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Irish Economy Q2 2020 Health Check
Reopen, Resuscitate, Reignite
Economic Research 22 May 2020
06:30 BST
Reopen – quicker reopening could happen
The Irish economy reopened this week after a 2-month shutdown to stall the
spread of COVID-19. The reopening plan is among the more cautious that has
been announced internationally and will impact on the speed of the recovery from
the virtual standstill that has existed for the past eight weeks. Ireland’s success in
controlling the virus suggests that the reopening plan could be accelerated, thus
limiting the longer-term economic damage to jobs and the public finances.
Resuscitate – Large fiscal cost is necessary to save businesses
Significant damage has already been done, while some key sectors will not be able
to return to full capacity due to social distancing measures for some time. The
recovery will be patchy, with significant government support necessary beyond
current timelines. Further assistance for the business sector is necessary to avoid
large-scale business failures. The fiscal tab is expensive but necessary; a budget
deficit of 16% of GNI* is expected in 2020, with debt rising to 120% of GNI*.
Reignite – National recovery plan will focus on labour-intensive sectors
The ingredients for Irish economic success have not gone away. After the GFC,
Ireland’s economic growth was exceptional, propelled by its pro-growth policies
that supported investment and innovation. With c.50% of employment sustained
by international demand, Ireland is a leveraged play on an international recovery.
A national recovery plan, expected by an incoming government, will focus on
employment generating sectors such as construction.
Irish growth forecasts
2019f 2020f 2021f
Consumption 2.8% -12.5% 8.0%
Investment 94.1% -34.3% 6.7%
Core investment 2.2% -29.5% 17.0%
Government 5.6% 8.7% -3.4%
Domestic Demand 35.3% -21.1% 5.7%
Modified domestic demand 3.0% -11.8% 6.6%
Core domestic demand 3.2% -11.7% 6.7%
Exports 11.1% -9.6% 5.8%
Imports 35.6% -17.0% 5.2%
GDP 5.5% -10.7% 6.3%
GNP 3.3% -15.4% 7.2%
GNI* 5.4% -13.9% 8.0%
Source: Goodbody, CSO
0
10
20
30
40
50
60
70
50
55
60
65
70
75
80
85
90
95
Stringency New Cases/1m
Stringency vs new cases
New
cases/1
m
Str
ingency I
ndex
Source: Oxford, ECDC, Goodbody Analytics
Economic Indicators
2018 2019f 2020f 2021f
Growth Components
Consumption 3.4% 2.8% -12.5% 8.0%
Government 4.4% 5.6% 8.7% -3.4%
Investment -21.1% 94.1% -34.3% 6.7%
Domestic Demand -6.6% 35.3% -21.1% 5.7%
Exports 10.4% 11.1% -9.6% 5.8%
Imports -2.9% 35.6% -17.0% 5.2%
GDP 8.2% 5.5% -10.7% 6.3%
GNP 6.5% 3.3% -15.4% 7.2%
Prices
Consumer Price Inflation 0.5% 0.9% -0.1% 0.9%
House Price Inflation (end-year) 6.3% 0.3% -8.5% -1.6%
Wage Inflation (GBS) 3.2% 3.8% 1.4% 4.8%
Fiscal
GGB / GDP 0.1% 0.5% -9.0% -3.4%
Debt/GDP 64% 59% 71% 70%
Consumer Profile
Employment Growth (end year) 2.2% 3.5% -16.5% 14.0%
Unemployment Rate (end-year) 5.6% 4.7% 20.3% 9.8%
Exchange Rates (Avg for the year)
€/$ 1.18 1.12 1.10 1.14
€/£ 0.88 0.88 0.89 0.90
-20%
-15%
-10%
-5%
0%
5%
Significant budget deficit in 2020, but necessary
% o
f G
NI*
(ex.
bankin
g c
ost)
Source: Goodbody, CSO, DoF
Economist
Dermot O'Leary
+353-1-641-9167
Alexander Wilson
+353-1-641-9225
Goodbody
Page 2 22 May 2020
Economist Dermot O'Leary
Email [email protected]
Tel +353-1-641-9167Economy - Ireland
DOMESTIC MACRO DATA 2017a 2018a 2019f 2020f 2021f
Growth Components
Consumption 3.0% 3.4% 2.8% -12.5% 8.0%
Government 3.9% 4.4% 5.6% 8.7% -3.4%
Investment -6.8% -21.1% 94.1% -34.3% 6.7%
Domestic Demand -1.2% -6.6% 35.3% -21.1% 5.7%
Exports 9.2% 10.4% 11.1% -9.6% 5.8%
Imports 1.1% -2.9% 35.6% -17.0% 5.2%
GDP 8.1% 8.2% 5.5% -10.7% 6.3%
GNP 5.1% 6.5% 3.3% -15.4% 7.2%
Housing Statistics
Completions 14,358 17,946 21,138 13,802 15,727
Average House Price (€k) 257,184 273,322 274,139 250,723 246,686
House Price Inflation (end-year) 12.2% 6.3% 0.3% -8.5% -1.6%
Mortgage Credit Growth (end-year) - 1.4% 1.9% -1.4% -0.5%
Prices
Consumer Price Inflation 0.3% 0.5% 0.9% -0.1% 0.9%
Wage Inflation (GBS) 2.0% 3.2% 3.8% 1.4% 4.8%
Fiscal
Exchequer Balance 1,907 107 649 -27,763 -12,009
Exchequer Balance / GNP 0.8% 0.0% 0.2% -12.1% -4.8%
General Government Balance -830 172 1,719 -28,208 -11,354
GGB/GDP -0.3% 0.1% 0.5% -9.0% -3.4%
GGB/GDP - ex banking costs -0.3% 0.1% 0.5% -9.0% -3.4%
Debt/GDP 68% 64% 59% 71% 70%
Consumer Profile
Employment Growth (end year) 3.1% 2.2% 3.5% -16.5% 14.0%
Employment Growth (Full-year average) 2.9% 2.9% 2.9% -14.0% 7.9%
Unemployment Rate (end-year) 6.4% 5.6% 4.7% 20.3% 9.8%
Debt/Disp. Income 129% 123% 114% 117% 116%
Interest Rates (At year end)
ECB 0.05% - - - -
BoE 0.50% 0.25% 0.25% 0.75% 0.75%
Fed 0.25% 0.50% 1.25% 2.25% 2.25%
Trade
Current Account (€m) 1,458 34,293 -32,830 -12,515 -10,148
CA as a % of GDP 0.5% 10.6% -9.5% -4.0% -3.0%
Exchange Rates (Average for the year)
€/$ - 1.18 1.12 1.10 1.14
€/£ 0.88 0.88 0.88 0.89 0.90
SOVEREIGN ANALYSIS 2017a 2018a 2019f 2020f 2021f
Debt/GDP
Austria 78% 74% 70% 79% 76%
Belgium 102% 100% 99% 114% 110%
Cyprus 94% 101% 96% 116% 105%
Finland 61% 60% 59% 69% 70%
France 98% 98% 98% 117% 112%
Germany 65% 62% 60% 76% 72%
Greece 176% 181% 177% 196% 183%
Ireland 68% 64% 59% 71% 70%
Italy 134% 135% 135% 159% 154%
Luxembourg 22% 21% 22% 26% 26%
Malta 50% 46% 43% 51% 51%
Netherlands 57% 52% 49% 62% 58%
Portugal 126% 122% 118% 132% 124%
Slovakia 51% 49% 48% 59% 60%
Slovenia 74% 70% 66% 84% 80%
Spain 99% 98% 95% 116% 114%
Eurozone avg. 90% 88% 86% 103% 99%
GGB/GDP
Austria -0.8% 0.2% 0.7% -6.1% -1.9%
Belgium -0.7% -0.8% -1.9% -8.9% -4.2%
Cyprus 2.0% -3.7% 1.7% -7.0% -1.8%
Finland -0.7% -0.9% -1.1% -7.4% -3.4%
France -2.9% -2.3% -3.0% -9.9% -4.0%
Germany 1.2% 1.9% 1.4% -7.0% -1.5%
Greece 0.7% 1.0% 1.5% -6.4% -2.1%
Ireland -0.3% 0.1% 0.5% -9.0% -3.4%
Italy -2.4% -2.2% -1.6% -11.1% -5.6%
Luxembourg 1.3% 3.1% 2.2% -4.8% 0.1%
Malta 3.3% 1.9% 0.5% -6.7% -2.5%
Netherlands 1.3% 1.4% 1.7% -6.3% -3.5%
Portugal -3.0% -0.4% 0.2% -6.5% -1.8%
Slovakia -1.0% -1.0% -1.3% -8.5% -4.2%
Slovenia -0.0% 0.7% 0.5% -7.2% -2.1%
Spain -3.0% -2.5% -2.8% -10.1% -6.7%
Eurozone avg. -1.0% -0.5% -0.6% -8.5% -3.5%
10Y Spread to Germany 2016a 2017a 2018a 2019a Current
Austria 0.20 0.09 0.25 0.19 0.37
Finland 0.13 0.12 0.30 0.21 0.35
France 0.46 0.32 0.47 0.31 0.44
Netherlands 0.12 0.06 0.14 0.13 0.22
Belgium 0.32 0.15 0.53 0.27 0.50
Spain 1.13 1.04 1.17 0.65 1.19
Italy 1.58 1.51 2.51 1.61 2.11
Portugal 3.53 1.43 1.47 0.61 1.22
Greece 6.85 3.61 4.11 1.62 2.26
Ireland 0.54 0.19 0.65 0.30 0.56
Source: FactSet & European Commission
-20%-15%-10%
-5%0%5%
10%15%20%25%30%
2015 2016 2017 2018 2019f 2020f 2021f
GDP GNPSource : Goodbody
Irish economic growth
-15%
-10%
-5%
0%
5%
10%
2015 2016 2017 2018 2019f 2020f 2021f
Consumption GrowthSource : Goodbody
Consumption Growth
Goodbody
22 May 2020 Page 3
Reopen, Resuscitate, Reignite – Key Themes
Virus under control – Time to reopen
• Like most of the globe, the Irish economy was put into an enforced coma from the middle of
March to stall the outbreak of COVID-19. Increased vigilance, better hygiene and social
distancing appear to have had the desired effect, with the number of cases falling c.90% from a
peak of c.900 per day in mid-April to less 100 in recent days. This has allowed the first phase of
Ireland’s reopening plan to commence this week.
• Ireland’s lockdown policies have been, and continue to be, more stringent than most of the EU.
The Oxford Stringency Index puts Ireland in third position behind Poland and Slovenia. Our
analysis of plans for reopening different sectors of the economy shows that Ireland is
significantly slower than others, even allowing for the different timings and severity of the
outbreak of the virus. This has implications for the speed and extent to which the economy is
allowed to recover, as well as possible longer-term implications for employment and the
viability of businesses.
