Reassurance on debt prompts optimism

Analysis: The Wealth of the Nation report released yesterday "paints an upbeat picture", according to its publishers, Bank of Ireland Private Banking.

The interpretation depends on how you feel about the thought that there are 30,000 millionaires in the State, most of them employing "wealth managers" to help slash their annual tax bills.

The report's optimism centres on its dismissal of the idea that Irish people are immersing themselves in too much debt, too quickly. Fears about rising debt in the Irish economy have been overstated, the bank says. (The Bank of Ireland group is the State's biggest mortgage lender.)

In 2005, debt in the Republic reached 140 per cent of disposable income: for every €1 Irish people earned, they owed €1.40.

This puts us on a par with the US and Portugal. Denmark, the Netherlands, Australia and Britain all happily have higher debt-to-disposable-income ratios than the Republic. However, Sweden, Spain, Germany, Austria, France, Finland, Belgium and Italy don't.

With cranes dominating urban skylines and growing legions of people woken up at 8am on Saturdays by the sound of diggers working overtime to catch up with demand, it will come as little shock that most Irish wealth takes the shape of bricks and mortar - over 70 per cent.

Even when rising levels of household debt are taken into account, net wealth in the Irish economy grew by 350 per cent between 1995 and 2005.

House prices grew by 270 per cent over roughly the same period, according to a recent 10- year review of the property market by PermanentTSB and the Economic and Social Research Institute (ESRI), confirming that the story of Irish wealth over the last decade is largely the tale of a property boom.

So how will the story end? The level of wealth provides "an enormous cushion" to borrowers, despite the fast-paced growth in debt, according to report author, Pat O'Sullivan. On that analysis, even if the property market has a harder landing than expected, established homeowners, at least, will be somewhat protected.

And as Ireland's first-generational wealth matures, people will seek to protect gains and transfer wealth to the next generation, the bank says. Pensions and other investment funds may suddenly start to seem exciting.

This is the second report from a financial institution in recent weeks to draw attention to "the other side of the balance sheet".

The In Too Deep? report by IIB Bank and the ESRI pointed to the €500 billion of housing assets on which most consumer debt is secured, stressing the value of consumers' property assets and deposit accounts exceeds their debts by around €440 billion.

Both lenders are effectively rejecting the occasional messages of caution and doom that emit from the Central Bank. Its next line of dialogue on the Irish economy is scheduled for tomorrow, when it publishes its annual report for 2005.