Private sector credit growth steady

By Brian O'Mahony

In the year to the end of April the annual adjusted private sector credit figure was marginally lower at 15.8%, fractionally below the end of March figure of 16%.

The stand-out statistic is the residential mortgage figure, which remained unchanged from the end of March at 23.6%.

According to the figures, the amount leant for house purchase was 850m, down about 50m from the figure in March, but still consistent with figures for the past several months.

Total lending by credit institutions in Ireland to the private sector in the 12 months to end April 2003 rose by 1.4 billion to 146.7bn.

For the second successive month, the largest contribution was generated by loans up to and including one year.

Most of the credit increase was directed towards domestic borrowers.

On the deposit side, changes in that category were relatively small with overnight deposits (current account amounts) up by 151m and deposits redeemable at notice of up to three months up by 189m over the period.

The dip in private sector credit, which peaked at close to 35% annual growth back in January 2000, has been steady.

Analysts believe this is consistent with an economy that has begun to slow appreciably in the past 18 months.

They have also welcomed the fact that the private sector personal credit end of the business has shown a steeper decline with mortgages understandably holding by comparison as the demand for houses still outstripped supply.

Austin Hughes, chief economist ad IIB Bank, said the figures are consistent with the slowdown in house prices, with figures out yesterday showing a decline in the increase of the cost of houses from 14.5% to 12.7% nationally.

By the second half of the year Mr Hughes said the increase in house prices should have fallen further to single digit figures, which shows an orderly decline.

That is consistent with an economy adjusting in an orderly fashion from very high to modest growth, he said.

Mr Hughes dismissed the claim by The Economist, which said house prices could fall 20% over the next four years. Most of the indicators relating to the economy suggest that the consumer has adjusted to the new reality and there will be no crash, either now or in four years time, he said.

The Economist's prognosis on housing could apply to other segments of the economy as well, but they picked the housing market because it was a soft target and likely to get the most reaction, Mr Hughes said.

The fact that credit is slowing and house prices falling are far more significant in an Irish context than the scare headlines precipitated by the housing story, he said.