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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

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external background
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
The Risks
  • Oil Prices
  • US twin deficits
  • Currency instability
  • Too much aggression from paranoid ECB
financial conditions
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
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
the irish economy
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
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

80,974

79,000

73,000

ssias the facts
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 !
price changes jan 00 jan 06
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
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
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
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
the market in 2006
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
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’
is economy too dependent
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!
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