Home > Uncategorized > The Irish boom: fuelled by houses, again?

The Irish boom: fuelled by houses, again?

The Irish economy is booming. GDP increased with 6,7% year on year while, due to a net outflow of ‘factor incomes’ (read: profits) GNP (the income of the Irish) increased with 5,3%. The boom is not fired by exports: over the same period net exports declined with 177 million. It is a domestic, investment led boom: investments increased with a whopping 34,2%. Employment is up with 3%. And retail sales, especially of cars but also of other items, are booming, too.

The boom is puzzling, as the exemplary Financial Statistics Summary Chart Pack of the Irish Central Bank shows that households and non-financial companies are still deleveraging: total debt of these sectors declined with an (again) whopping 11%. So, where did the money come from to increase investments with that much (as well as to finance a double digit increase in house prices and to finance a boom in car sales)?

Part of the answer is: from the UK. A lot of english as well as chinese seem to buy Irish property. The capital balance indeed shows an extreme inflow of foreign direct investment into Ireland, especially in the first but also in the second quarter of 2015 – though this flow is somehow mirrored by an outflow of ‘portfolio investment’ (shares and the like) which is almost as large. It is almost as if foreign investors traded Irish shares for Irish houses (which, though about 1/3 cheaper than during the boom, are still not a bargain, according to me). Does anybody have opinions about this?

  1. October 2, 2015 at 10:40 am

    It is all down to an exports boom on the back of growth in the UK and the US. Growth in the UK is reliant on a property bubble. Add to that the fact that all the Irish aggregates are taking off from an extremely low level and you can explain the growth. I would imagine that ceteris paribus this growth will slow substantially as lift-off is achieved. However, if there is a shock to US and/or UK growth the Irish recovery will falter.

  2. JdeV
    October 3, 2015 at 10:41 am

    Per the Irish Independent article I’d be interested to see more detail regarding the number of Uk irish/of Irish origin buying property with a view to return, I guess this could be a significant factor when considering “english” purchases ?
    The deleveraging of household debt seems remarkable too certainly by comparison with Uk households.

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