Virus impact has already taken a heavy toll
• The impact of the shutdown has had a dramatic impact on activity levels in the Irish economy
over the past two months. The most dramatic effects have been in the labour market, where
40% of the labour force is on some form of government support.
• Goodbody Analytics has developed a new real-time dashboard to monitor these developments –
the Goodbody AID (Activity in Ireland Dashboard). This new tool tracks trends in traffic,
restaurant bookings, employment, financial transactions, and energy, amongst other data.
Although there are some signs of easing, activity levels remain substantially below normal.
• We are forecasting that core domestic demand, our preferred economic growth gauge for
Ireland, will decline by 12% in 2020, with the contraction hitting its worst point in Q2 2020. As
sectors are allowed to reopen gradually over the coming quarters, we expect a rebound, with
7% growth forecast for 2021. The Irish economy would still be significantly smaller than its pre-
crisis level by end-2021. Given the uncertainty about the spread of the virus both domestically
and internationally and the subsequent policy responses, forecasts at this time are subject to a
large margin of error
A Nike-swoosh recovery
• There is significant uncertainty about the shape of the economic recovery – V-shaped, L-
shaped, W-shaped. With the economy not expected to recover to its pre-crisis level until 2023,
one could describe our expectation is for a Nike-swoosh-shaped recovery. However, while a
simple narrative about the potential recovery is appealing, it ignores that different sectors of
the economy will reopen at different speeds, many businesses will not reopen at all, while
international factors will also play a large role in the path of the recovery over the coming
years.
• This is not a “normal” recession, whereby the previous peak in output was characterised by
significant economic imbalances that would take many years to work out. The labour market
was close to full capacity, but private credit growth, often a harbinger of future stress has been
consistently been in negative territory for much of the last decade, while balance sheets of
households and firms are dramatically different to the GFC downturn.
• 50% of employment in Ireland is dependent on foreign demand (OECD). Given this open
nature, the Irish economy is effectively a play on global economic recovery, as it was in the
period following the GFC. While tourism will continue to suffer in the short-term, Ireland’s
attractiveness as a destination for large ICT and healthcare firms, puts it in a good position to
gain from recovery, despite the threats around tax and onshoring. A renewed focus on
competitiveness factors beyond tax is required from policy makers in Ireland.
Goodbody
Page 4 22 May 2020
Fiscal response has been large, but further support will be required for business
• The Irish government was quick to respond to the crisis by way of large-scale welfare
programmes, wage subsidies and health spending. To date this has amounted to €7.3bn, or
3.5% of GNI*. This is relatively large in a European sense, but is significantly smaller than the
packages that have been announced in Australia, New Zealand, the UK and the US, for
example.
• We expect the Irish government will have to commit further resources to the wage subsidy
scheme through the rest of the year. The government should continue to incentivise the use of
this scheme to maintain the employer/employee link, thus reducing the risk of long-term
unemployment. Further support may also be required for other areas such as semi-states,
which is likely to bring the total direct tab to above €10bn. This would put direct support to
c.5% of GNI*
• Ireland has been more cautious in bringing forward large-scale support for businesses. Indirect
support amounts to just 3% of GNI* in Ireland, relative to 13% in the UK and 25% in Germany,
for example. International experience suggests that demand for SME credit in this crisis is very
large, while government guarantees have a very large impact on increasing the provision of this
credit. Mapping the UK’s experience to Ireland would result in SME credit drawdowns of
c.€2.4bn to date, yet the take-up of Irish government schemes to date has been paltry. While
debt solutions are not the answer in all cases, but more support will be required for SMEs.
Housing will be a key focus in an economic recovery plan
• Both housing supply and demand will be severely curtailed because of this crisis, resulting in
very large changes to our projections for output, prices, and mortgage lending activity in the
short-term. Lower prices will also result in a reassessment of supply plans among housebuilders
in the period beyond the immediate crisis, some of which were already operating at relatively
tight margins. We are reducing our forecast for house completions to 14,000 for 2020, down
from our previous estimate of 24,000. Output is expected to grow to 16,000 in 2021. Despite
the scale of the recession, house price declines will be significantly lower than the last
downturn, but are still expected to decline by 10-15%, driven by tighter mortgage lending and
the hits to income.
• Demand is substantially above current levels of output, but the tenure profile of this demand
will change in the short-term. Mortgage credit availability will fall in the short-term as banks
tighten credit conditions and borrowers’ income characteristics are updated. Demand for social,
affordable, and assisted rental is likely to rise further, necessitating additional government
support in the housing market. We expect the job-intensive construction sector to form a key
plank of an economic recovery plan that is likely from a new incoming government in the
coming months.
High debt burden but interest costs are low
• After several years of relatively balanced budgets, we expect a budget deficit close to €30bn
(16% of GNI*). The debt level is expected to surge to 122% of GNI*, up from 98% of GNI* in
2019. While large, these deficits are necessary to offset the collapse in private sector demand.
Due to the higher deficit, we expect the NTMA to increase its borrowing target to €30bn-€35bn
for this year (up from €20-€25bn).
• We analyse the sustainability of this this debt using several different scenarios for growth. Due
to low interest rates, Ireland can reduce this debt burden over time, but will require a return to
sound fiscal policy after the necessary actions to fight the crisis and return to economic growth.
Even then, it could take until close to the end of the decade for pre-crisis debt levels to be
achieved.
Goodbody
22 May 2020 Page 5
Contents
Reopen, Resuscitate, Reignite – Key Themes .................................................................................. 3
The Goodbody AID (Activity in Ireland Dashboard) .......................................................................... 6
Ireland’s experience and response to COVID19 ............................................................................... 7
How deep will the downturn in Ireland be? ..................................................................................... 9
Irish government response – large for employees, more needed for employers ................................. 12
Labour market and the experience of households .......................................................................... 14
How will businesses perform in this crisis? .................................................................................... 20
Housing and construction ........................................................................................................... 29
Public Finances & debt sustainability ............................................................................................ 36
Goodbody
Page 6 22 May 2020
The Goodbody AID (Activity in Ireland Dashboard)
Goodbody Analytics has developed a dashboard that attempts, as much as is possible, to track what is
happening to the Irish economy in real-time. The Goodbody AID is available at a weekly frequency on
request, but we include a sample of the indicators and trends here.
Goodbody A.I.D – A look into high frequency data (yoy change)
Mar-20 Apr-20 May-20
Card transactions 3% -24% -11%
Google searches
Jobseeker allowance 100% 96% 86%
Indeed.com -21% -50% -42%
Hotels.com 0% -75% -75%
Airbnb -47% -75% -60%
Flights -28% -78% -76%
Daft.ie -24% -32% -20%
Energy consumption 1% -11% -3%
Traffic Flows
Dublin -65% -61%
Cork -60% -55%
Limerick -44% -36%
Avg. in Europe -50% -30%
Source: Goodbody Analytics, Eirgrid, TomTom, Google, Central Bank
Jobseeker searches have been a good indicator for unemployment
Source: Goodbody Analytics, CSO, Google
Card transactions points to a collapse in spending
Source: Central Bank
Electricity Demand
Source: Goodbody Analytics, Eirgrid
Open Table restaurant bookings
Source: Goodbody Analytics, Open Table
Google Mobility Report – Phone Locations
Source: Goodbody Analytics, Google
Daily Google search trends
Source: Goodbody Analytics, Google
0
100
200
300
400
500
600
700
800
0
10
20
30
40
50
60
70
80
90
100
Feb
08
Feb
09
Feb
10
Feb
11
Feb
12
Feb
13
Feb
14
Feb
15
Feb
16
Feb
17
Feb
18
Feb
19
Feb
20
Searches Unemployment
Searc
h I
ndex
Num
ber u
nem
plo
yed
('000s)
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
Jan
16
Apr
16
Jul
16
Oct
16
Jan
17
Apr
17
Jul
17
Oct
17
Jan
18
Apr
18
Jul
18
Oct
18
Jan
19
Apr
19
Jul
19
Oct
19
Jan
20
Apr
20nr of transactions volume
yoy
-14%
-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
Jan
15
May
15
Sep
15
Jan
16
May
16
Sep
16
Jan
17
May
17
Sep
17
Jan
18
May
18
Sep
18
Jan
19
May
19
Sep
19
Jan
20
yoy c
hange
-120%
-100%
-80%
-60%
-40%
-20%
0%
20%
29
Feb
07
Mar
14
Mar
21
Mar
28
Mar
04
Apr
11
Apr
18
Apr
25
Apr
02
May
09
May
16
May
Australia Canada
Germany Global
Ireland Mexico
United Kingdom United States
yoy
-100%
-80%
-60%
-40%
-20%
0%
20%
40%
60%
17
Feb
24
Feb
02
Mar
09
Mar
16
Mar
23
Mar
30
Mar
06
Apr
13
Apr
20
Apr
27
Apr
04
May
11
May
Retail & Rec. Grocery & Pharmacy
Parks Transit Stations
Workplace Residential
% c
hange f
rom
baseline
0
10
20
30
40
50
60
70
80
90
100
26
Feb
04
Mar
11
Mar
18
Mar
25
Mar
01
Apr
08
Apr
15
Apr
22
Apr
29
Apr
06
May
13
May
Air Travel
Daft.ie
Hotel Websites
Job Websites
Jobseekers Allowance
Searc
h I
ndex
Goodbody
22 May 2020 Page 7
Ireland’s experience and response to COVID19
International comparisons on cases, deaths and testing are subject to a large degree of error, but on the
available evidence, Ireland has had a relatively high incidence of cases relative to its population
compared to other countries. It has also tested significantly more than the average across the globe (see
charts)
After peaking on the 16 April 2020 at 900 cases (7-day average), Ireland has been successfully reducing
the number of cases consistently since then. In recent days, the number of new infections confirmed has
been consistently below 100 and has been on a similar trajectory to Austria, which announced the
ending of its lockdown restrictions in April. The chart below compares, Ireland with the UK, Sweden and
Austria. This progress in managing the outbreak has allowed the Irish government to announce the
easing of restrictions from this week. However, the speed at which the economy is allowed to reopen is
very slow by international standards. Oxford University puts Ireland third in terms of the stringency of
its lockdown measures, just behind Slovenia and Poland in the EU (we have included the UK and the US
in the chart below for comparative purposes).
