Households cutting debt and adding to savings faster than anywhere in Europe
Squeeze on families to continue, says Central Bank report
0.2pc: the amount the Central Bank estimates wages will increase this year
IRISH households have cut their debt and increased their savings faster than anywhere else in the EU.
But the squeeze on incomes means the average family's financial position has improved only slightly, research from the Central Bank finds.
The big squeeze will continue this year, the bank says in its latest quarterly report. "Higher international oil prices and other Budget measures such as higher carbon taxes and education costs, will further erode real purchasing power this year," it says.
Wages will continue to be subdued. The bank estimates that pay per employee will increase by just 0.2pc this year, and by 0.6pc in 2013.
"It is noteworthy that the 1.4 pc year-on-year decline in average hourly earnings in the private sector during the final quarter of 2011 represented the single largest such decline since these statistics began in 2008," the report says.
As a result of these trends, the bank expects personal spending to fall again this year, by 1.5pc, and total domestic spending and investment to continue to contract in both 2012 and 2013.
"For this year, available indicators for the housing sector suggest further declines in output, with completions expected to fall to approximately 8,000 units -- a historic low. Output of new houses is anticipated to remain at around this level next year. The majority of new residential units will be one-off houses with very little developer activity in the pipeline," it says.
Real incomes will get some support from lower inflation. The bank expects consumer costs to rise just 1.2pc this year, helped by many firms not passing on the full increase in VAT announced in the Budget.
The bank left its forecasts for the whole economy unchanged, expecting a 0.5pc increase in output of goods and services (GDP), although national income (GNP) may decline by 0.7pc. GNP has been hit by heavy financial outflows, mainly from foreign-owned firms.
Net outflows were 65pc higher in the final quarter of 2011, giving an average annual increase of 17.3pc for the year as a whole. The bank expects smaller outflows this year, allowing the country's surplus in its dealings with the rest of the world to widen from last years' 0.1pc of GNP in 2011to around 1.1pc in 2012 and to 2.5pc of GNP in 2013.
Although the growth forecast is lower than that made by the Government at Budget time last December, the bank does not think further corrections will be needed in a "mini-Budget" this year.
Although output will be less than forecast in the Budget, its cash value -- which is used in the public finances -- will be higher than expected. This week's March Exchequer returns came out too late for the report but supported the bank's view that 2012 budgetary targets will be met. The bank's analysis says Irish households suffered the highest decline in net worth as a proportion of disposable income as a result of the crash.
"Prior to the financial crisis, Irish households were the third wealthiest in our sample of 14 countries when measured as a proportion of disposable income. By 2010, they had fallen to the seventh wealthiest," it says.