Economy in good health - with risks, agency says
THE Irish economy is less vulnerable to an economic slowdown than a decade ago, but concerns remain that it is at risk of overheating, according to a leading global credit rating agency.
Yesterday DBRS said the strong growth in property prices, led by dramatic price rises in Dublin and other city centres, "resembles the pattern" in the run-up to the last financial crisis, but differs significantly from the earlier property boom.
"Property dynamics are very different than 10 years ago," said DBRS, in a note titled 'Hot Irish Economy'.
"Despite similar growth rates, the residential property price index remains 20pc below its 2007 peak. Unlike the pre-crisis period," the report said.
"Activity has not been fuelled by rapid credit growth or releveraging of households."
DBRS said that while the Irish labour market appears as tight now as it was in 2007, the composition of employment growth is also less vulnerable to an economic slowdown.
"Recently, employment growth has been strongest in higher-skilled sectors like professional services, science and technology and information, technology and communication," said DBRS.
The agency added that strong employment growth in these sectors tends to make the Irish labour market more resilient to economic downturns. The note records that while reported real GDP in Ireland grew above 9pc a year since 2013, the national accounts are distorted by the presence of large, foreign-owned multi national companies (MNCs).
But the agency says that despite these distortions, which led to a new measure last year - modified gross national income (GNI) - alternative measures still point to robust economic growth.
DBRS says that the structure of the economy makes it difficult to measure both economic growth and output potential accurately, in turn making it harder to gauge economic overheating.
DBRS said that while key labour and real estate indicators are raising overheating concerns, its baseline is that economic growth will gradually slow towards potential growth.
"While the evidence for economic overheating is less convincing today than a decade ago, the current environment is not without domestic risks to the Irish economy," said the agency.
"An extended period of strong economic expansion that is well above the measures of growth potential, and in a context of a positive output gap, could reignite the boom-bust dynamic that has previously beset the Irish economy," it warned.
"So far, inflation remains subdued - but more rapidly rising wages, house prices and inflation would be signs of an emerging problem."