Ireland has had relatively high cases and deaths relative to its population…
Source: Goodbody Analytics, ECDC
…but has had large-scale testing relative to other countries
Source: Goodbody
Goodbody
Page 8 22 May 2020
The table below suggests that compared to the rest of Europe, the Irish policy will continue to be
exceptionally prohibitive to economic life. This will continue to impact on the recovery prospects of the
economy, businesses and the labour market and increase the fiscal cost of the crisis. Given that health
considerations are being considered in all of these countries, it is questionable why the Irish government
is following such a different timetable.
Ireland has one of the strictest lockdowns in Europe
Source: Goodbody, Oxford
Summary of COVID-19 outbreak and leisure openings
Hotels Restaurants Pubs Peak in cases New cases
per mil.
Total cases
per mil.
Tests/1
m
Slovakia 06/05/20 06/05/20 06/05/20 20/04/2020 0.92
274
26,707
Croatia 11/05/20 11/05/20 02/04/2020 0.49
545
13,645
Spain 11/05/20 11/05/20 12/05/20 31/03/2020 10.15
4,972
41,080
Switzerland Never closed 11/05/20 11/05/20 03/04/2020 3.25
3,583
41,107
Austria 29/05/20 15/05/20 15/05/20 29/03/2020 4.18
1,829
42,097
Germany 25/05/20 15/05/20 15/05/20 05/04/2020 5.78
2,113
37,958
Denmark Never closed 18/05/20 18/05/20 09/04/2020 10.18
1,892
69,374
Italy Never closed 18/05/20 18/05/20 27/03/2020 11.04
3,738
51,373
Lithuania 18/05/20 18/05/20 04/04/2020 2.87
592
85,176
Poland 04/05/20 18/05/20 18/05/20 12/04/2020 7.63
497
17,200
Slovenia 18/05/20 18/05/20 18/05/20 01/04/2020 0.16
709
34,329
Czech Rep. 25/05/20 25/05/20 25/05/20 02/04/2020 5.65
808
34,253
Luxembourg 25/05/20 25/05/20 No plans 29/03/2020 13.16
6,495
103,68
3
Bulgaria 13/05/20 01/06/20 28/04/2020 5.74
322
9,511
Greece 01/06/20 01/06/20 01/06/20 04/04/2020 0.81
264
12,678
Netherlands Never closed 01/06/20 01/06/20 15/04/2020 8.90
2,562
17,549
Romania 15/05/20 01/06/20 01/06/20 18/04/2020 10.25
875
15,940
France 02/06/20 02/06/20 02/04/2020 4.90
2,133
12,408
Belgium Never closed 08/06/20 16/04/2020 26.70
4,864
50,669
Ireland 20/07/20 29/06/20 10/08/20 16/04/2020 16.76
4,986
60,91
0
UK 04/07/20 04/07/20 04/07/20 15/04/2020 48.60
3,706
41,699
Average
date 26/05/2020 25/05/2020 26/05/2020
Source: Goodbody Analytics, ECDC, News articles
0
10
20
30
40
50
60
70
50
55
60
65
70
75
80
85
90
95
Stringency New Cases/1m
New
cases/1
m
Str
ingency I
ndex
Goodbody
22 May 2020 Page 9
How deep will the downturn in Ireland be?
In attempting to understand the potential impact of this crisis on the Irish economy, it is first worth
noting its unusual structure due to the presence of large multinationals. As shown below, Ireland has
notably larger manufacturing and ICT sectors, which together account for c.50% of gross value added
(GVA). This compares to c.20% in the UK and US and 24% in the euro area. Some of this activity can be
distorted by accounting practices and contract manufacturing, among other factors.
This has the impact of distorting the national accounts statistics and results in incredibly volatile growth
rates for both GDP and GNP. The most visible example of this effect was in 2015, when GDP was
reported to have grown by 26%, but this volatility has been a feature in Ireland for some time. This will
become relevant when we later discuss the impact of the crisis on Ireland’s debt/GDP ratio, but it is also
relevant when assessing how Ireland will fare relative to other countries in this crisis.
The OECD noted in a paper published in April that Ireland would be the least affected of any OECD
country because of shutdowns in activity.
Large manufacturing output in Ireland distorted by multinational activity
Source: OECD
OECD analysis of impact on shutdowns by country – GDP distortions play a role in Ireland
Source: OECD
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Ireland UK US Euro area
Other services
Public, health, educ.
Prof. Scientific
Real estate
Finance
Distrib, Accom, Food
Construction
Agri
ICT
Industry
% o
f G
VA
Goodbody
Page 10 22 May 2020
We feel that the analysis may give a false sense of security about the relative vulnerability of the
economy to the lockdown for several reasons:
(1) Ireland is a cog in the global supply chain, thus the global nature of the shutdown in Q1/Q2
2020 has resulted in difficulties and delays in sourcing inputs into some Irish exports (40% of
Ireland’s exports have a foreign input). It is likely that contract manufacturing activity took a
hit in Q1 (possibly due to Apple), which will statistically hit Irish exports, even if the activity
does not occur in Ireland.
(2) While the share of output in those sectors most affected by social distancing is small relative to
other countries, the share of employment in those sectors is very similar. The combined share
of employment in construction, retail-wholesale, transport, health and arts/entertainment is
39% in Ireland, only modestly below France, Germany and the UK.
This is partly offset by the fact that some sectors only modestly affected by the restrictions have higher
wages. Combining employment and earnings shows the proportion of the wage bill that is exposed to the
most affected sectors. In a European context, Ireland is one of the least impacted on this gauge, but
with clear implications for inequality across employment sectors.
Share of employment in “physically-close” sectors
Ireland France Germany UK
Construction 6% 7% 7% 7%
Retail/Wholesale 13% 13% 14% 13%
Transport 4% 5% 5% 5%
Health 13% 15% 13% 13%
Arts/Entertainment 2% 2% 1% 3%
Total 39% 41% 40% 41%
Source: OECD, Goodbody
% in most affected sectors* by compensation of employees – Ireland is towards the bottom due to well paid sectors such as ICT & finance being relatively unaffected
Source: Eurostat, NTMA *construction, wsale/retail, transport, accom. & food, real estate, professional, admin/support, entertainment etc
39
40
40
40
41
41
42
43
43
43
44
45
45
45
45
46
46
46
47
48
48
49
49
35 37 39 41 43 45 47 49 51
Germany
Slovakia
Ireland
Italy
Greece
Belgium
Slovenia
EU 27
Finland
EA 19
Austria
Denmark
Luxembourg
Portugal
Sweden
Cyprus
Malta
UK
Netherlands
Spain
France
Lithuania
Latvia
Goodbody
22 May 2020 Page 11
Core domestic demand expected to decline by 12% in 2020
These factors highlight how important it is to look beyond GDP in assessing the performance of the Irish
economy. Our new forecasts suggest that GDP is set to decline by 11% in 2020, with core domestic
demand expected to contract by 12% in 2020. Large declines in consumption and investment are
expected, while government spending will provide some offset.
The worst of the contraction is expected this quarter in line with the scale of social distancing measures
that have been introduced. Over the course of the next three months, economic activity is expected to
increase alongside the reopening plan that has been set out by the Irish government. However, we
anticipate that social distancing will remain a feature in Ireland for the next twelve months, with knock-
on implications for the speed at which certain industries will be allowed to get back to full capacity. Core
domestic demand is expected to bounce strongly in 2021 but is still expected to be 5% below 2019
levels. Core domestic demand is unlikely to return to its 2019 levels until 2023.
What shape will the recovery be?
There has been significant debate about what shape the economic recovery may take after the
unprecedented declines seen in the first half of 2020 – V-shaped, L-shaped, W-shaped. With the
economy not expected to recover to its pre-crisis level until 2023, one could describe our expectation is
for a Nike-swoosh-shaped recovery. However, while a simple narrative about the potential recovery is
appealing, it ignores the fact that different sectors of the economy will reopen at different speeds, many
businesses will not reopen at all, while international factors will also play a large role in the path of the
recovery over the coming years.
That all said, this is not a “normal” recession, whereby the previous peak in output was characterised by
significant economic imbalances that would take many years to work out. The labour market was close
to full capacity, but private credit growth, often a harbinger of future stress has been consistently been
in negative territory for much of the last decade, while balance sheets of households and firms have
improved dramatically.
The lack of sovereign bond market stress in this crisis, external oversight, record low interest rates and
an abandoning of the fiscal rules in the euro area has also ensured that the Irish government could
introduce aggressive fiscal measures for the health sector, workers and businesses to try soften the blow
for the economy (see our fiscal policy section). More spending is likely to be required, but is necessary,
and will improve the chances of a relatively rapid recovery occurring. Failure to do so will lead to much
more permanent damage to the Irish economy.
Goodbody growth forecasts
2018 2019f 2020f 2021f
Consumption 3.4% 2.8% -12.5% 8.0%
Investment -21.1% 94.1% -34.3% 6.7%
Core investment 13.0% 2.2% -29.5% 17.0%
Government 4.4% 5.6% 8.7% -3.4%
Domestic Demand -6.6% 35.3% -21.1% 5.7%
Modified domestic demand 4.7% 3.0% -11.8% 6.6%
Core domestic demand 5.3% 3.2% -11.7% 6.7%
Exports 10.4% 11.1% -9.6% 5.8%
Imports -2.9% 35.6% -17.0% 5.2%
GDP 8.2% 5.5% -10.7% 6.3%
GNP 6.5% 3.3% -15.4% 7.2%
Source: CSO, Goodbody
Goodbody
Page 12 22 May 2020
Irish government response – large for employees, more needed for
employers
Like other countries, the Irish government has introduced a range of policy initiatives since the crisis
began, including:
• Increased health spending;
• Additional unemployment benefits and wage support measures;
• Most recently, liquidity and credit facilities for businesses and SMEs.
Ireland’s initial support package, announced on March 9 of €3.1bn, was very large at the time. The bulk
of the funds - €2.4bn – came in the form of income supports for those that become sick with the disease
as well as a ramp up in health spending and business support. A further €3.7bn package has been
announced, consisting of an increase in the Enhanced Illness Benefit and the Pandemic Unemployment
Payment (PUP), both to €350 per week from €305 and €203, respectively. Additionally, a wage subsidy
scheme (Temporary Wage Subsidy Scheme) has also been introduced, in line with other countries such
as the UK, New Zealand and Australia, amongst others. The scheme pays 70% of the net income of
workers up to €410 per week. It is likely that the government will attempt to move more people from
PUP to TWSS as the economy reopens and maintain the link between the employer and the employee.
Ireland was relatively late in introducing additional policies to support businesses. On May 2nd, a range of
new policies were announced:
• Pandemic Stabilisation and Recovery Fund – A new fund to invest across the capital
structure in businesses employing more than 250 people or with annual turnover in excess of
€50m will be set up under the direction of the Ireland Strategic Investment Fund (ISIF),
Ireland’s sovereign wealth fund and will have a total of €2bn.
