Irish household debt falling faster than in any other EU country

Irish households remain the fourth most indebted in the EU, but household debt as a proportion of income has fallen more than any other EU country in recent years.

According to data from the Central Bank, between the fourth quarter of 2012 and the fourth quarter of 2016 the ratio of Irish household debt to disposable income fell from 193.9 per cent to 140.9 per cent, a decline of 53 percentage points. This is believed to be attributable to increasing housing asset values. Despite this, Irish net worth remains 9 per cent lower than at its peak in the second quarter of 2007.

In contrast to Ireland’s household debt, euro zone household debt dropped by 3.3 percentage points over the same period.

Households continued to be a net lender in last three months of 2016, investing in financial assets and paying down financial liabilities. Investment in financial assets rose to €1.7 billion in the period, while investment in currency and deposits fell by €100 million. According to the bank, that decline was “more than offset by an increase in transactions in shares and other equity, and insurance technical reserves.”

More than €127m of government bonds outstanding

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Government debt falls

As household debt declined, so too did government debt, which fell €4.8 billion to €240.3 billion in the fourth quarter of 2016. That decrease is a result of net redemptions of debt securities and a decrease in the value of outstanding debt securities, according to the Central Bank.

Additionally, government net financial wealth pushed up slightly, by €1.5 billion. This is said to be on the back of a reduction in total government financial liabilities, which offset a fall in government financial assets. A decrease in holdings of deposits was the main driver of the fall in government assets.

On the opposite side of the scale was private-sector debt as a proportion of GDP, which rose 7.6 per cent over the quarter. An increase in the stock of nonfinancial corporation loans of €21.9 billion is the cause of the increase in private-sector debt. The Central Bank notes that private-sector debt in Ireland is significantly influenced by large multinational corporations and that restructuring by these entities has resulted in extremely large movement in Irish private-sector debt.

In the last three months of 2016 Ireland’s domestic economy was a net borrower for the first time since the fourth quarter in 2015. Net borrowing for the period amounted to €200 million. However, financial corporations continued to reduce their position as net borrowers and hit the lowest level since the first quarter of 2014.