A NEW National Irish Bank report, The Emerald Isle – Wealth in a Downturn charts more than the “dramatic reversal in Irish wealth holdings” in 2008. With further declines anticipated in 2009, it says that the effect of the economic crisis reduced aggregate household wealth by 150bn euro in months to the end of 2008.
The total loss in wealth over the full property cycle is likely to be significantly higher than this.
Yet we are saving for more rainy days like nobody’s business. This year has seen Irish private savings rise to some 10 per cent of disposable income, more than triple what it was in 2007 – before the crash. Ironically, our level of household debt has crept up, rising another 5,000euro in the last year or two to average 133,000euro although we spent three times more on Prize Bonds last year compared to our investment there in 2007.
According to Garvan Callan, head of Wealth Management, National Irish Bank, “Irish households are managing their wealth through unprecedented times, and are reacting by rapidly increasing their rate of saving. Caution is the key word though, as savers should be thinking beyond the very short term and plan their investments in the context of today’s low interest rate environment.
“ Interest rates are at their lowest for 300 years, and are likely to remain relatively low for a protracted period. For many households, higher savings reflect greater uncertainty, and these households should maintain savings in a liquid, secure manner.”
Swings in retail trends
WE are spending less too, saving to buy less it would seem, and buying cheaper products when we do shop.
While the fall in retail spending in Ireland of over 8 per cent indicates that consumers have increased their precautionary savings, there are some products that continue to be demanded, even during a recession.
Recent Nielsen research lists our recession-proof product categories: a lot of the basic necessities including milk, tea, butter, bread and cream.
On the other hand, toiletry products, such as air fresheners, toothbrushes, shower gels and deodorants, are proving to be highly sensitive to the recession, with sales down significantly.
* Households are turning in greater numbers to private ‘own-brand’ goods, which are on average 33 per cent cheaper than branded products. The share of private label goods hit an all time high in terms of the share of consumer spend in September 2008.
* The growth in private label sales is mostly concentrated in frozen foods, household products and general groceries, with 80 per cent of all supermarket purchasers reporting that they buy private label goods.
And if you hadn’t guessed, we are buying fewer high-end luxury cars, fewer helicopters, holidaying less often and spending less when we do take a break.
Net worth drops 30%
According NIB’s Mr Callan: “At the end of 2008, average Irish household wealth was 539,000euro, compared to 646,000euro at the end of 2007, and 693,000euro at the peak of the housing market in 2006.
“Therefore, the accumulated wealth of the average Irish household has declined by 153,000euro over the last two years, equivalent to a fall of over 20 per cent. Excluding owner-occupied housing, average household wealth is now 252,000euro, compared to 308,000euro at the end of 2007. “
Our combination of falling assets and rising liabilities has squeezed the net worth of Irish households, which has fallen by almost 30 per cent since 2006. Households have responded by greatly increasing their savings rate over the last six months, which is thought to have reached 10 per cent of income in January.