• SME Credit Guarantee Scheme – To aid the SME sector (less than 250 employees, turnover
<€50m), the government will set up a new lending scheme where the government will
guarantee 80% of the loan. Facilities will be between €10,000-€1m, with terms of up to 7
years. This is a €2bn facility. While the 80% guarantee is helpful, it remains to be seen whether
banks will be willing to lend to firms given the still heightened credit risks involved.
• Tax debt warehousing – To help with cashflow difficulties, businesses will be allowed to
“warehouse” tax liabilities for a period of 12 months with no penalties accruing. The finer details
of this scheme will have to be worked out, but it is estimated to cost €2bn.
Larger but shorter contraction in Ireland relative to previous cycles
Source: Goodbody, Fitzgerald Kenny Cord Domestic Demand used for GFC and COVID-19 Forecast
80
85
90
95
100
105
110
T T+1 T+2 T+3 T+4 T+5 T+6 T+7 T+8 T+9 T+10 T+11
1930s 1980s GFC COVID-19 Forecast
GN
P (
Peak =
100)
Assumes 4% yoy
growth in 2023
and 2024
Goodbody
22 May 2020 Page 13
• Commercial rates write-offs – To help with the costs of upgrading premises to comply with
social distancing rules, there will be a write-off of up to €10,000 for businesses, at a total cost
of €250m.
• Restart fund for micro and small business – Grants to be provided at a total cost of
€250m.
While these latest policies are welcomed, the total support is relative small in scale compared to other
countries around the world. As we discuss later in the report, we believe further government support will
be required for businesses, up to and including 100% guaranteed loans, equity injections and additional
direct grants.
The following two charts show that while Ireland’s direct fiscal response has been relatively large
internationally, its indirect measures are lagging. We estimate that direct fiscal support amounts to 4%
of GNI*, while the 3% indirect spend brings the total package response just shy of 7% of GNI*. This
puts Ireland’s total support package behind all of Europe’s major economies.
Ireland’s support package looks light relative to others…
Source: Goodbody, IMF
…although Ireland’s direct spend per capita is ahead of most EU peers
Source: Goodbody, IMF
0%
5%
10%
15%
20%
25%
30%
Direct Indirect
% o
f G
DP (
Irela
nd:
GN
I*)
€274 €329€597
€1,010
€1,484
€1,832
€2,299€2,580
€3,329 €3,446€3,663
€4,093
€4,437
Goodbody
Page 14 22 May 2020
Labour market and the experience of households
The enforced shutdown of vast swathes of the economy has had a dramatic impact on the labour market
situation of 40% of the labour force in Ireland. Including those on both the pandemic unemployment
payment (PUP), the numbers of people on unemployment benefit currently stands at c.800K, dwarfing
the increase seen during the global financial crisis. An additional 464K are in receipt of the temporary
wage subsidy scheme (TWSS).
The degree to which these people can be officially counted as “unemployed” is open to debate. Strictly
speaking, to be “unemployed” the person must be without work and had taken specific steps, in the
preceding four weeks, to find work. It is also possible that some people will be counted as being out of
the labour market entirely during this period, while some on the wage subsidy scheme may even be
counted as employed. There is, therefore a very large margin of error around forecasts for
unemployment. For our forecasts we assume that those on the PUP are counted as unemployed,
contributing to a peak unemployment rate of 27% in Q2 2020.
We do believe that this estimate is not very informative due to:
- The forced nature of business closures over the period
- The varied sectoral impacts
- Exceptional government support eases the impact on household income and the economic
impact overall
- The statistical uncertainties involved
An unprecedented spike in unemployment claims in Ireland
Source: CSO, Revenue Commissioners
Numbers of people on state support
16/04/2020 23/04/2020 28/04/2020 05/05/2020 12/05/2020
PUP 533,000 584,000 591,000 598,000 589,600
Wage Subsidy 281,200 337,400 427,400 452,000 464,400
Enhanced Illness Benefit 27,300 32,000 36,100 39,100 42,000
Live Register* 212,000 212,000 212,000 212,000 220,000
Total 1,053,500 1,165,400 1,266,500 1,301,100 1,316,000
Source: CSO, Revenue Commissioners, DEASP, Goodbody *latest figure is an estimate
0
100
200
300
400
500
600
700
800
900
'000
In addition to 589K on the PUP shown here, an
additional 464K are on the wage subsidy scheme
Goodbody
22 May 2020 Page 15
A “traffic light” system to assess the relative employment effects
The more important question is what the unemployment rate may settle at after the pandemic risk has
passed. This requires analysis of the most impacted sectors and their ability to return to return to full
capacity. The following table and chart show the extent to which the different sectors have been affected
by the lockdown. We gauge the impact summing the percentage of workers (as at Q4 2019) who are
now on either PUP or TWSS by sector. Across the economy, 44% of those employed in Q4 2019 are now
on state support. Unsurprisingly, accommodation and food (96%), construction (85%) and
wholesale/retail (66%) sectors are among the most affected sectors, whereby the vast majority are on
state support. Agriculture (12%), public admin (14%) and health (16%) are among the least affected,
while manufacturing has been affected to some degree. This “traffic light” system informs our judgement
about the speed at which the various sectors can recover. Business failures are inevitable among some
of those in the “red” sectors, informing our view that employment will not recover in those sectors over
the forecast horizon.
Traffic light system for sectoral impact – PUP & TWSS recipients as a % of employment
Source: Goodbody
Breakdown of numbers on state support by sector of employment
Employment
(Q4 19) PUP
% of Total
PUP TWSS
% of Total
TWSS
Total on
support
% of
employment
Agri 107 9 2% 4 1% 13 12%
Industry 288 38 7% 71 15% 108 38%
Construction 148 78 14% 48 10% 126 85%
Wsale/Retail 304 88 16% 111 24% 200 66%
Transport etc 107 17 3% 30 6% 47 44%
Acc. % food 180 126 22% 46 10% 172 96%
ICT 128 12 2% 10 2% 22 17%
Finance, Real estate 116 13 2% 13 3% 26 22%
Prof & scientific 141 25 4% 43 9% 68 48%
Admin etc 113 46 8% 27 6% 73 64%
Public admin etc 117 14 3% 2 0% 16 14%
Education 188 22 4% 11 2% 33 18%
Health etc 292 22 4% 26 6% 47 16%
Other 119 59 10% 22 5% 81 68%
Total 2347 567 24% 464 1032 44%
Source: CSO, DEASP, Revenue
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
% o
f Q
419 e
mplo
yed
Goodbody
Page 16 22 May 2020
As shown in the charts below, our forecasts suggest that employment will fall by over 20% yoy in Q2
2020 before rebounding sharply. However, we believe that employment will still be 5% below Q4 2019
levels by the end of 2021, with accommodation and food, construction and retail having employment
levels substantially below 2019 levels. Migration flows are also expected to fall significantly, resulting in
a slowdown in labour force growth, thus limiting the rise in the unemployment rate. Participation in the
labour force is also expected to fall modestly. This is all expected to result in an unemployment rate of
c.10% at the end of 2021.
Incomes have been cushioned by government measures…
While the impact on the labour market is staggering, the hit to incomes has been reduced by aggressive
government actions. The weekly PUP of €350 is 75% above the standard unemployment payment, while
the TWSS replaces 70% of incomes up to €410 per week. 86% of employees are also receiving a to-up
from their employer.
According to the ESRI, 70% of households would have experienced a fall in incomes of over 20% if no
actions were taken, but this was reduced to 20% as a result of government policy. Many households
experience an increase in incomes as a result of the measures (part-time workers and retirees in
particular).
Labour market forecasts
2017 2018 2019 2020 2021
Total at work ('000, end-year) 2,222 2,272 2,351 1,964 2,239
Employment Growth (end-year) 3.1% 2.2% 3.5% -16.5% 14.0%
Employment Growth (Average) 2.9% 2.9% 2.9% -14.0% 7.9%
Unemployment Rate (end-year) 6.4% 5.6% 4.7% 20.3% 9.8%
Source: CSO, Goodbody
Expected path of employment…
Source: CSO, Goodbody
…leading to unemployment rate of 10%
Source: CSO, Goodbody
1.0
1.2
1.4
1.6
1.8
2.0
2.2
2.4
2.6
Q1
07
Q4
07
Q3
08
Q2
09
Q1
10
Q4
10
Q3
11
Q2
12
Q1
13
Q4
13
Q3
14
Q2
15
Q1
16
Q4
16
Q3
17
Q2
18
Q1
19
Q4
19
Q3
20
Q2
21
Em
plo
yed (
m)
0.0
5.0
10.0
15.0
20.0
25.0
30.0
Q1
07
Q4
07
Q3
08
Q2
09
Q1
10
Q4
10
Q3
11
Q2
12
Q1
13
Q4
13
Q3
14
Q2
15
Q1
16
Q4
16
Q3
17
Q2
18
Q1
19
Q4
19
Q3
20
Q2
21
U.R
. (%
)
Goodbody
22 May 2020 Page 17
…while lower income sectors have been most affected
The income level of those most affected by the lockdown is 20% below the average wage level in the
State. It is likely therefore that savings ratios are much lower than the national average, highlighting the
necessity of those supports.
Government policy has significantly reduced the impact on incomes from the lockdown
Source: ESRI Beirne et al (2020)
Most affected sectors have lower earnings and higher numbers renting
Employment Out of work Wages paid Average
wage
% of
national
average
% renting
Accommodation and food 8% 17% 3%
25,445 59% 38%
Construction 6% 12% 7%
40,765 94% 21%
Wsale/Retail 13% 19% 12%
37,874 87% 27%
Administrative and support 5% 7% 4%
32,905 76% 28%
Total 32% 55% 26%
34,693 80%
Source: CSO, Goodbody
0
50
100
150
200
250
300
350
400
450
60%+fall
40-60% fall
20-40% fall
5-20%fall
0-5%fall
0-5%rise
5-20%rise
20-40%rise
40-60%rise
60%+rise
Thousands
No discretionary policy response With policy response
Goodbody
Page 18 22 May 2020
Spending has still declined sharply, leading to a spike in savings
Despite the income replacement schemes, spending has fallen sharply in the past two months. New
Central Bank data on daily spending patterns shows that daily spending fell by over 40% from its early
March levels by the middle of March. Some recovery occurred over the second half of April but has
flatlined over the first half of May. This leaves spending down by c.30% since the start of the lockdown
measures in the middle of March.
These trends are consistent with a sharp rise in the savings ratio, which we estimate may increase to
18% this year. This will be more than the rise during the GFC and at a much faster pace. The sharp rise
in consumer spending expected in 2021 and the corresponding fall in the savings ratio is reflective of
consumers’ inability to spend, rather than their unwillingness. The rise in the savings ratio will be
particularly evident among the higher-earning cohorts who are still in employment in this period.
