Economic & Financial UpdateFBD Financial Solutions, Dundlak

Jim Power

September 10th 2009

The International Background

• Clear evidence of recovery emerging in all international economies

• Strong stimulus working• Banking difficulties being sorted out• Still many structural imbalances that will take

time to work through• Recovery unlikely to be V-shaped, but more

gradual• Grounds for optimism!

Global Economic Outlook

: Source OECD 2009Sep

2008 2009f 2010f

OECD 0.8% -4.1% 0.7%

Euro Area 0.5% -4.8% 0.0%

United States 1.1% -2.8% 0.9%

United Kingdom 0.7% -4.3% 0.0%

Germany 1.0% -6.1% 0.2%

France 0.3% -3.0% 0.2%

Japan -0.7% -6.8% 0.7%

UK PMIs

30

35

40

45

50

55

60

65

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Manufacturing Services

UK House Prices (Nationwide)

-20

-15

-10

-5

0

5

10

15

20

25

30Ja

n-00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

%

Euro Zone PMIs

30

35

40

45

50

55

60

65

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Manufacturing Services

German Ifo Survey

707580

859095

100

105110115

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

US Consumer Confidence

0

20

40

60

80

100

120

140

160

Jan-

90

Jan

-92

Jan-

94

Jan-

96

Jan-

98

Jan-

00

Jan

-02

Jan

-04

Jan

-06

Jan-

08

US ISM Indices

30

35

40

45

50

55

60

65

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Manufacturing Non-Manufacturing

Interest Rates

• Rates at historic lows, reflecting economic exceptional difficulties

• ECB rate at 1%, US 0-25%, UK 0.5%• Inflationary pressures non-existent• Happy to live with lower rates, mindful of

past mistakes• Rates will rise once recovery becomes

sustainable• Upward pressure second half 2010?

The Irish Economic Background

• Economy in deep recession• Construction & Consumer under significant

pressure• Public finances still awful• Labour market developments very negative• Consumer prices falling• Export performance holding up, but driven by

foreign-owned sector• Still considerable uncertainty over banking sector

Why is Consumer Worried?

• Rising unemployment & wage cuts• Fiscal pain & uncertainty• Personal wealth destruction• Falling house prices• Equity markets & pensions• Interest rates a positive • Serious downward pressure on disposable

incomes• Very challenging consumer background &

outlook

Tax Revenues

- 2009 ( )JAN AUG YoY

Customs -23.8%

Excise -19.1%

Capital Gains Tax -68.8%

Capital Acquisitions Tax -18.7%

Stamps -64.9%

Income Tax -8.0%

Corporation Tax +40.5%

VAT -21.6%

Total Tax -16.1%

The Housing Market

• Dynamics still very weak• Excess supply, constrained demand• Prices still falling & likely to do so into

2010• Completions -47.8%, Registrations

-77.4%, Commencements -69.2%• Price adjustment 50%+ peak to trough• <15,000 completions in 2010• Very difficult market

House Prices (PermanentTsb/ESRI

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0M

ar-9

7

Mar

-98

Mar

-99

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

%

Conditions for Economic Recovery

• International economic cycle needs to improve-starting

• Stabilisation of housing market- 2010• Solution to banking crisis-NAMA crucial• Exchange rate improvement-outside of our

control• Fiscal certainty-taxing way out of recession

difficult• Competitiveness - follow the German model• Path to recovery will be very challenging, but

private sector response gives hope!

Equity Market Update

YEAR TO DATE FROM LOW-POINT

S&P 500 +11.6% +48.9%

German DAX +11.7% +46.8%

French CAC +11.6% +42.7%

FTSE 100 +9.6% +38.4%

Nikkei +15.0% +44.4%

ISEQ +29.0% +57.8%

Equity Markets

• Strong rally over past 6 months• Markets concluded that strong policy response

would work• Optimism has been vindicated• Lots of good news now built in• While outlook seems positive, may be a bumpy

ride• Good news for pensions

Thank you!