012 and 2013 and Medium Term Fiscal Statement, November

13 Promissory note transaction to sustain outperformance of Programme/EDP fiscal targets (GGB % GDP) Ireland certain to beat target for second straight year: final outturn will be well below 8.2% Budget day estimate e 2013f 2014f 2015f GGB EU target under Excessive Deficit Procedure (EDP) December 2010 GGB DoF Forecast (2011 is actual outturn) before promissory note transaction GGB DoF Forecast (2011 is actual outturn) after promissory note transaction Source: Department of Finance; CSO 13

14 Ireland not far from confirming debt sustainability: primary surplus (% of GDP) to be achieved by Ireland s forecast primary balance in line with debt stabilising primary balance In 2014: Average interest rate on GG debt: 4.5% Nominal GDP growth: 3.8% Starting GG debt position: 120% of GDP Therefore, debt stabilising primary balance: +0.8% of GDP 12.0 Source: Department of Finance; Eurostat 14

15 Gross Government debt is set to stabilise at c.120% of GDP in 2013, lower than originally forecast Increase in debt in 2012 thanks in part to pre funding for 2014; cash balancecan can be reduced in Peak F 2013F 2014F 2015F GG debt ( bn) % of GDP All things equal, 2013 debt level will be lower than Budget day forecast due to sale of Irish Life and BOI CoCos Source: Department of Finance; CSO 15

16 Maturity profile now much smoother for redemption hurdle now cleared by January s issuance Source: NTMA Mt Maturing Iih Irish govt. bonds Mt Maturing Troika loans 16

17 Total funding requirement declining steadily ( bn) Covered by Programme 15.4 Given pre funding in 2012 and January 2013 and recent banking related deals, target of about 5 6bn more in funding in rest of Maturing Irish govt. bonds Maturing Troika loans Exchequer deficit Prom. note deal (estimated) Coco sale Irish Life Source: NTMA; Department of Finance 17

18 Four fold benefits from Promissory Note deal NPV reduction in Ireland's General Government debt Interest payments py that leave consolidated Ireland Inc. key here NTMA funding need c. 20bn lower over next decade Rollover risk much lower on Programme exit General Government Deficit lower statistically in 2014 and 2015 and for a number of years thereafter Coupon on Promissory Notes was higher than coupon on new bonds There may not be any Deficit benefit in 2013, thanks to up front costs of IBRC liquidation Deal cements domestic buy in to final years of fiscal consolidation Market reaction has been positive 18

19 Banking sector recapitalised and right sized; contingent liabilities recede Bank deleveraging plan has continued apace and other contingent liabilities reduced sharply Pillar bank deleveraging almost complete by end 2012 ahead of 2013 target State has reformed insolvency laws to deal with mortgage debt overhang Ireland's main contingent liability being reduced: NAMA is well on track to repay py 7.5bn by 2013 of its senior bonds (repaid 4.75bn by end 2012) ELG liability down to 73bn by end 2012 (mainly deposits over 100k). Ending of ELG scheme after 28 th March 2013 for new liabilities was a big step towards banking system normalisation 19

20 NAMA: Generating lots of cash and repaying its debts Source: NAMA Total cash generated of 10.5 billion between end Mar 2010 and end Dec 2012 Disposal proceeds 7 billion at Feb 2013 ( 3.6 billion generated in non disposal income by end 2012) NAMA senior debt redemptions of 4.75 billion as of end 2012 and other loan repaid of 0.3 billion Lending disbursement (new advances) of over 1 billion (end 2012) End year cash and equivalent balances of 3.6 billion 20

21 Ireland s credit ratings at inflection point Rating Agency Long Term Rating Outlook Standard and Poor s BBB+ Stable Fitch BBB+ Stable Outlooks recently upgraded Moody s Ba1 Negative R & I BBB+ Stable DBRS A (low) Negative Source: Bloomberg 21

22 Irish bond market recovery continues in 2012 (yld: %) Moody's downgrade PCAR results EU/IMF loan rate reduction Best performing investment grade euro market in both 2011 & Bank losses on NAMA haircuts, Rising ELA & Deauville agreement EU/IMF Programme LTRO announced by ECB EU Summit commitment & recommencement of NTMA issuances 5 Syndicated bond sale OMT announced 0 Jan 10 Apr 10 Jul 10 Oct 10 Jan 11 Apr 11 Jul 11 Oct 11 Jan 12 Apr 12 Jul 12 Oct 12 Jan 13 Source: Bloomberg (weekly data) 8 Year 2 Year 22