I thought it might be interesting to take a look at whether the Irish population is deleveraging. After binging on debt through the years of the property bubble, are we now (Government aside) making any progress on dissipating the accumulated burden? And if we are making progress, are we moving fast enough to offset the negative inflation that is increasing the real value of money in Ireland?
The chart below uses ECB data to track trends in lending to consumers by Irish Monetary Financial Institutions (MFIs), both in nominal terms and discounted by the CPI to track the real value of outstanding lending. The chart runs up to August 2009. I am assuming that the jump in consumer credit numbers between Dec 2008 and Jan 2009 reflects a discontinuity in the data, rather than a real month-on-month jump in excess of €5bn.
While I’m sure it is of little immediate comfort to those depending on selling goods, services and property to Irish consumers, to my mind it is good news that the indebtedness of Irish consumers is clearly falling, in both nominal and real terms. The economy is in a hole largely as a consequence of excessive consumer borrowing, but at least consumers have stopped digging, and are making some gradual progress in refilling their own personal sections of the hole. The real outstanding value of house loans fell by almost 5% between August 2008 and August 2009.
Of considerable practical importance, this means that a significant effective devaluation through reducing price levels within Ireland, while remaining within the common currency, will not necessarily result in an effective balloooning of consumer debt.
