Bank of Ireland launches third edition of Irish Business Review

Energy prices to rise four times more volatile than forex or interest rate
movements
Construction sector potential for 100,000 units to be completed in 2006

'In the construction sector, 100,000 units to be completed in 2006 a considerable upside on our previous forecast for the year of 85,000 completions and the actual 81,000 completions recorded in 2005. The retail sector also continues to surge ahead on the back of household income growth, and not as some have claimed, on personal borrowings.' This is according to Bank of Ireland's Irish Business Review, a sector-by-sector analysis of Irish business, which was published today [7 July 2006].

Pat Gaynor, Managing Director of Bank of Ireland, Corporate Banking Ireland said: 'At the halfway point in 2006, all indications are that the domestic economy continues to power ahead with steady growth in the first quarter in most of the key sectors of the economy. Deal flow in Bank of Ireland Corporate Banking remains positive, and we are confident of maintaining that impetus and growth over the remainder of the year.'

Bumper year ahead for construction
The pace of house building in Ireland continues to make new records. While there were 81,000 completions last year, available data on activity thus far in 2006 point to increased momentum in activity. Total completions in Q1 are estimated at almost 22,000. 'According to our Economic Research Unit recent experience suggests that approximately 21% of the full year total for completions take place in the first quarter of the year. On this basis we are upping our original forecast of 85,000 completions for 2006 to a possible bumper 100,000 for the year end,' said Pat Gaynor.

Retail surges ahead on back of household income growth
'Our optimistic outlook for the retail sector continues unabated due to a marked acceleration in household spending over the past year,' he said. National accounts show real consumer spending growth of 6.2% in the fourth quarter of 2005, having accelerated from 3.2% twelve months earlier, and retail sales have entered 2006 on a positive note.

The main driver of retail sales is not borrowing, but household income growth, which is likely to rise by 9% in 2006 following a 10% increase last year.

Looking at high street spending in more detail, one striking feature of the recent acceleration in consumer spending is the performance of pubs. Volume sales turned positive in the summer of 2005 for the first time in four years, and latest data shows annual growth of 2.5% due to the pick up in employment and immigration. Furniture and Lighting sales have also seen a marked recovery, showing annual growth of 7% over recent months against a substantial decline in the second half of 2005.

Industrial output to rise
While the first quarter showed output declines for industrial output, demand from the euro zone and the United Kingdom is likely to strengthen over the remainder of the year while the strengthening of the dollar and sterling against the euro is one other factor suggesting that industrial output should rise.

Tourism sector benefits from national and international economic environments
The Irish tourism and travel sector continues to benefit from a very buoyant domestic and international environment. It is encouraging that after the decline in tourism numbers in 2004, there was a substantial turnaround in 2005, especially in the final quarter (the latest period for which there is data) when visitor numbers were up 10%.

Modest income growth for agriculture
The slowdown in income growth for agriculture should be seen in the context of the exceptional growth in incomes last year on foot of overlapping subsidy payments and the introduction of the Single Payments Scheme. Bank of Ireland predicts that the numbers employed will continue to decline. Employment in the sector currently stands at 115,000, down from 117,000 in 2004.

Energy prices posing major challenges for Irish business
Commenting on rising energy prices and the subsequent impact on Irish business, Pat Gaynor said: 'Prudent treasurers and finance directors will usually, without giving it too much consideration, put hedging instruments in place that will limit their exposure to changes in interest and foreign exchange rates. Given the current and projected environment of rising energy prices, and the impact we have already seen this has had on the performance of a number of high profile Irish companies, treasurers and finance directors now need to utilise similar hedging instruments to limit their exposure to energy prices. As recent history has shown energy prices are four times more volatile than forex or interest rate movements.'

Impact of the Kyoto Protocol from 2008 on Irish businesses
Irish businesses need to pay strong attention to the Kyoto protocol, which will impose major penalties on companies who breach their permitted carbon emissions levels. Irish Business Review examines ways that Bank of Ireland can assist such companies through its dedicated Energy and Emissions Desk, which allows companies to transact carbon emissions under the EU Emissions Trading Scheme.

The Irish Business Review combines the deal flow experience of Bank of Ireland Corporate Banking in Ireland, and economic analysis from Bank of Ireland Global Markets. The sector-by-sector analysis provides a unique picture of the current trends that underpin the domestic macro-economic environment.

ENDS

For reference:

Anne Mathews
Media Relations Manager
Bank of Ireland Group
Tel: 01 6043836 / 087 246 0358

Carol Gregory
Marketing Manager
Bank of Ireland Corporate Banking
Tel: 01 6044091

Kind regards

Anne Mathews
Media Relations Manager
Group Corporate Communications

Tel. 01-6043836
Fax. 01-6767850

www.boi.ie/pressroom
Mobile: 087 246 0358
E-mail: anne.mathews@boimail.com