Central Bank predicts soft landing for housing
CENTRAL Bank chief John Hurley yesterday added his voice to the ranks of those predicting a soft landing for the Irish housing market.
He said that looking at the market as a whole, he expected "low single-digit growth" for the year.
While prices rose by 12pc last year, they dropped in the first months of 2007 for the first time in five years.
Mr Hurley attributed the slowdown in house prices to the ECB's eight interest-rate increases since late 2005, which he said have curbed demand for property after a fourfold increase in prices over the past decade.
Addressing delegates at a conference in Dublin's Morrison Hotel, Mr Hurley said that the crucial issues for Ireland remain the maintenance of a high level of living standards, ensuring the continuing competitiveness of the economy and adjusting to shocks originating outside the euro area.
Ireland's economy and living standards have converged on those of the most advanced countries, he said, adding that there is a widespread belief that lower productivity growth will lead to a slower growth in output.
He said that this raises the prospect of inflation and that the social partners have a role in ensuring that pay increases take due account of productivity developments.
"Policies that promote competition, continue the development of the country's infrastructure, and that provide a framework that fosters research and development, innovation and entrepreneurship are all important for limiting inflationary pressures," he said.
On the performance of the economy Mr Hurley was optimistic, pointing out that the euro area economy has gone from strength to strength over the past 18 months.
"The economy expanded at its fastest pace for six years in 2006, and the medium-term outlook for growth remains favourable.
"The information we have for the first quarter of 2007 suggests that growth remained healthy.
"Looking ahead, the conditions are still in place for the euro area economy to grow solidly," he said, adding that external demand, while moderating, should still provide some support, while domestic demand seems set to maintain good momentum.
On the question of shocks originating from outside the euro area, he said the resilience of the economy depends on the capacity of both the product and labour markets to be flexible.
He said the key challenges are to maintain competitiveness so as to protect and sustain living standards and to deal with the effects of any asymmetric shocks hitting the euro area.
"In that regard, it will be necessary to continue to have flexible labour and product markets."