Ireland's Demographics Point to a Strong Consumer Cycle Through 2021

Today we highlight the demographic landscape of Ireland, a country we believe will continue to recover from the global economic downturn despite the negative press about its economy, unemployment touching 11.4 percent in April, and forecasts that the country's 2009 GDP may decrease by more than 8 percent.

Without a doubt the current recovery will take time to shed the excesses of the previous boom; However, the Irish luck has not deserted them. Why? It has one of the strongest demographic landscapes within Europe. Irish births peaked in 1981 at 72,800, which should allow its consumer spending cycle to remain positive until 2021 (peak births 1981 plus 40 years).

The New Ireland Fund ETF (IRL) is currently trading at $8.42 versus its 2007 high of nearly $38. The shares fell nearly 92 percent from its 2007 high to its March 2009 low of $3.2, as investors priced in the next "Iceland." It is up 163 percent since the March lows versus the S&P Global ETF (IOO) return of 61.9 percent. While the shares have performed very strongly on a relative basis against the S&P Global index, it needs to be noted that two stocks–CRH and Ryan Air (RYAAY)–make up nearly 31 percent of the fund.

Economic Background: 14th in Forbes 2009 Best Countries for Business:

Ireland is a small, modern, trade-dependent economy. GDP growth averaged 6% in 1995-2007, but economic activity dropped sharply in 2008 and Ireland entered into a recession for the first time in more than a decade with the onset of the world financial crisis and subsequent severe slowdown in the property and construction markets. Agriculture, once the most important sector, is now dwarfed by industry and services. Although the export sector, dominated by foreign multinationals, remains a key component of Ireland's economy, construction most recently fueled economic growth along with strong consumer spending and business investment.

Property prices rose more rapidly in Ireland in the decade up to 2006 than in any other developed world economy. Per capita GDP also surged during Ireland's high-growth years, and in 2007 surpassed that of the United States. The Irish Government has implemented a series of national economic programs designed to curb price and wage inflation, invest in infrastructure, increase labor force skills, and promote foreign investment. In 2008 the COWEN government moved to guarantee all bank deposits, recapitalize the banking system, and establish partly-public venture capital funds in response to the country's economic downturn. Ireland joined in circulating the euro on 1 January 2002 along with 11 other EU nations.

Demographic Landscape:

Irish Population

2009 Population 4,455,920

2025 Estimated Population 5,275,290 (Growth 18.4%)

Irish Generations

Generation X–1965 to 1984: 1,285,000

Generation Y–1985 to 2004: 1,109,000 (Decline 13.7%)

Generation Z–2005 to 2024 (Est.): 1,306,500 (Growth 17.8%)

Generation Blend–2025 to 2044 (Est.): 1,235,500 (Decline 5.4%)

Population over 65

Next year 11.5 percent of the Irish population will be over 65 years of age, and this is set to rise to 21.2 percent by 2044. In comparison Japan, the highest ratio in the developed world, is 22.5 percent rising to 36.4 percent by 2044.

Ireland's birth numbers peaked in 1981 at 72,800 versus a 2010 estimate of 68,400 (a fall of 6.0 percent). The number of children per women has fallen from 4.0 in 1965 to 1.9 and is forecast to fall slightly to 1.8 by 2044.


2025 Ireland Population Pyramid

Source: UN 2007 and Insitut National d'Etudes Demographiques

The New Ireland Fund (IRL) relative to the S&P Global ETF (IOO)

The share price history of the New Ireland Fund has been of Boom, Bust and the Boom again, Bust and then?

New Ireland Fund Fund (IRL) ETF Sector Breakdown:

The fund is broken down using different sectors to the S&P 500 Global ETF, making direct comparison is difficult. The top ten holdings show the fund is heavily weighted towards two stocks: CRH (construction and building materials) and Ryanair (transportation).

click to enlarge



Disclosure: No positions

Comments

[chap08:]

I like Ireland, but you need a bit more than demographics to make an economy work. Think the US had a housing bubble? Check out the bigger one in Ireland. They have our debt / deflationary problems, but multiplied up some.

