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C Bank: 18 years for property recovery

Wednesday, October 03 15:35:07

It will take between another seven and 18 years before Ireland's property market recovers the 2008 crash, according to an assessment from the Central Bank today.

A research paper from two economists, Maria Woods and Siobhan O'Connell, also said that the country's unemployment rate is set to "remain elevated for some time" despite a return to economic growth in the coming years.

Their research looked at similar financial crashes in Sweden, Finland, Norway and Japan in order to predict the potential longer-term consequences of Ireland's current crisis.

They say Ireland's financial crash ranks as one of the most expensive banking crises in an advanced economy since the 1970s.

"As of July 2012, the State had injected E63 billion of capital into the Irish banking system. The future performance of both the Irish economy and the domestic financial system remain uncertain at present."

Their report concluded that the clear lesson from international experience was that "early loss recognition and swift policy responses" were instrumental in remedying a dysfunctional banking sector.

"International experience highlights that credit growth remains subdued in the years following a crisis, even as the economy begins to recover," the report said.

Their study suggested both residential and commercial property sectors may take a significant number of years to fully recover, ranging from 11 years to 22 years from the start of the crisis which, in Ireland's case, was 2007.

The report noted it took Finnish house prices 22 years before pre-crisis levels were regained following the country's financial crash in the early 1990s.

Swedish commercial property values still remain below pre-crisis peaks following its financial meltdown in the 1990s, the report said.

It found export growth and exchange-rate developments were "pivotal" in reviving economic recovery in the four countries examined.

The international experience also indicated that although GDP can recover within a number of years, unemployment can remain high for a period.

In the Irish case, however, the recovery in the level of real GDP appeared to be slower than in any of the countries examined, the report's authors said.