Spending down c.30% since the start of the pandemic
Source: Central Bank
Spending falls faster pace than incomes…
Source: CSO, Goodbody
…leading to a spike in the savings ratio
Source: CSO, Goodbody
100
120
140
160
180
200
220
Euro
(m
) 7-d
ay a
vera
ge
-41% from early March to
mid-April
Partial recovery since but spending still -29%
50
60
70
80
90
100
110
120
130
Euro
(bn,
4Q
MA)
Gross disposable income Consumption
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
Savin
gs r
atio (
%,
4Q
MA)
Goodbody
22 May 2020 Page 19
Given our forecast that unemployment will settle at c.10% after the restrictions full ease, we expect that
precautionary savings may continue to be a feature even after restrictions are removed. The following
table shows consumer spending patterns in Ireland during the GFC.
Unsurprisingly, it shows that big ticket purchases such as motor vehicles and household equipment and
RMI experience the largest hits because of a decline in household income. Discretionary consumer
purchases such as holidays also suffer significantly. This latter element will be particularly prevalent in
this period given the restrictions around travel, the globalised nature of the fall in incomes and a likely
change in consumer behaviour.
Spending patterns during the GFC in Ireland
Source: CSO
2009 2008-2012 2009 2008-2012 2009 2008-2012
Consumer categories
Food, beverages and tobacco -8% -6% -7% -8% 1% -2%
Clothing and footwear 7% -3% -6% -21% -13% -19%
Housing (rent, charges, RMI) 3% 9% -14% -13% -17% -22%
of which imputed rent 2% 4% -16% -18% -18% -23%
Fuel and power (excl motor) -5% -16% -12% -2% -7% 14%
Household equipment and operation -22% -27% -26% -37% -4% -10%
Durable household goods -24% -38% -29% -50% -5% -12%
Non-durable goods and services -19% -7% -19% -12% 0% -6%
Transport and communication -15% -18% -17% -11% -2% 7%
Personal transport equipment -44% -33% -47% -42% -3% -8%
Operation of transport equipment -1% -6% -8% 12% -7% 18%
Public transport -8% -14% -4% 1% 4% 15%
Communication -8% -23% -7% -24% 1% -1%
Recreation, entertainment & educ. -3% -9% -3% -9% -1% 0%
Equipment and accessories -6% -4% -13% -23% -7% -19%
Services (incl. education) -1% -11% 2% -1% 3% 10%
Misc. goods and services 2% 4% -6% -6% -8% -9%
Prof. services (incl medical) 4% 4% 7% 9% 3% 5%
Goods (n.e.s.) -17% -4% -21% -18% -3% -14%
Services (n.e.s.) 3% 5% 2% 3% -1% -2%
Expenditure outside the State -20% -40% -17% -33% 3% 7%
less Expenditure by non-residents -18% -36% -18% -33% 0% 3%
Total consumption of goods & services -5% -6% -11% -12% -6% -6%
Real change Nominal change Implied price change
Goodbody
Page 20 22 May 2020
How will businesses perform in this crisis?
The multinational sector played a large role in Ireland’s exceptional economic growth period from 2013-
2020. Over the decade to 2020, jobs growth in firms supported by the IDA was five times that seen in
the rest of the economy. International and financial services was by far the biggest contributor to this
trend, with pharmaceuticals and medical device sectors also experiencing large gains. Moreover, these
are highly paid jobs, with an average wage of €66K relative to a nationwide average of €46K.
In the context of this pandemic, the sectors where Ireland has excelled over recent years are seen by
the market to be relative winners (see charts below). While there are some medium-term threats around
the reshoring of certain activities like the production of drugs, this should act as a stabilising factor in
the short-term as demand for these products and services remains high globally.
That is not to say that Ireland does not face challenges in relation to FDI. Our latest update of the IDA
Tracker suggests that FDI job announcements this year are running at their lowest level since we started
tracking the series in 2011 (see chart). Moreover, threats to the international corporate tax environment
remain in the form of the OECD BEPS initiative and at a European level and the potential wider move
towards onshoring post this crisis. These are threats to be very aware of, but Ireland, as part of the
biggest trading bloc in the world, must continue to focus on ensuring that it remains competitive beyond
tax to continue to reap the benefits of its highly open economic structure.
FDI employment surged in the past decade…
Source: IDA
…led by services & pharma
Source: IDA
Tech & health seen as relative winners from this crisis – Equity performance YTD
Source: Factset, Goodbody
…which are sectors where Ireland has been able to attract the biggest players
Source: Factset, Goodbody
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
FDI-related Non-FDI Total
% Y
oY
Pharma
13%
Comp.
equipment
9%
Medical devices
15%
Metals/Engineering
5%Misc. industry
4%
Int. & financial
services
54%
-40 -30 -20 -10 0 10
Energy
Financials
Industrials
Materials
Utilities
S&P500
Cons staples
Comm. Services
Cons disc.
Health
IT
-20 -10 0 10 20 30 40
Intel
Alphabet
Apple
Amazon
Merck
Novartis
GSK
Pfizer
Roche
Source: Factset
P
h
a
r
m
a
T
e
c
h
Goodbody
22 May 2020 Page 21
IDA Tracker: Worst start to year for FDI job announcements for over 8 years
Source: Goodbody IDA Tracker
0
2,000
4,000
6,000
8,000
10,000
12,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2016 2017 2018 2019 2020
No.
of
Jobs a
nnounced
Over 4,000 fewer FDI
jobs announced ytd
compared to 2019
Goodbody
Page 22 22 May 2020
SMEs still dominate the business landscape in Ireland
While multinationals play a big role in the Irish economy, most firms in Ireland are SMEs. Moreover,
micro-sized firms - those with less than 10 employees - account for 92% of non-financial firms in
Ireland, close to the EU average. These firms have vastly different balance sheet and cashflow
characteristics and are more likely to be impacted by the social distancing measures that have been
introduced.
Other characteristics of Irish enterprises are shown in the table below and include:
• The higher share of workers in the services sector
• The relatively large average turnover in the services and manufacturing sectors
• The subscale nature of firms in the construction sector relative to the rest of the EU
• The low profit margins in the distribution sector, which includes retail
SMEs dominate business landscape in Ireland despite large multinational sector
Number of enterprises No. of persons employed Value added
Ireland EU-28 Ireland EU-28 Ireland EU-28
Firm size No. Share Share No. Share Share Euro
(bn) Share Share
Micro (0-9) 235,427 92.2 93.1
395,469 28.3 29.4 50.3 25.4 20.7
Small (10-
49) 16,573 6.5 5.8
312,604 22.4 20.0 17 8.6 17.8
Medium (50-
249) 2,929 1.1 0.9
276,689 19.8 17.0 15.3 7.7 18.3
SMEs 254,929 99.8 99.8
984,762 70.5 66.4 82.6 41.7 56.8
Large (250+)
546 0.2 0.2
411,949 29.5 33.6 115.3 58.3 43.2
Total 255,475 100.0 100.0
1,396,711 100.0 100.0 197.9 100.0 100.0
Source: European Commission
Characteristics of Irish non-financial business sector – Ireland-v-EU
Industry Construction Distribution Services Financial &
Insurance Total
Share of enterprises
Ireland 7% 21% 19% 51% 3% 100%
EU28 10% 14% 25% 48% 2% 100%
Share of persons employed
Ireland 16% 8% 24% 45% 7% 100%
EU28 23% 9% 23% 41% 4% 100%
Average no. of employees
Ireland 13.4 2.3 7.7 5.2 15.2 5.9
EU28 13.1 3.3 4.9 4.7 9.7 5.5
Average turnover (EUR'000)
Ireland
12,343
377
3,945
1,622 -
2,574
EU28
2,832
421
1,447
507 -
970
Profit margin
Ireland 35% 12% 5% 19% - 20%
EU28 10% 12% 6% 19% - 11%
Source: CSO, Goodbody
Goodbody
22 May 2020 Page 23
The following table also illustrates the sub-scale nature of those sectors most affected by the social
distancing measures. The four sectors most affected in terms of employment share on some form of
government payment – accommodation and food, construction, admin & support and wholesale and
retail – collectively account for 32% of employment in Ireland, but account for 53% of the number of
enterprises operating in the country. We also estimate that these sectors account for c.60% of bank
lending, with half of this being in the property and construction sector (but includes development,
investment and construction). This has implications for the type of policies required (grants versus
loans/equity for example) and for the scale of insolvency problems that the banks may experience
during this crisis.
How indebted are businesses in Ireland entering this crisis?
Non-financial corporate liabilities amounted to 170% of GDP in Q3 2019, the second highest in the EU.
However, these statistics are heavily influenced by the presence of multinationals with significant levels
of debt on their balance sheets that have no link to the domestic Irish economy. The table below shows
the breakdown of this trend. Domestic Irish businesses have in fact a relatively low level of debt
compared with the rest of Europe. Looking at Irish-owned businesses only, non-financial corporate
lending amounts to 59% of GNI*, relative to an EU median of 72%.
Characteristics of sectors most affected by COVID-19 restrictions
% of
enterprises
% of
employment
% of employees
in firms <50
% of Total
GVA
PUP&TWSS/
total empl
% of bank
lending
Acc. & food 7% 8% 56% 2% 96% 9%
Construction 21% 6% 83% 3% 86% 30%
Admin & support 7% 5% 30% 6% 65% 10%
Wsale & Retail 18% 13% 54% 7% 64% 12%
Total 53% 32% 56% 18% 76% 61%
Source: DBEI, Central Bank, CSO, Goodbody
Breakdown of NFC debt by location of counterparty (% of GNI*)
Households Irish Parent
(Irish Debt)
Foreign Parent
(Irish Debt)
Irish Parent
(ROW Debt)
Foreign Parent
(ROW Debt)
Redomiciled
PLCs
2012 136% 69% 58% 16% 96% 12%
2013 122% 66% 39% 19% 87% 17%
2014 106% 56% 44% 23% 102% 33%
2015 91% 62% 31% 26% 237% 46%
2016 81% 52% 22% 40% 195% 49%
2017 76% 48% 29% 51% 162% 40%
2018 68% 41% 22% 18% 174% 42%
Source: Goodbody
Goodbody
Page 24 22 May 2020
The Central Bank provides a detailed breakdown of bank credit to businesses in Ireland. This tells a
similar story of rapid credit growth in the 2000s, followed by a substantial deleveraging since the
financial crisis. Credit trends in the period leading up to this crisis are thus vastly different to the GFC.
