PRODUCT PROFILE

Latest Dublin Prices

Irish financial wealth rockets in Q2

Friday, July 30 15:02:39

The net financial wealth of both households and businesses in Ireland surged in the second quarter as people paid back debt and turned away from property as an investment.

Household financial assets rose by 58pc but the non-financial firms' assets rocketed by a massive 223pc.

The Government, meanwhile, went in the opposite direction with liabilities surging in the face of higher borrowing costs and the impact of Anglo Irish's bailout.

Irish household net financial wealth - defined as financial assets less liabilities - reached E95.8 billion in Q1 2010; a growth of 58pc from the same period in 2009.

That's according to the Quarterly Financial Accounts (QFA) for Ireland - a new presentation of figures from the Central Bank today.

The figures represent not only on the economic activities of households, non-financial corporations, financial corporations and Government, but also on the interactions between these sectors and the rest of the world.

This rise in financial assets, the Central Bank said, has been driven by the recovery of stock markets in the aftermath of the financial crisis and a reduction in household borrowings through a fall in borrowing levels, loan repayments and write-offs. It should be noted, it said, that housing and non-financial assets - including property - are excluded from the QFA.

This is a reversal of trends in previous quarters, which had shown a decline in household net financial wealth between Q1 2007 and Q1 2009.

Over these quarters, the increase in household liabilities outpaced the increase in financial assets.

This effect was compounded by stock market volatility during that period.

Households have been net savers since Q1 2009, as their borrowing levels declined. Furthermore, with declining consumption levels and housing investment, they have invested relatively more of their resources in financial assets.

Looking at the Government sector, it found that, between Q4 2009 and Q1 2010, Government liabilities increased by 17pc.

This increase was driven largely by two factors - by the capital injections into Anglo Irish Bank and Irish Nationwide of E8.3 billion and E2.7 billion, respectively; and also by increased debt security issuance over the period.

The Q4 2009 and Q1 2010 capital injections into Anglo Irish Bank were treated in Government accounts as capital transfers, thereby directly impacting the Government deficit by E4 billion and E8.3 billion, respectively.

The E2.7 billion capital injection into Irish Nationwide in Q1 2010 was provisionally treated as a financial transaction and, therefore, does not currently affect the deficit adversely, the Central Bank said.

Looking at the non-financial sector, the report found that there was substantial growth in the period.

Total financial assets increased by 223pc to a total of almost E600 billion between Q1 2002 and Q1 2010; while total liabilities increased 180pc to a total of almost E800 billion over the same period. Results show that net financial wealth has doubled from minus E100 billion in Q1 2002 to minus E200 billion in Q1 2010.