Central Bank: Ireland may miss economic upturn

The Central Bank has claimed that Ireland's economic downturn is beginning to end.

ireland might miss out on any improvement in international economic conditions, the Central Bank warned today.

There must be improvements in the country’s foreign investment and competitiveness, the bank said in its autumn bulletin on the economy.

The report underscored particular concern about the housing market, where recent surveys have recorded price rises of more than 15% over the past year.

The bank said high housing costs had the potential to add to wage pressures, as even relatively well-paid workers were finding it difficult to get a foothold in the housing market.

And it counselled against borrowers taking on “excessive debts” to finance the purchase of houses – a trend currently being pursued in discussions with lending institutions.

The bulletin warned that unsustainable house price growth posed risks to financial stability and the economy, with the bank making it clear that it was unhappy with certain procedures at the main lending institutions following “on-site” inspections of lending practices.

The current low level of interest rates and the higher inflation figures – as well as the rising cost of land – were identified as factors increasing the momentum of house price growth.

Irish Department of Environment figures have recorded house price rises of 154% nationally and 196% in Dublin between 1995 and 2002.

But sources today said the on-going steep rises could lead to “a disruptive adjustment,” as prices reverted to fundamental values, with the risk growing as costs went higher.

The Central Bank said improving conditions in the United States and the United Kingdom – Ireland’s two largest foreign trade partners – would boost demand for exports over the coming months.

But the report also asserted that there was no guarantee that Ireland would be in a position to fully benefit from the global recovery.

The Government and industry had to prepare for the international upturn though innovation, by fighting increased competition from the Central and East European countries set to join the European Union next year, and through improving competitiveness.

That could mean consumers having to accept “a culture of stability,” according to the bank.