Domestic Irish businesses have comparatively low debt levels
Source: Eurostat
Businesses in Ireland have been deleveraging for the past decade
Source: Central Bank
0
50
100
150
200
250
300
% o
f G
DP/G
NI*
-20
-10
0
10
20
30
40
50
Q1
04
Q4
04
Q3
05
Q2
06
Q1
07
Q4
07
Q3
08
Q2
09
Q1
10
Q4
10
Q3
11
Q2
12
Q1
13
Q4
13
Q3
14
Q2
15
Q1
16
Q4
16
Q3
17
Q2
18
Q1
19
Business SME
%
Goodbody
22 May 2020 Page 25
From a peak of €62bn in Q4 2009, bank loans to the SME sector have fallen by 65% to just €21.6bn.
The most significant decline in credit has been to the real estate sector, reflecting the transfer of assets
to NAMA and the absence of new lending to the space during the lean years. Two sectors – agriculture
(14%) and real estate (33%) – account for about half of the total lending to SMEs. 13% of lending is to
the wholesale/retail sector, with 10% to hotels and restaurants.
Total business lending in Ireland – SME & non-SME
Total lending (€m, Q3 2019) % of Total (Ex Finance)
Total SME Non-SME Total SME Non-SME
1. Primary Industries 3,916 3,360 556 9% 16% 3%
2. Manufacturing 4,719 1,227 3,492 11% 6% 17%
3. Electricity, etc 943 191 752 2% 1% 4%
4. Water Supply, etc 469 9 460 1% 0% 2%
5. Construction 704 462 242 2% 2% 1%
6. Wholesale/Retail 4,853 2,896 1,957 12% 13% 10%
7. Transport & Storage 1,970 603 1,367 5% 3% 7%
8. Hotels and Restaurants 3,817 2,216 1,601 9% 10% 8%
9. ICT 395 183 212 1% 1% 1%
10. Financial 36,603 113 36,490
11. Real Estate, develop. 11,840 7,223 4,617 28% 33% 23%
12. Business & admin 3,988 1,123 2,865 10% 5% 14%
13. Other Community etc 1,527 1,036 491 4% 5% 2%
14. Education 613 197 416 1% 1% 2%
15. Human Health etc 1,904 854 1,050 5% 4% 5%
16. Extra-Territorial
17. Total 78,263 21,694 56,569
17.1 Total ex Finance 41,660 21,581 20,079 100% 100% 100%
17.2 Total ex Finance &
property 29,115 13,896 15,219 70% 64% 76%
Source: Central Bank
SME new lending expansion
Source: Central Bank
0
1
2
3
4
5
6
Q1
14
Q2
14
Q3
14
Q4
14
Q1
15
Q2
15
Q3
15
Q4
15
Q1
16
Q2
16
Q3
16
Q4
16
Q1
17
Q2
17
Q3
17
Q4
17
Q1
18
Q2
18
Q3
18
Q4
18
Q1
19
Q2
19
Q3
19
Q4
19
New
loans (
€bn)
(Rollin
g 4
Q)
Primary Industries Manufacturing
Wholesale/Retail/Hotels Business and Admin
Property-related Other
Goodbody
Page 26 22 May 2020
Liquidity needs are significant among SMEs
Although debt has fallen significantly in the past decade in Ireland and 60% of SMEs are debt-free,
liquidity needs will still be significant for SMEs over the coming months. In a paper called “SME Liquidity
Needs During the COVID-19 Shock”, the Central Bank estimated that SMEs will require €2.4bn-€5.7bn
over the course of a three-month period of lockdown. This assumes that payroll costs are fully covered
by government schemes, that non-personnel costs are assumed to fall by 50%-70% and between 50%-
70% of firms require liquidity assistance. Irish SMEs had €2.7bn of undrawn credit available from the
retail banks but they note access to this varies across sectors and is likely to prove challenging for SMEs
without collateral or an existing relationship with a lender. Given c.60% of SMEs are debt-free, this is
likely to be a problem for many.
The employers’ group IBEC has built a representative P&L for the type of firms that will be impacted by
the decline in revenue in the crisis to inform their policy recommendations to government. Its main
assumptions are a net margin of 7.5%, labour costs of 25% of turnover, VAT & excise at 16% and other
overheads of 20%. Turnover is set at €400K. The assumptions are typical in businesses such as pubs,
restaurants and retail. The main aspects are summarised in the pie chart below.
Its modelling assumes that demand drops to 50% of normal in March, stays at zero through July and
increases by a factor of 25% of February demand between August and November. In this context,
variable costs adjust, but rent, insurance and rates are only deferred. To cover total operating costs,
demand would have to return to 80% of normal, which is assumed not to happen until November. Under
these assumptions, total debt of €45K is accrued (11% of turnover), with over 40% owed to Revenue
and local authorities. IBEC notes that there are about 90,000 of this type in the service sector in retail,
not to mention other sectors. If even half of these firms were to require credit facilities to cover half the
increase in debt, this would amount to a liquidity need of €2bn for the retail sector alone.
Profitability is clearly curtailed for these firms, but IBEC notes that the choice of policy option chosen will
determine the future of many of these businesses. In a scenario where loans are provided at close to
current market rates for 3 years, debt repayments would eat up to 56% of its pre-COVID-19 net profits
and threaten the viability of the business. This suggests while debt solutions need to be put in place,
they need to be supplemented by other polices such as direct grants and/or equity injections. The latter
is difficult to implement in many small firms.
Potential funds demanded in €m over a 3-month period based on assumptions of % of affected firms seeking liquidity finance and the % reduction in non-personnel expenses
(%) of Firms requiring liquidity
finance (€m)
Reduction in average non-personal expenses
70% 60% 50%
50% 2,447 3,263 4,079
60% 2,937 3,916 4,895
70% 3,426 4,568 5,711
Source: CBI, CSO, *Personnel expenses are assumed to fall to zero. Excludes Agriculture, Forestry and Fishing, as data are unavailable
Representative firm (% of turnover*)
Source: IBEC *€400K
Debt of €45K after 5 months owed to…
Source: IBEC
COGS
30%
VAT & excise
16%Labour
25%
Net profit
9%
Rent
7%
Utilities & waste
6%
Rates etc
3%
Insurance
2%
Capex &
repayments
2%
Revenue/Local
Authorities
40%
Suppliers
11%
Rent
27%
Utilities
10%
Loans, Capex,
insurance
12%
Goodbody
22 May 2020 Page 27
Can the experience of the UK inform Irish SME liquidity needs?
The UK has introduced a number of lending schemes since the March to assist in the liquidity needs of
UK businesses. These include:
• Bounce Back Loan Scheme (BBLS) – Launched on 27 April 2020, loans of up to £50,000,
government guarantee of 100%, no interest for first 12 months, after 12 months interest rate
will be 2.5%, term of up to 6 years
• Coronavirus Business Interruption Loan Scheme (CBILS) – Launched on 23 March 2020, loans
of up to £5m, government guarantee of 80%, government pays interest and fees for 12
months, term of up to 6 years
• Coronavirus Large Business Interruption Loan Scheme (CLBILS) – Launched on 20 April 2020,
loans of up to £200m, 80% government guarantee, restrictions on executive pay and dividends
• COVID-19 Corporate Financing Facility (CCFF) – Bank of England will buy short-term debt from
large companies, will operate for at least 12 months
With the CCFF only available to a very small number of very large businesses (233 in total), we focus on
the first three lending schemes in the table below. Even though it was only set up on 20 April, take up of
the 100% government guaranteed BBLS far exceeds the other programmes. In total, we estimate that
c.20% of UK non-financial enterprises have received a loan under either BBLS or CBILS. The average
loan under both these schemes is £42K, with the average loan in the BBLS at £31K. Monthly gross
lending since these began is running at more than 2.5x times the rate seen in the previous twelve
months.
Recognising that balance sheets and cashflow characteristics will differ across geographies and firms, we
can use these statistics as a guide of the potential demand for loans in Ireland. In the table below, we
estimate that using these parameters, gross lending would amount to €2.4bn, with the majority done
under the 100% government guarantee loan scheme. This would represent would be some six times the
monthly lending average to SMEs in the past twelve months.
Summary of lending in the UK under new liquidity facilities
Scheme Value of Facilities
Approved (£bn)
Number of Facilities
Approved
Total Number of
Applications
Average Loan
(£'000)
Bounce Back Loan Scheme
(BBLS) £14.18
464,393
581,516
31
Coronavirus Business Interruption Loan Scheme
(CBILS)
7.25
40,564
81,124
179
Sub-total 21 504,957 662,640
42
% of non-financial
businesses 21% 27%
Coronavirus Large Business
Interruption Loan Scheme
(CLBILS)
0.59
86
496
6,860
Total 22 505,043 663,136
44
Source: UK Treasury, Eurostat, Goodbody
What if the demand in Ireland for these types of schemes was similar?
UK Ireland
Non-financial businesses ('000) 2,420 243
% of businesses taking BBLS & CBILS 21% 21%
Average Loan (£/Euro '000) 42.44 47.54
No. of loans 504,957 50,753
Total lending (£/Eur bn) 21.43 2.41
Source: UK Treasury, Eurostat, Goodbody
Goodbody
Page 28 22 May 2020
The Irish government announced a €2bn SME credit guarantee scheme earlier this month, that will come
with an 80% government guarantee. Based on the experience of the UK, this scheme may too limited in
scope and potentially too small too. Even assuming a 20% loss on such a scheme a c.€500m potential
cost would be justified by the potential positive impact on employment and tax revenues.
Goodbody
22 May 2020 Page 29
Housing and construction
Both housing supply and demand will be severely curtailed because of this crisis, resulting in very large
changes to our projections for output, prices, and mortgage lending activity in the short-term. Lower
prices will also result in a reassessment of supply plans among housebuilders in the period beyond the
immediate crisis, some of which were already operating at relatively tight margins. We believe that
demand is substantially above current levels of output, but the tenure profile of this demand will change
in the short-term. Mortgage credit availability will fall in the short-term as banks tighten credit
conditions and borrowers’ income characteristics are updated. Demand for social, affordable, and
assisted rental is likely to rise further, necessitating additional government support in the housing
market. Our key forecasts are contained in this table.
Completions expected to fall to 35% to 14K in 2020
The Irish construction sector saw some of the most severe declines in output during the period of the
lockdown, with output declining by up to 90% during April. Construction has recommenced this week,
but with strict health and safety requirements around social distancing that will curtail productivity and
output over the coming quarters.
After a 17% yoy increase in home completions in Q1 2020, activity is now expected to contract sharply
for the rest of the year. 14,000 home completions are now expected in 2020, down from our previous
estimate of 24K. For 2021, we are predicting that home completions will rise to 16K, relative to our
previous estimate of 26K. This assumes ongoing social distancing on sites as well as a more cautious
funding environment for construction activity in the context of the changed demand environment.
