Personal debt ‘not a strain on economy’
Davy Stockbrokers' head of research Robbie Kelleher believes that, despite recent statements by the International Monetary Fund (IMF) and the Irish Central Bank, debts ratios should not be a cause for concern. "A typical consumer in 2004 is paying a much higher proportion of his income in debt service than his equivalent in 1996; but the real value of what is left over after debt service is still some 50% higher than it was in 1996. In that sense, there is no increased burden of debt service at all," Mr Kelleher said, in a market commentary sent to clients of the Bank of Ireland owned company yesterday.
The Davy economist said the sensitivity of increased interest rates is not as large as one might expect. "For example, a 300bps hike in interest rates would reduce income after tax and after debt service across the economy by about 2%. That is before taking account of any offsetting benefits that would accrue to personal incomes from higher deposit rates," he said.
