Household income to fall by €7k over 4 years

THE average Irish household’s income will fall by €7,000 over the next four years as a result of austerity measures, according to the Government’s economic think-tank which has warned that the eurozone is on the brink of another recession.

The Economic and Social Research Institute has estimated that the disposable income of the average family will fall by 8% over the next four years due to tax increases and higher service charges. It follows a 10% reduction in disposable income between 2008 and 2010.

In its latest quarterly economic commentary, the ESRI predicts that annual household income will fall by €1,850 each year up to 2014 and by €1,450 in 2015.

It claimed such hardship was inevitable because of the need of the Government to meet targets set under the IMF/EU/ECB bailout.

“There is no easy way to cut expenditure without affecting incomes,” according to the ESRI.

In a bleak outlook, it also estimates that there is “still a significant adjustment” in house prices, while large- scale emigration will continue next year with an estimated 40,000 more people due to leave Ireland to seek work abroad.

ESRI researcher David Duffy said house prices were likely to fall by another 7% next year on top of a 10% reduction in 2011. He estimated that average property prices would have fallen by 55% from their peak by the end of next year.

The ESRI also warned that the financial crisis gripping the eurozone coupled with tightening fiscal policy across the 17-member region was likely to send the eurozone back into recession.

ESRI associate research professor Joseph Durkan said the problems in Europe and the global economy would make Ireland’s recovery “much more difficult” because of our dependency on export-led growth.

The ESRI has predicted that economic growth will slow significantly in 2012 with GDP only set to increase by 0.9% and exports by 4.7% — down from 6% this year.

Prof Durkan said the consequences of failing to address the euro crisis were “very serious” but stressed that the EU had the tools to address the problem, such as a commitment by the European Central Bank to provide unlimited funds to tackle the problem of sovereign debt.

Prof Durkan said the forthcoming budget would have a deflationary effect but acknowledged that the Government had “very little options”.

Over fears of falling demand for Irish exports, the ESRI urged the Government to strengthen Ireland’s competitive base by further structural reforms.