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Household debt shrinks to 2003 levels but economic risk remains

Household debt shrinks to 2003 levels but economic risk remains

Even though household and company debt remain high by international standards, they have fallen sharply and may now be in line with the underlying fundamentals of the economy, according to the Department of Finance.

Yesterday’s report did warn that in the event of a downturn the high debt levels could pose a risk to the economy and said debt ratios would remain above European Union risk levels to 2023.

But overall, the picture was one in which borrowing by firms and individuals was consistent with economic growth and income levels.

“After nearly a decade of deleveraging, household debt is on a much more sustainable path,” the department said.

“Using these benchmarks, it appears that Irish debt may in fact be in line with levels predicted by the economy’s underlying fundamentals.”

Household debt has fallen to levels not seen since 2003, well before the economic crisis, at 126pc of disposable income after having peaked following a property and mortgage-fuelled boom that saw the ratio hit a peak of 212pc of disposable income in 2009.

Even so, the ratio is the fourth-highest in the EU and the sixth-highest on a per capita basis, at €29,000 per person. Overall, the core ratio of private debt was 172pc of GNI* (a measure of economic output in Ireland that strips out distortions in the economy) in 2017 with households at 77pc and ‘core’ corporate debt at 95pc of the measure which strips out distortions from the economy.

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