Economic downturn - A truly vicious circle

THE amount of bad debts is a measure of any economic downturn. These have almost doubled in this country in the past five years, and they are likely to increase by another 30% to more than €250 million in the next 12 months.

Various factors are being blamed for the rise in bad debts, such as the rise in oil and commodity prices, along with the increases in interests rates, compounded by the worldwide banking problems.

The banking sector essentially seeded bad debts by the reckless rush to provide easy credit to consumers in recent years.

Bank managers were under pressure to lend as much money as possible without evaluating the likely difficulties that specific borrowers would have if the economy began to go sour.

Many first-time house buyers are in trouble, because they purchased their property at exorbitantly high prices, and rising interests and other inflationary factors are now overstretching their resources.

With the downturn in the construction sector, some may have lost their jobs. As a result those people’s payment difficulties have been further exacerbated. This is all contributing to a vicious circle.

The demand for mortgages is already down by 60% this year, which inevitably impacts on the housing market and thus contributes to a further downturn in construction.