Household debt falls as government debt rises

Household debt continued to decline during the second quarter of this year, but government debt continued to increase, according to figures released yesterday.

Quarterly financial accounts released by the Central Bank showed household indebtedness declined to €178.5 billion, or €38,938 per capita.

This represents the lowest level of household debt since the first quarter of 2007. Household debt has declined, in total, by €25.2 billion, or 12.4 per cent, since its peak of €203.8 billion in 2008.

The level of household debt compared with disposable income, which is an indicator of debt sustainability, also declined during the second quarter of this year.

It now stands at 209.3 per cent. The decrease reflected the continued fall in household debt as well as, to a lesser extent, a slight increase in household disposable income, according to the statistics.

Household disposable income has been on an upward trend since the first quarter of this year, according to the bank.

The decrease in debt to disposable income is the third decline in the ratio from its peak of 218.4 per cent in the third quarter of 2011.

The declining value of property continued to affect net household worth. It fell during the second quarter of this year to €446.4 billion, or €97,392 per capita. Household net worth fell by 1.2 per cent over the previous quarter and has fallen by 37.7 per cent since the second quarter of 2007.

Private sector debt, which includes non-financial corporate debt, increased by 5 percentage points when compared with the previous quarter, to stand at 316 per cent of gross domestic product.

The “elevated levels” of non-financial corporate debt are partly due to multinational activities in Ireland, according to the Central Bank.

Government liabilities increased during the second quarter to €192.7 billion, their highest level to date. The increase was €6 billion in money terms, or 3.2 per cent.

During the quarter Ireland received €5.2 billion in funding under the EU/IMF programme, and also issued some securities. The quarter was the first since the third quarter of 2010 during which Ireland issued government securities, and the value of issues, minus redemptions, was €3.4 billion.

The government deficit also increased. It went to €5.1 billion from €4.7 billion.

When capital transfers are excluded, the government deficit measured as a four quarter moving average, stood at €3.4 billion, up from €3 billion in the previous quarter.

Since 2009, the State has injected €63 billion into the banking sector, of which €42.4 billion has been treated as deficit-increasing capital transfer.