The subscale nature of Irish housebuilding industry will also contribute to the likely fall in private house
completions, as funding constraints reappear. Our analysis of the Property Price Register (PPR) shows
that less than 20% of new supply in 2019 were built by the top ten builders. This compares to c.50% in
the UK. There has already been some evidence of tighter credit conditions that has triggered the
response of State to step in with an increase in credit facilities for the sector through Home Building
Finance Ireland (HBFI).
Key Irish housing metrics
2017 2018 2019f 2020f 2021f
New dwellings 14,358 17,946 21,138 13,802 15,727
Average house price (€, end-year) 257,184 273,322 274,139 250,723 246,686
Price inflation (% YoY, end-year) 12% 6% 0% -9% -2%
- Dublin (% YoY, end-year) 12% 4% -2% -9% -2%
- Non-Dublin (% YoY, end-year) 13% 9% 2% -8% -1%
Gross mortgage lending (€m) 7,287 8,723 9,542 5,713 6,427
Growth in gross lending 29% 20% 9% -40% 12%
Net mortgage lending growth (end -year) 0.0% 1.4% 1.9% -1.4% -0.5%
Rental growth 6.1% 6.4% 4.5% -9.6% 0.3%
Gross rental yield (end-year) 5.4% 5.4% 5.7% 5.6% 5.7%
Source: CSO, BPFI, DoHELG, Goodbody
Goodbody
Page 30 22 May 2020
Home completions expected to fall 35% to c.14K units in 2020
Source: CSO, Goodbody
Fall in new dwelling completions compared the early 80s and the GFC
Source: Goodbody, CSO, DoH
Nearly two-thirds of Ireland’s output comes from developers producing less than 200 units
Source: Goodbody Analytics, PPR
0
5
10
15
20
25
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
-Scheme house -Apartment -Single house
'000
Forecast
0
20
40
60
80
100
120
Peak +Q1 +Q2 +Q3 +Q4 +Q4 +Q5 +Q6 +Q7 +Q8 +Q9 +Q10
Early 80s GFC COVID19
Index (
Peak R
ollin
g4Q
=100)
0-50 units
32%
50-200 units
32%
200-500 units
14%
500-1,000 units
22%
Goodbody
22 May 2020 Page 31
Signs of easing growth in schemes even prior to the onset of the COVID-19 crisis
Although completions grew by 18% yoy, there were varying performances by sector and geography. In
Dublin, the lowest number of scheme houses were built since Q1 2017, with output falling by 19% yoy.
In contrast, the number of apartment completions grew to the highest in the series (back to 2011),
growing by 76% yoy in Q1 2020. The number of scheme houses completed in Dubin’s commuter
counties fell by 2% yoy, the first annual decline since Q2 2014. Outside the Greater Dublin Area,
completions grew strongly, particularly for schemes (+62% yoy), after similarly strong growth in 2019.
Rental declines threaten viability of some PRS projects
Coming from a low base, apartment construction has been booming over recent quarters, growing by
75% yoy in Q1 after an increase of 56% in 2019. A major contributory factor to this trend has been the
buoyancy of the Private Rental Sector (PRS), with large volumes of international capital being invested in
the sector. This has pushed down yields, pushing up capital values and making it viable for developers
who had previously been unwilling to build apartment units due to viability constraints.
Rents have boomed across the country since 2012, with the average rent in Dublin doubling to over
€2000 per month and rising from c.€700 to c.€1300 in the other cities. Stock levels remain low in a
historical context but have risen since the start of the pandemic. Rents have already begun to decline
and are expected to decline by c.10% over the next twelve months.
New dwellings by region & type – Differing trends were already apparent prior to COVID-19
Q1 2020 YoY% 2019 YoY%
Dublin Total 1658 12% 6,944 1%
Single 64 -2% 301 10%
Scheme 757 -19% 4,036 -17%
Apartments 837 75% 2,607 53%
Mid East Total 1047 -2% 5,323 36%
Single 144 -9% 756 10%
Scheme 869 -1% 4,218 35%
Apartments 34 17% 349 214%
Non-GDA 2,281 34% 8,871 24%
Single 886 3% 4,008 8%
Scheme 1,222 62% 4,267 43%
Apartments 173 92% 596 30%
National Total 4,986 17% 21,138 18%
Single 1,094 1% 5,065 8%
Scheme 2,848 11% 12,521 14%
Apartments 1,044 75% 3,552 56%
Source: Goodbody
Rents fell in Dublin in May
Source: Daft.ie
Stock for rent remains low
Source: Daft.ie
0
500
1,000
1,500
2,000
2,500
Dublin Other cities
Rent
per
month
(Euro
)
First annual fall in
rents in Dublin since 2011
0
200
400
600
800
Index (
Jan 2
007=
100)
National Dublin Munster Connacht-Ulster Leinster
Goodbody
Page 32 22 May 2020
On the supply side, there has already been an increase in the stock for rent in Dublin due to formerly
short-term lets coming into the long-term market as the holiday lettings market has dried up. The
number of properties available to rent in Dublin was up 69% yoy this month. As the chart below shows,
this was off a very low base, but the experience of the 2008 period shows that the stock can rise very
quickly.
Migrants play an outsized role in the rental market in Ireland. With travel severely restricted in the
short-term and firms implementing increased work-from-home arrangements for an extended period,
this demand will be curtailed, putting downward pressure on prices.
Impact on demand
With 40% of the labour force on some form of government support, the income and employment status
of a very large percentage of the income-earning population has changed since mid-March. This will
impact on the ability of those people to access a mortgage or afford the current rent. As noted earlier,
workers in sectors most affected by the lockdown and the ongoing social distancing guidelines are more
like to be renters than home-owners, so the impact on demand may be larger in the rental market.
According to initial CSO estimates, 47% of people stated that they COVID-19 have had an impact on
their employment status. Of these, 14% suffered loss of employment, with 33% being put on temporary
lay-off. The impact was particularly felt in the 15-24 age cohort, but large impacts are seen across all
age groups. Of those whose employment has been affected, 34% have started to work remotely, with a
further 12% doing increased hours from home. This factor, in maintained, could have large implications
for the location choices of workers in the medium-term. This is, of course, a global theme.
Stock for rent in Dublin rising from low level
Source: Daft.ie
Rents-v-stock available correlation
Source: Daft.ie, Goodbody
Migration flows in Ireland
Source: CSO
Tenure status by nationality
Source: CSO
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
Sto
ck f
or
rent
R² = 0.4893
-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
0 2000 4000 6000 8000 10000
Askin
gre
nts
(%
QoQ
)Stock for rent (start of period)
Stock would need to rise to c.3K to be consistent with rental declines
-100
-50
0
50
100
150
200
1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017
Immigration Emigration Net migration
'000
71%
77%
31%29%
23%
69%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
All nationalities Irish Non-Irish
% OO % Renting
% o
f to
tal
Goodbody
22 May 2020 Page 33
Unsurprisingly, credit demand has fallen sharply among households since March. The Central Bank notes
that credit enquiries were growing modestly in February and into early March before falling rapidly. As
the chart below shows, credit demand for mortgages was down by c.75% in mid-April, relative to its
February base level. This is not a great surprise, but points towards a very weak pipeline for the rest of
the year.
Given these trends, ongoing social distancing restrictions, changes to employment status and tighter
lending standards, we now expect a 40% reduction in new mortgage lending in 2020. This results in a
mortgage market of €5.7bn, roughly equivalent to 2016 lending levels. All components of lending are
expected to contract by double-digit levels, while we also expect a reduction in the average loan size
consistent with tighter lending standards and lower house prices. For 2021, we expect gross lending to
increase by 12%. Net lending is expected to fall modestly in both 2020 and 2021.
Effect on employment status due to COVID
Source: CSO
% working from home*
Source: CSO *of whose employment has been affected
Credit demand among households down significantly since February
Source: Central Bank
Mortgage lending to fall 40% in 2020…
Source: BPFI, Goodbody
Historically low lending levels
Source: BPFI, Goodbody
0
10
20
30
40
50
60
70
80
15-24 25-34 35-44 45-54 55-64 65+ All
Loss of employment Temporary layoff
% o
f Tota
l
0
10
20
30
40
50
60
70
15-24 25-34 35-44 45-54 55-64 65+ All
Fully Partially
% o
f to
tal
2.5 2.6 2.5
3.9
4.9
5.7
7.3
8.7
9.5
5.76.4
0
2
4
6
8
10
12
€bn
Forecast
0
20
40
60
80
100
120
BPFI DoELG
'000
Note: Excluding top-up mortgages & remortgaging
Goodbody
Page 34 22 May 2020
Price declines to result from significant demand shock
While incomes are expected to be somewhat shielded by government policy measures in the short term,
our forecasts assume that the unemployment rate will settle at c.10% by the end of 2021. This is still a
very large increase in an historical context in Ireland and is consistent with house price declines, as can
be seen in this chart based on real house prices and unemployment over the past c.40 years.
Unlike the GFC, there is no overvaluation in Irish house prices at the current time, while new supply
remains at historically low levels. Indeed, while we expect a 10%+ decline in prices over the coming 18
months, the cycle will be short, with a pick-up expected in H2 2021.
Change in real house prices vs the change in the unemployment rate the year prior
Source: Goodbody, CSO, DoH
Housing stock for sale at low levels
Source: Daft.ie, CSO, Goodbody
Stock for sale-v-HPI - Dublin
R² = 0.5754
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
-3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0%
House p
rice g
row
th
Change in unemployment rate (t-1)
0
50
100
150
200
250
300
350
400
Jan07
Sep07
May08
Jan09
Sep09
May10
Jan11
Sep11
May12
Jan13
Sep13
May14
Jan15
Sep15
May16
Jan17
Sep17
May18
Jan19
Sep19
Index (
Jan 2
007 =
100)
National Dublin Munster Conn-Ulst Leinster
Stock for sale fell 12% yoy
in March to 19.9k
properties, the fastest
decline since early 2017
R² = 0.7773-30%
-20%
-10%
0%
10%
20%
30%
2000 3000 4000 5000 6000 7000 8000
% Y
oY
Stock for sale start of period
Current stock level in Dublin
Goodbody
22 May 2020 Page 35
Tenure mix and affordability likely to be at the heart of government housing policy
The crisis will undoubtedly have large short-term impacts on demand, prices and output in the Irish
housing market. Some of the progress made in closing the gap between supply and household demand
will thus reverse. From a political perspective, housing will remain a key policy objective, especially in
the context of the new government that is expected to be formed in the coming weeks. In this context,
the following features are likely to form part of government actions in the coming twelve months:
• Increased public output – By way of either local authorities, Approved Housing Bodies
(AHBs) or Part V, public output amounted to c.6K units in 2019, accounting for c30% of
residential output. It is expected that the government will ramp up this output even further
over the coming years. This will be done via the Land Development Agency (LDA) and local
authorities. To meet targets though, the government will also need to rely on the skills and
resources of the private sector.
