Irish growth: one anomaly solved?
Blue: total credit
Green: nominal GDP
Red: real expenditure (equals real GDP)
In a previous post about the remarkable pattern of recent Irish growth I stated pointed to the factthat that domestic credit decreased while nominal GDP increases at a double digit rate and I suggested that the Irish might be borrowing abroad. In the comments, Marko links to the ‘Fred’ graph above, which (based on data from BIS, the Bank of International Settlements) shows that total credit to the private sector, including foreign credit, indeed is increasing. Which means that the Irish are, on the micro level, becoming indebted to foreign banks. Which, even when Ireland would not be a net international debtor on the macro level (which it however is), can spell trouble in case of any kind of a ‘sudden stop’ of the flow of credit. Anyway – looking at total credit shows a more ‘logical’ pattern than just looking at domestic credit (the very high increases of credit before 2010 were caused by the house price boom, money is not just used for ‘GDP’ purchases, i.e. new services and goods, but also for purchases of existing assets, i.e. houses and when house prices increase total lending can be quite a bit higher than the increase of nominal GDP). Aside – the graph also shows the deflation of the Irish economy in 2008-2010.