Economic & Investment UpdateGK Wealth Management Limited

Jim Power

Chief Economist, Friends First

April 30th 2008

The Global Background

US in recession UK has slowed sharply Euro Zone still robust, but signs of slowing China & the Emerging World doing well Balance of economic power continues to shift Sub-Prime still casting dark shadow & legacy

will last

Sub-Prime Crisis

‘Bankers Behaving Badly’ Losses still unfolding $1 tn estimate Undermining economic confidence Serious impact on credit availability &

financial market liquidity Legacy will last A major financial crisis!

US Economy

Consumer confidence very weak Manufacturing & Service activity contracting 232’000 jobs lost in Q1 Housing market in strong decline Equity market falling since beginning of year Economy in recession US at eye of sub-prime crisis

US Unemployment Rate

3

3.5

4

4.5

5

5.5

6

6.5Ja

n-0

0

Jan

-01

Jan

-02

Jan

-03

Jan

-04

Jan

-05

Jan

-06

Jan

-07

Jan

-08

%

US House Prices (Case-Shiller)

100

150

200

250

300Ja

n-0

0

Ja

n-0

1

Ja

n-0

2

Ja

n-0

3

Ja

n-0

4

Ja

n-0

5

Ja

n-0

6

Ja

n-0

7

Ja

n-0

8

MIAMI NEW YORK TOTAL

UK Economy

Housing market under serious pressure;RICS-78.5%

Tighter mortgage credit Labour market strong, but incomes being

squeezed Low levels of saving Economy now very vulnerable

UK Halifax House Price Index

200250300350400450500550600650700

Jan

-00

Jan

-01

Jan

-02

Jan

-03

Jan

-04

Jan

-05

Jan

-06

Jan

-07

Jan

-08

Euro Zone

Economic background solid Good consumer dynamics Strong Euro/US/Interest Rates/Oil risk factors France & Germany good but Italy & Spain

very vulnerable Households do not have imbalances that US

& UK have

Global Growth Forecast

2006 2007e 2008f

US 2.9% 2.2% 0.5%

Euro Zone 2.9% 2.6% 1.5%

Germany 2.9% 2.5% 1.8%

UK 2.9% 3.1% 1.6%

Japan 2.4% 2.1% 1.4%

Global 5.0% 4.9% 3.5%

Economic Risks

Sub Prime legacy Record oil prices & still rising Weakening housing markets -UK, US, Ireland,

Spain Currency volatility Equity market turmoil Significantly slower global growth in 2008 Much more challenging climate

Interest Rate Outlook

Global background has altered significantly over past year

BoE -0.75% & Federal Reserve -3% since Sept. ‘07 - both will ease further

ECB monitoring situation, worried about inflation, but economic arguments should eventually win out - but not for the moment

Global bias will remain downwards Interest rate activities reflect the dangerous global

financial situation

Exchange Rates

Dollar under considerable pressure Interest rates, growth, finnacial

imbalances,sub-prime lending, structural shifts etc

Not a lot of reasons to buy $ Sterling under pressure also - not too many

reasons to buy £ $ & £ likely to weaken further

USD/Euro Exchange Rate

1

1.1

1.2

1.3

1.4

1.5

1.6

1.7

01/0

1/20

04

01/0

4/20

04

01/0

7/20

04

01/1

0/20

04

01/0

1/20

05

01/0

4/20

05

01/0

7/20

05

01/1

0/20

05

01/0

1/20

06

01/0

4/20

06

01/0

7/20

06

01/1

0/20

06

01/0

1/20

07

01/0

4/20

07

01/0

7/20

07

01/1

0/20

07

01/0

1/20

08

01/0

4/20

08

Sterling/Euro Exchange Rate

0.6

0.65

0.7

0.75

0.8

0.85

02/0

1/20

04

02/0

4/20

04

02/0

7/20

04

02/1

0/20

04

02/0

1/20

05

02/0

4/20

05

02/0

7/20

05

02/1

0/20

05

02/0

1/20

06

02/0

4/20

06

02/0

7/20

06

02/1

0/20

06

02/0

1/20

07

02/0

4/20

07

02/0

7/20

07

02/1

0/20

07

02/0

1/20

08

02/0

4/20

08

Equity Markets Jan 1st-April 28th 2008

NASDAQ -14.9%

S&P 500 -11.4%

FTSE 100 -11.5%

GERMAN DAX -14.0%

FRENCH CAC -10.7%

NIKKEI -9.5%

IRISH ISEQ -9.8%

HANG SENG -11.9%

Equity Markets

Market sentiment has deteriorated sharply Sub-prime problems the key issue More uncertain global economic outlook International volatility & uncertainty to continue Irish market has gone through a crisis of

confidence - recovery will be difficult Turmoil symptomatic of economic & financial

strain - will require further official action

FTSE 100

3000

3500

4000

4500

5000

5500

6000

6500

7000

Dow Jones Industrial Average

6000

7000

80009000

10000

11000

1200013000

14000

15000

ISEQ

0

2000

4000

6000

8000

10000

12000

The Irish Economy in 2007

Consumer sentiment weakened,spending held up well, but weaker in Q4

Business confidence reasonable, but some warning signs

Retail sales, exports & manufacturing robust Housing the key area of weakness Higher level of uncertainty than for some time

The Irish Economy in 2008

Consumer spending easing sharply Construction contribution will ease due to lower housing

starts Export sector will be challenged by exchange rates & cost

competitiveness Less certain employment outlook Inflation pushed by food, energy & mortgage rates Easing of growth inevitable GDP 2.0% in 2008 An economy in transition-adjustment painful, but

worthwhile

The Irish Housing Market Outlook

Affordability improving Demand fundamentals still solid & industry

supply response positive 78,027 completions in 2007, 48,000 in 2008 &

2009, 50,000 medium-term demand? Prices could fall 10% in 2008 Challenging environment 2008 & 2009 Market adjustment has further to run as ‘stand-off’

not yet over

What are the Pressure Points for Ireland?

Globalisation Lost competitiveness External economics Exchange rate developments Over-reliance on construction Wage agreement - has to be low Taxation v Spending Serious shortcomings in economy Greater focus on regional balance

Investment Summary

Global background difficult Lots of bad news built into equity markets Strong policy response will eventually work Mixed outlook for global property Global balance of power shifting to emerging

markets Economic & investment cycles are called

cycles because they cycle

ANY QUESTIONS?