How €7bn in Irish savings is spent is now key as worst of Covid crisis ends

Kieran McQuinn, economics professor at the ESRI: "I think there is some danger that any additional spending could in the short term basis push prices up further because of expectations that prices will rise further."

A growing sense that the worst of the Covid crisis is at an end will lead to the spending of the billions of euro saved during the pandemic, leading economists have predicted.

However, some of the estimated €7bn in additional savings Irish households built up in the past two years will leak away into foreign travel and the savings will also help fuel more pressure on house prices and rents, they also warn. 

Rents in urban areas, in particular, could again rise sharply as staff return to Ireland after working remotely at home abroad. The leading commentators nonetheless say there is a sense that the Covid crisis is coming to an end. 

The Irish government and others in Europe are preparing to lift almost all restrictions re-imposed when the Omicron variant flared over Christmas. 

"People will want to celebrate the end of the pandemic and that will lead to a step up in spending and the spending of the excess savings," said Austin Hughes, chief economist at KBC Bank Ireland.      

"But I don’t think people will splurge like there is no tomorrow because surveys show that they know that economic shocks like the pandemic can come out of the blue," Mr Hughes said. 

Economists estimate that Irish households have excess savings of €7bn. Those are savings that they wouldn't have normally held before the onset of the crisis almost two years ago. 

Before the flare-up of Omicron during Christmas and the renewed restrictions on pubs, nightclubs, restaurants, and outdoor events, economists had predicted around €3.5bn of the excess savings would be spent in each of the next two years before going back to their pre-pandemic levels.

Fergal O'Brien, a director at business group Ibec, said the lifting of restrictions will herald a significant unwinding of the savings and boost consumption in the economy this year, even though large amounts will likely leak into foreign travel and holidays. 

Earlier this week, Ryanair anticipated the lifting of restrictions here and in other parts of Europe by announcing a large number of flights out of Ireland this summer. However, the spending of the excess savings will not be without risk.

Kieran McQuinn, economics professor at the Economic and Social Research Institute, said although he doesn't anticipate any sort of spending splurge above the levels that the ESRI has long forecast, that house prices and rents will likely be driven higher in the short term. 

"I think there is some danger that any additional spending could in the short term basis push prices up further because of expectations that prices will rise further," Mr McQuinn said.  Mr O'Brien at Ibec said he would be surprised if there was no renewed pressure on rental prices as workers return to offices.

Conall Mac Coille, chief economist at Davy, said that the question remained about how the excess savings will be spent. He added there was no big evidence that the excess savings will be splurged, however.  

Mr Hughes at KBC said that with the economy and public finances "in rude health" the focus will also be on low-income workers who "have lost out during the pandemic".