External Background US economy still has considerable momentum Japan continues to show most positive signs in over a decade China still growing strongly UK struggling, but outlook positive Euro Zone continues to improve Solid external background

The Risks Oil Prices US twin deficits Currency instability Too much aggression from paranoid ECB

Financial Conditions ECB rate tightening to continue 1% by end-2007 Another 0.5% from Fed, BOE could cut Exchange rate markets very stable Euro should make some gains against sterling & dollar

Equity Markets Strong momentum has carried over to 2006 Markets not concerned about risks Focused on solid economic & earnings fundamentals Euro Zone markets continue to be favoured Japan has struggled, but has potential US not promising too many dramatics Irish market retains solid fundamental support 2006 another good year for equity investors & pension funds

Equity Markets So Far S & P %3.8% FTSE %6.3% German DAX26.7%9.1% NIKKEI40.7%1.3% ISEQ18.9%7.8%

The Irish Economy Strong momentum has carried over to 2006 Consumer spending, Construction & Business Investment strong Exports/Manufacturing finding life challenging Strong public finances, another ‘budget bonanza’ in December SSIAs will exert considerable influence over next year Growth prospects 2006 & 2007 good

Forecasts 73,00079,00080,974Housing Completions 4.4%4.3%4.4%Unemployment 2.6%2.7%2.5%Inflation 4.5%4.8%3.0%Exports 6.0%7.0%8.0%Investment 6.5%7.0%5.8%Consumption 4.4%4.9%4.8%GNP 4.7%5.2%4.5%GDP 2007f2006f2005e

SSIAs – The Facts 1.14 million holders €14,000 per person on average €16 bln to hit streets in 12-month period commencing May % GDP, 22% Consumer Spending Have SSIAs succeeded in creating savings habit, or are we about to witness a monumental spending binge? Too soon to tell !

Employment Changes SECTORQ to Q Agriculture-8,100 Other Production-9,100 Construction+52,600 Hotels & Restaurants+100 Financial & Business Services+31,700 Wholesale & Retail Trade+28,500 Education+9,800 Health+15,700 TOTAL+151,700

Price Changes (Jan’00-Jan ’06) +24.1%Overall CPI +13.3%Food +53.7%Health +59.4%Childcare +69.2%Health Insurance -21.4%Clothing & Footwear +52.7%Electricity %Water Supply & Refuse Charges

The Big Economic Issues Future labour supply Infrastructure & Public Services IT Capability Quality of labour force Globalisation Unbalanced nature of economic development/Threats to rural economic sustainability The Housing Market

Housing Market Very strong performance in 2005 Very strong start to 2006 Demand forces still very strong Supply response very strong Market has to be approaching equilibrium Prospects of hard landing remote Economy has heavy dependence on housing market

Market in 2005 Prices up by 9.3% Net new mortgage lending +€21.9 bln, +28.5% 80,957 completions Mortgage debt 61.5% GDP Mortgage Debt 116% of disposable incomes Rental growth picking up again Demand driven by inward migration, strong household formation, improved affordability & investors

LTV New Houses

LTV Second Hand Houses

PermanentTsb House Prices

The Market in 2006 Frenetic start to 2006 Demand forces to remain strong Interest rates will have no more than a modest sobering effect SSIAs will have an important influence Completions of around 79,000 Prices set to rise by 7% Residential housing will be an important driver of activity once again

Significance of Housing Market Construction activity & direct employment Construction output valued at €30 bln, Housing 65% Mortgage market has grown from €25 bln to €100 bln in 6 years Major driver of financial sector employment Important contributor to tax take directly & indirectly VAT €2.6 bln, & Stamps €800 mln Equity market effect Housing stock valued at €530 bln, significant consumer ‘wealth effect’

House Prices & Consumer Confidence

Is Economy too Dependent? Yes & No Residential housing having a major impact on economic activity Significant setback to market would have very negative effect on overall economy Activity is justified by the ‘fundamentals’ Risk of significant setback low, but not immaterial Policy imperative to create other sustainable activities!

ANY QUESTIONS