Irish House Prices May Drop 9% in 2010 as Slump Continues
Irish house prices may fall for a fourth year in 2010 as the deepest recession in the country’s modern history persists, a survey of economists shows.
Home prices will shrink 9 percent, according to the median of six estimates in a Bloomberg News survey. Prices have already fallen 27 percent from their peak in early 2007, based on a monthly index by Dublin-based Irish Life & Permanent Plc.
Ireland’s economy shrank about 7.5 percent last year, almost twice the euro-region average, as a real-estate slump spread into the rest of the economy. That pushed up unemployment and forced the government to bail-out lenders led by Allied Irish Banks Plc and Bank of Ireland Plc. Gross domestic product may shrink 0.8 percent in 2010, marking a third annual contraction, the survey showed.
“The economy is contracting, there’s still housing oversupply there,” said Dermot O’Leary, chief economist at Goodbody Stockbrokers in Dublin. “It’s hard to say we’ve reached a floor.”
Ireland’s recovery will lag behind the revival of many of its euro-area neighbors as companies from Aer Lingus Group Plc to Danske Bank A/S cut jobs, restraining consumer demand. The jobless rate may increase to 13 percent this year from 11.8 percent in 2009, the survey showed.
“It’s going to be a tough one,” Mark Bourke, chief executive officer of Dublin-based IFG Group Plc, said in Dublin yesterday. “There’s very little to indicate there will be a major recovery.”
Budget Gap
In addition to the economic slump, Finance Minister Brian Lenihan is facing a widening budget deficit and is cutting the wages of government workers and welfare payments business card. The actions won’t be enough to reduce the gap this year, according to the survey. Economists see the deficit averaging 11.6 percent of GDP in 2010, little changed from 2009’s 11.7 percent.
Ireland’s fiscal problems are partly related to the government’s reliance on property-related tax revenue during the boom that has since dried up. The European Commission has given Ireland until 2014 to reduce the budget gap to a limit of 3 percent of output.
“I’m confident. We as a country are far better in adversity,” Smurfit Kappa Group Plc Chief Executive Officer Gary McGann said at a Dec. 15 press briefing in Dublin. “We screw it up in the good times.”
There may be some pick-up in economic growth the second half of this year, in tandem with a continuing recovery in overseas demand, economists said, echoing forecasts from the government. The global economy is gathering strength after central banks around the world trimmed borrowing costs close to zero and injected billions of dollars in stimulus measures.
Confidence in the world economy held near a record high in December and the MSCI World Index has surged 71 percent since reaching a 2009 low on March 9. Ireland’s benchmark ISEQ index has gained 60 percent in the same period.
“Export growth is likely to return in a significant way in 2010,” said Rossa White, chief economist at Dublin-based stockbroker Davy. “Second, consumer spending will bottom early in the year and expand slightly as the year progresses.”