Falling housing prices will hit Irish economy

DESPITE oil hitting new highs and the dollar new lows their impact on the Irish economy will be minimal, chief economist at Bank of Ireland Dr Dan McLaughlin said yesterday.

However, in his latest quarterly economic bulletin he said falling housing starts will hurt the economy next year which will grow by just 4%, down from a projected GDP figure of 5.4% for this year.

His figures are higher than the average forecasts of 5% and 3.5% for this year and next.

Once the present correction in house prices is out of the way he expects the economy to return to trend growth of 5% in 2009.

However, the number of houses built in 2008 will fall sharply to 55,000 against 74,000 this year, leading to a loss of about 10,000 jobs, significantly less that the 30,000 figure projected by some analysts. By 2009, the economy will be building 60,000 houses a year as demand picks up again, he said.

Rising rents indicate that potential buyers at the margin were just biding their time to allow house prices stabilise, he said.

It was falling housing starts and not soaring oil prices or the plummeting dollar that was hurting the economy, he said.

Launching his quarterly economic report he said: “I believe we will rebound in 2009 to 5% helped by a pick up again in residential construction and lower interest rates.”

He is forecasting two further cuts of 0.25% from the ECB next year despite lingering concerns about inflation.