Friday 27 April 2018

Private debt levels 'dangerously high', Neri director warns

Tom Healy, Director of NERI, the Nevin Economic Reseach Institute
Tom Healy, Director of NERI, the Nevin Economic Reseach Institute
Colm Kelpie

Colm Kelpie

The level of private debt in Ireland is "dangerously high" as economic growth is inevitably going to slow down, the director of the Nevin Economic and Research Institute (Neri) has warned.

Tom Healy said economists and politicians are obsessed with government debt, but the real problem is both personal and private debt.

"The Republic of Ireland stands out as having the third highest level of personal or household debt among the European Union countries," Mr Healy wrote in his weekly blog.

"The level of personal or household debt as a percentage of disposable household income was in excess of 200pc in 2014 according to OECD figures. This contrasts with a ratio of government debt to GDP of under 100pc last year."

Mr Healy pointed to figures released by the Central Bank in the third quarter of 2015 showing private debt, which encompasses both households and businesses combined, came to 258pc of the value of the economy. "Dangerously high considering that economic activity is bound to slow down some time in the not too distant future," he added.

Private debt, he said, is also concentrated among the poorest households.

Pointing to an analysis of the Tasc think tank, Mr Healy said in 2013, 37pc of the total value of debt was concentrated in the poorest of households. Ireland was 12th out of 24 countries ranked by the OECD for household debt in 2001, moving to third place behind Denmark and the Netherlands and ahead of Norway by the time of the global financial crisis.

And yet, Mr Healy said, although Denmark and the Netherlands had high and unsustainable levels of personal debt, various factors prevented a crash from happening akin to that of Ireland's, including potentially better economic management. "Of course, the real tragedy of the period 2008-2011 was that capitalism was not allowed to function in particular ways involving write-downs for major investors that had unwisely over lent to financial institutions," he said.

"Instead, senior bondholders walked away courtesy of European and especially Irish taxpayers while millions suffered through foreclosures, business liquidations or evictions from homes."

Meanwhile, a separate report from the think-tank on the implications of a Brexit on Northern Ireland concluded that it would disrupt the development of the all-island economy, which has already "failed to live up to the expectations set out in the Good Friday Agreement".

The paper, which was published ahead of a debate in Queen's University tonight, said leaving the EU would put a strain on Northern Ireland's public finances through a loss of CAP and structural funds.

"The attractiveness of Northern Ireland as a destination for Foreign Direct Investment and the sustainability of the All-island economy also pose unique challenges for Northern Ireland in the event of a Brexit."

Irish Independent

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