The interesting twist is the currency. As a nation, we are in charge of our own currency and can devalue it, more or less at will. You may have noticed someone trying to do just that. Ireland do not control their own currency. They are at the mercy of people in Frankfurt who tend to like a strong currency. It will be interesting to see what happens but, regrettably, my expectation is that they will struggle badly for years.

p.s. interesting to see that the births per woman has fallen to 1.9 - I hope the Catholic church don't get to hear about that.

Sep 18 04:35 PM

[CLH:]

Compared to rest of Europe Ireland is a winner. Low taxes and better birth rate means they will continue to do well.

Sep 19 04:28 PM

[jwarreni:]

I see that IRL has declared an extra dividend of $2.76 plus a regular .33 payable on 1-21-10. Does anyone know what that is all about????

Sep 22 05:09 PM

[Senan:]

As an Irishman I can tell you it doesn't feel to optimistic on this side of the water. As chap08 says, the traditional method of dragging yourself out of a slump might be to devalue your currency to make your exports more attractive, but we cannot do that. The tax issue is also something that's currently under debate. On October 2nd we go to the polls to vote on the Lisbon treaty. Some say voting yes to this (resulting in further embeddment within the EU) will dilute our chances of keeping the low corporation tax rate.

Sep 25 03:32 AM

[Beacon Asse...:]

Closed-end funds can generally avoid tax at the fund level by distributing at least 90% of their annual income and capital gains to shareholders in the year it is earned.

However many funds were reluctant to sell portfolio holdings in late 2008 because of the weak market to make these distributions. The Internal Revenue Service granted them leeway to avoid forcing them to sell .

So many funds limited their cash distributions in 2008, including the New Ireland Fund. Their recent announced 'bumper' dividend reflects this.

The link explaining this is below

online.wsj.com/article...

On Sep 22 05:09 PM jwarreni wrote:

> I see that IRL has declared an extra dividend of $2.76 plus a regular
> .33 payable on 1-21-10. Does anyone know what that is all about????

Sep 28 10:15 AM

[realpaddypo...:]

It seems that Beacon Asset Managers are really clutching at straws here, having found "the One" statistic of demographics that might compare well with other countries.

So lets all go out and buy some Ireland funds!!!

Never forget the talent of Irelands great literary figures! In this case fiction!

Sadly, the truth is Ireland is in for a decade or more of economic paralysis.

This comes after years of a boom based mostly on a construction bubble which was patronized by Government ministers who liked sharing the same bed or racecourse (so to speak) as the property developers.

From corrupt land re-zoning in 70's and 80's, to turning Irelands residential housing stock into an investment vehicle with excessive tax breaks for developers and investors, which created a feeding frenzy of speculation in 90's and 2000's, and uncontrolled and sometimes corrupt lending practices by the banks as the regulators slept at the wheel.

The morally corrupt Irish government has failed nearly completely to consolidate any gains made during the Celtic Tiger years.

Also, no mention of Irelands zombie banks, massive out-of-control government current account deficit, small illiquid and cozy stockmarket which is run like a fraternity, unemployment hitting 15%, and a new wave of residential mortgage defaults, personal loans and credit card defaults that will begin to happen shortly.

Contrary to this article consumer spending will be in the doldrums for a decade as the Irish sort out their negative equity, government spending, NAMA the bad bank etc..

and what will happen when Interest rate cycle returns in 2011, 2012 at latest?????

What will rising interest rates do to disposable income???

With no ability to devalue the accumulated debt true currency devaluation as Ireland is tied to Euro, the future in certainly not bright.

For anybody reading this article , who has the risk appetite for an ireland fund then I would suggest for smaller risk there lies much greater rewards in some of the asian funds, vietnam, south korea and of course china.

By the way, I love Ireland ,but not as a place to invest my money, I have transferred most of my money out of Ireland and out of dollar investments.

I believe Irelands Story will become a classic case study in Business schools throughout the world in how poor management, poor governance, a cosy form capitalism and lack of principles and morals in a complicit and shameless professional class, and a compromised media can result in the destruction of a countries economy for decades.
D.

Oct 08 04:48 PM