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Surviving the Housing Slump: Prospects for the Irish Economy

Surviving the Housing Slump: Prospects for the Irish Economy. Alan Ahearne NUI Galway Presentation to the Fine Gael Parliamentary Party 12 September 2007. Rapid catch-up, though gap remains in services sector. House prices dropping…. Nominal house prices (month-to-month % change).

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Surviving the Housing Slump: Prospects for the Irish Economy

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  1. Surviving the Housing Slump: Prospects for the Irish Economy Alan Ahearne NUI Galway Presentation to the Fine Gael Parliamentary Party 12 September 2007 National University of Ireland, Galway

  2. Rapid catch-up, though gap remains in services sector National University of Ireland, Galway

  3. House prices dropping… Nominal house prices (month-to-month % change) Source: Permanent TSB/ESRI National University of Ireland, Galway

  4. …following a typical boom-bust pattern National University of Ireland, Galway

  5. Measures suggest housing is overvalued by about 20 per cent Rental yield Source: Own calculations based on CSO and Permanent TSB/ESRI data National University of Ireland, Galway

  6. Completions still running at heady pace… House completions (annual rate) Source: Department of the Environment, Heritage and Local Government National University of Ireland, Galway

  7. …adding to the stock of unsold houses • Sellers will need to slash prices to shift houses. • Global credit crisis not positive for housing market. National University of Ireland, Galway

  8. Economy will be vulnerable during adjustment • EMU membership reduces likelihood of an outright crisis… • …but adjustment could last for a prolonged period. National University of Ireland, Galway

  9. Residential investment set to plunge Housing starts (annual rate, s.a.) Source: Davy National University of Ireland, Galway

  10. Share of GDP (%, 2006) National University of Ireland, Galway

  11. Contribution to GDP growth (%) Source: Data for 2005 and 2006 from CSO. e: estimates for 2007 from ESRI QEC Summer 2007 National University of Ireland, Galway

  12. Personal consumption expected to moderate… • Slower employment growth. • Reduced inward migration. • Deterioration in consumer sentiment. • Post-SSIA payback. National University of Ireland, Galway

  13. Expansionary budgetary policy can partly fill the gap • Budgetary policy too loose over recent years. • Now is not the time for a sharp tightening. National University of Ireland, Galway

  14. Focus on restoring export-led growth… • Greater attention to competitiveness required: • Short-term: Wage growth. • Medium-term: Services sector and innovation. National University of Ireland, Galway

  15. Competitiveness hurt by high inflation and sluggish productivity National University of Ireland, Galway

  16. Global economic environment may turn sour • US recession a significant risk. • Dollar likely to drop further. National University of Ireland, Galway

  17. Conclusions • Housing slump will not be short-lived. • Entering a period of heightened vulnerability. • Growth slowdown will bring new challenges • Need to build “social bridges” National University of Ireland, Galway

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