‘Soft landing for house market’

WITH Irish house prices expected to grow by 6.7% this year, the governor of the Irish Central Bank believes the housing market will face a soft landing.

Central Bank Governor, John Hurley, yesterday identified the biggest risk to the Irish economy as the disorderly unwinding of global imbalances, especially the twin deficits in the US, the current and fiscal account deficits.

“If this were to occur, we could experience a rapid decline in the US dollar and a sharp euro appreciation, which would impinge on our competitiveness. The other main external risks are developments in energy markets and the uncertain geopolitical situation,” he told the Irish Examiner sponsored Cork Chamber of Commerce Business Breakfast yesterday.

In his address, Mr Hurley also cited the growth in house prices and the rapid rise in mortgage credit as concerns for the Irish economy.

“On the domestic front, developments in house prices and the rapid increase in mortgage credit pose some concerns. I continue to believe, however, that a soft landing in this market is the most likely scenario, although there is no room for complacency,” he said.

Mr Hurley noted that at present, while the Irish inflation rate is low, price levels are high compared to most European countries.

“It is especially important that we do not exacerbate this. If we remain conscious of this and continue with the generally sound policies that have delivered such good results over the past decade, there is no reason why we should not be optimistic about our future economic prospects,” he said.

Mr Hurley said the main challenge for the Irish economy is to maintain international competitiveness to ensure Ireland can continue sustainable economic growth over the medium to long-term.

Mr Hurley said there is a need to ensure that product, labour and financial markets are characterised by competition and that they are adaptable and flexible.

“A very important aspect of this is to ensure that the forces of competition can operate effectively. Where this is not the case, firms produce less than with the presence of competition and prices will be higher. The absence of competition in sectors of the economy also tends to induce complacency in incumbents. This leads to a lack of dynamism and slowness to embrace innovation, which represents a drag on economic performance and, in particular, on productivity growth,” he added.

Mr Hurley pointed out that there still are significant barriers to entry in many professional services, and, as a consequence, Irish prices are very high by international standards.