• Subsidies for private home-ownership – With both main parties that are likely to form part
of the next government in favour of increased home ownership, we are likely to see some
extension of subsidies in the new homes space. Shared-ownership may form part of this but
must be done in a targeted way for first-time buyers at affordable price points.
• Affordable housing – Given the binding nature of Central Bank mortgage rules, there is a
significant cohort of the population who do not earn enough to purchase a new home and often
have to resort to the rental market. We would expect the government to promote new policies
that encourage affordable housing to meet this demand.
• Focus on land costs – With construction costs seen as generally sticky, there is expected to
be policies pursued that will dampen the volatility that has historically been a feature in the
Irish housing market. These include compulsory purchase orders, greater use of public sector
land banks and stricter use of the Vacant Site Levy.
House price declines, then vs now
Source: Goodbody, CSO, DoH
70
75
80
85
90
95
100
105
Peak +2 +4 +6 +8 +10 +12 +14 +16 +18 +20
GFC
COVID19 Crisis Forecasts
Peak
house p
rice =
100
Months
Goodbody
Page 36 22 May 2020
Public Finances & debt sustainability
Large deficit is necessary, additional borrowing should be done
Ireland’s public finances have already started to be impacted by this crisis. According to the April
Exchequer returns, tax revenues falling 8% yoy in April. This follows a 20% yoy decline in tax revenues
in March. Leading the fall in tax revenues was income tax receipts (-6% yoy) while excise duties have
fallen by nearly 50% in the year to April. Elsewhere, VAT receipts have fallen 15% ytd, which has been
attributed primarily to non-payment and underpayment of VAT as a result of the response to COVID-19.
The budget deficit for the year thus far sits at €8.4bn (excluding non-government items), 4% of GNI*.
After a number of years of relatively balanced budgets, we expect a budget deficit close to €30bn (16%
of GNI*). The debt level is expected to surge to 124% of GNI*, up from 98% of GNI* in 2019. As noted
earlier, it is important to look at metrics beyond GDP in assessing Irish debt sustainability.
Exchequer Returns – April 2020
ytd (€m) yoy Monthly (€m) yoy
Total Revenue 20,073 1% 3,625 -6%
Tax Revenue 15,485 -1% 2,552 -8%
-Income 7,520 8% 1,877 -6%
-VAT 4,224 -15% 87 1350%
-Excise 1,692 -18% 309 -48%
-Corporate 903 93% 33 -159%
-Stamp 522 22% 119 14%
-Motor 330 -7% 76 -16%
-Customs 100 -6% 22 38%
-CGT 196 3% 16 0%
-CAT 57 -10% 15 -6%
Total Expenditure 28,524 18% 8,557 41%
-Gross Current 24,281 20% 7,475 51%
-Gross Capital 1,705 20% 499 -10%
Exchequer balance (ex non-GGB
items) - 8,451
Exchequer balance - 7,473
Source: Goodbody, DoF
Fiscal forecasts
2017 2018 2019f 2020f 2021f
Budget Deficit (% of GDP) -0.3% 0.0% 0.5% -9.0% -3.4%
Excluding Banking costs -0.3% 0.0% 0.5% -9.0% -3.4%
Budget Deficit (% of GNI*) ex. Bank costs -0.5% 0.0% 0.8% -15.7% -5.9%
General Government Debt (Euro m) 201,259 205,883 204,044 221,807 233,616
General Government Debt (% of GDP) 68% 64% 59% 71% 70%
Debt/GNI* 109% 104% 98% 124% 121%
Interest/GDP 2.0% 1.6% 1.6% 1.5% 1.4%
Primary balance 1.7% 1.6% 2.1% -7.5% -2.0%
Average interest rate 2.9% 2.5% 2.7% 2.2% 2.0%
GDP growth (real) 8.1% 8.2% 5.5% -10.7% 6.3%
GDP growth (nominal) 9.4% 9.1% 7.2% -9.7% 6.9%
Source: Goodbody
Goodbody
22 May 2020 Page 37
Ireland had been on a path of deleveraging since 2012, when debt/GNI* peaked at 166%, eventually
falling to just below 100% in 2019. Debt will rise above 120% in 2020.
At the beginning of 2020, the NTMA set out a funding range for this year of €10-€14bn. On 21 April,
following the publication of the Stability Programme Update, the NTMA increased the borrowing
requirement to €20bn-€24bn. Due to the increased Exchequer deficit (€28bn), we expect the NTMA to
increase its borrowing target to €30bn-€35bn for this year. Given favourable interest at this point, the
aggressive actions of the ECB and the likelihood of increased borrowing across the EU over the coming
months, it is advisable that the NTMA carry out this borrowing as soon as possible and to ensure that
cash balances do not fall uncomfortably low levels.
Budget deficit to return to GFC levels…
Source: DoF, CSO, Goodbody
…rising to 16% of GNI*
Ireland’s debt to GNI* set to surge to 124% in 2020 from 99%
Source: Goodbody, CSO, DoF
-20%
-15%
-10%
-5%
0%
5%
% o
f G
NI*
(ex.
bankin
g c
ost)
-18%
-16%
-14%
-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
2019f 2020f
% GDP % GNI*
Budget
Deficit
70%
90%
110%
130%
150%
170%
190%
Goodbody
Page 38 22 May 2020
Debt interest bill remains low despite large increase in borrowing
It is important to look beyond gross debt metrics to assess its sustainability. Redemptions, maturities
and interest costs all need to be taken into account.
• After a relatively large amount of redemptions in 2020, this falls significantly in 2021, while
maturities over the coming three years are substantially less than the past three years
• At an average 10.3 years, Ireland has one of the longest average maturities in the EU
Interest costs remain low despite the large increase in debt levels
Due to ongoing ECB bond purchases and the search for yield globally, sovereign interest rates remain
close to all-time lows in Ireland. In its most recent bond auction on 14 May 2020, Ireland sold €850m in
bonds maturing in 2029 at a yield of 0.04% and €650m in bonds maturing in 2050 at 0.79%. It is thus
replacing more expensive yielding bonds (bonds maturing in 2020 had coupons of 4.5% and 5.0%), thus
reducing the interest burden. Ireland’s debt interest bill amounted to €7.5bn in 2014, but is expected to
fall below €5bn in 2020. We estimate that the average interest rate on Ireland’s debt is now c.2% and
amounts to 2.7% of GNI*, well down on the levels seen at the start of the last decade. The changed
interest rate environment is the major difference with the last cycle, supporting the case for a slower
adjustment in the deficit over the coming years.
Exchequer funding needs & sources 2020 – Big increase in funding target required
Source: NTMA, Goodbody
Modest debt maturities in 2021
Source: NTMA
Ireland has a long debt maturity profile
Bonds, 17
EBR, 28
UK bilateral
loan, 2
Other, 3
Bond issuance, 34
ST paper, 5
Other, 1
Change in cash, 10
0.0
10.0
20.0
30.0
40.0
50.0
60.0
Needs Sources
Euro
(bn)
0
2
4
6
8
10
12
14
16
18
20
Government bonds EU/IMF/UK EFSM
Eur
(bn)
Goodbody
22 May 2020 Page 39
Scenarios for the debt path
While debt interest costs remain low, deficits such as those expected in 2020 and 2021 are clearly
unsustainable in the medium-term as they will raise questions about Ireland’s debt sustainability
position. To assess debt sustainability, the following analysis looks at scenarios for the debt burden
under a number of assumptions. The analysis is conducted based on nominal variables.
The main conclusions are:
• Primary balance must return – Due to the exceptional levels of fiscal support and the fall in
tax revenues, the primary budget balance (deficit excluding interest) will fall to -7.5% this year.
If maintained at this level, debt would continue an unsustainable upward path. We assume that
the primary deficit falls to 2% of GDP (3.5% of GNI*) in 2021. In scenario 4 below, we assume
that a primary deficit of 2% is maintained. Under this scenario, with 5% nominal growth (3%
real), the debt/GNI* ratio would not fall back to 100% until 2045 and would take until 2092 to
fall to the 60% level.
• Interest/growth differential can do a lot of heavy lifting – Under our scenarios below, we
have assumed that the average interest rate remains at 2%. This stems from the fact that ECB
bond buying is expected to continue, and Ireland has been successful in extending the maturity
of its debt. Under this assumption, growth can play a large role in reducing the overall debt
burden, as it did in the period post 2013. While we expect interest rates to remain low over the
coming years, they cannot be taken for granted over the medium-term.
• Sound fiscal policies will be required beyond this crisis period – The scenario analysis
below shows that to return Irish debt levels to pre-crisis levels will require a return to economic
growth and sound management of the Irish public finances when this crisis subsides.
Debt interest costs remain low due to ECB and search for yield globally despite higher debt
Source: CSO, Goodbody
Scenario analysis for the Irish sovereign debt burden
Assumptions Scenario 1 Scenario 2 Scenario 3 Scenario 4
Growth 2.0% 4.0% 6.0% 5.0%
Interest rate 2.0% 2.0% 2.0% 2.0%
Inflation 0.0% 0.0% 0.0% 0.0%
Primary surplus 0.0% 0.0% 0.0% -2.0%
Reaches 100% debt/GNI* in year: n/a 2032 2027 2045
Reaches 80% debt/GNI* in year: n/a 2042 2032 2069
Reaches 60% debt/GNI* in year: n/a 2053 2037 2092
Source: Goodbody
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
% o
f G
NI*
Goodbody
Page 40 22 May 2020
Scenario analysis for government debt
Source: CSO, Goodbody
Dramatically different interest rate environment – Irish 10-year bond yield
Source: Factset
0
20
40
60
80
100
120
140
160
180
2% GNI* Growth
5% growth, 2% primary deficit
4% GNI* Growth
6% GNI* Growth
Debt
to G
NI*
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
Jan 07 May 08 Sep 09 Jan 11 May 12 Sep 13 Jan 15 May 16 Sep 17 Jan 19 May 20
%
Goodbody
22 May 2020 Page 41
Analyst Certification
The named Research Analyst certifies that: (1) All of the views expressed in this research report accurately reflect my personal views about
any and all of the subject securities and issuers. (2) No part of my remuneration was, is, or will be, directly or indirectly, related to the
specific recommendations or views expressed by me in this report.
Regulatory Information
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Goodbody
Page 42 22 May 2020
Other disclosures
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