SSIA cash 'will add 2% to growth'

THE surge in spending triggered by the release of €14 billion from the Government's Special Savings Incentive Account (SSIA) scheme will add nearly 2% to economic growth rates in 2006 and 2007, Goodbody stockbrokers said yesterday.

Goodbody head of research Colin Hunt said the effect of the SSIA release would bump up Ireland's Gross National Product (GNP) growth rate from 4.8% to 6.7% in 2006 and from 4.7% to 6.2% in 2007. But he added that growth could be even higher if consumers chose to spend their windfalls rather than invest them.

Goodbody's forecast was based on a survey by market research firm TNS MRBI that showed SSIA holders planned to spend one-third of the windfall and invest the remainder. But Mr Hunt said people surveyed may have been too conservative when responding and they would be likely to spend more when the time came.

Almost half of SSIA holders earned less than €20,000 per year and would be expected to favour spending over investing. Mr Hunt dismissed claims the scheme favoured the wealthy, given only 13% of account holders earned more than €30,000.

But there was a distinct difference between early birds who signed up when the scheme first opened and those who left it to the last minute. Those who opened accounts in the early stages of the scheme saved an average of €205 per month, while the average figure for later starters was €148.

Mr Hunt said higher earners had been quicker to take advantage of the scheme and would reach the end of the five-year period sooner.

Goodbody's report said inflation would not be seriously affected by the extra cash in the economy because most of the funds would be spent on property, home improvements, new cars or holidays. Only areas where supply could not be increased to meet the extra demand, such as services of plumbers, builders and electricians, would see prices going up.

But Mr Hunt warned SSIA holders who were considering investing the money in property. He said the one-off effect of the windfall might temporarily arrest the slide he expected in investment property prices, but the inevitable "correction" in prices may be postponed by a year. Mr Hunt said investment properties were already overvalued and they would come under pressure from an increasing supply of new properties and lower rents.

Mr Hunt added that, although the Department of Finance would prefer to avoid a situation where the economy was flooded with a €14bn windfall, he expected no further schemes to mop up some of the SSIA cash.