Business Irish

Thursday 26 April 2018

OECD warns of danger of new property price boom

OECD Chief Economist Catherine Mann
OECD Chief Economist Catherine Mann
Colm Kelpie

Colm Kelpie

A strong rise in property prices may boost construction activity in the short-term, but risks a return to another credit-filled property boom, an international think-tank has warned.

In its latest global economic assessment, the Organisation for Economic Cooperation and Development (OECD) said the Irish economy will grow robustly but said the risks remain "significant".

High debt levels leave the country particularly vulnerable to the emergence of another crisis, it said.

And the Paris-based think-tank suggested the hike in property prices could spell trouble in the long-term.

"Strong property price rises may boost construction activity further in the short run but also risk sparking another spiral of higher property prices and credit," the report said.

The OECD said the economy here is set to grow by 5.6pc this year - faster than the 5pc rate forecast as recently as September.

The body pointed out that while the deficit is set to fall to 2.1pc of Gross Domestic Product (GDP) - well within the target of just below 3pc - debt levels are falling much more gradually.

"Under current plans, public debt should decline only gradually relative to GDP and remain at high levels," the OECD said.

"Thus, any windfall fiscal gains should be primarily used for more rapid debt reduction."

The body also gave broad backing to the Budget, saying it should help get more people back into work.

"The planned tax cuts and increase in benefits should also aim at reducing high marginal effective tax rates at low income levels, as this will encourage work and raise the incomes of the poor," it said.

The body said the Government's capital plan will revitalise public transport, infrastructure and services.

But, on a global basis, it warned that a further sharp downturn in emerging market economies and world trade has weakened global growth.

And global trade flows have fallen dangerously close to levels usually associated with a global recession, although actions taken by China and others should ensure a pick-up in 2016,

By contrast with Ireland where it increased its forecasts, the OECD cut its 2015 growth prediction to 2.9pc from the 3pc it forecast in September in its bi-annual economic outlook.

It has repeatedly cut its 2015 growth outlook from the 3.7pc it initially forecast last November.

The OECD said the US Federal Reserve should nevertheless go ahead with its first rate hike since the financial crisis as a recovery gains steam in the United States and Europe, despite a slowdown mostly centred on emerging markets and China.

It said global trade would grow by only 2pc this year, a level it has fallen to only five times in the past five decades and that coincided with downturns: 1975, 1982-83, 2001 and 2009.

"This is deeply concerning," OECD chief economist Catherine Mann said in the introduction to the report.

"World trade has been a bellwether for global output."

But the organisation said it expected global output growth to pick up to 3.3pc next year helped by stimulus measures in China.

"Policy actions are already being implemented that will help to address the weak underlying trends," Ms Mann said. (Additional reporting by Reuters)

Irish Independent

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