Irish Households Assessing the Impact of the strongEconomicstrong Crisis.pdfVIP

62 Irish Households: Assessing the Impact of the Economic Crisis Mary Cussen and Gillian Phelan* Abstract The impact of the changing economic environment on Irish households has been significant, with net worth falling 30 per cent since 2006. This article uses Quarterly Financial Accounts data to investigate how they have adjusted to the vastly different economic climate with which they are now faced. It finds that households’ portfolio composition has shifted considerably, due largely to falling asset values. Results also suggest that households are now entering a long period of debt reduction. The consequence of deleveraging is a reduction in household consumption; a process that cannot proceed without an increase in the household savings rate. In the wake of the economic slowdown, there is a risk that increased savings could be a drag on consumption and bank lending in the future, with negative implications for the speed of economic recovery. * The authors are Economists in the Bank’s Statistics Department. The views expressed are solely the views of the authors and are not necessarily those held by the Central Bank of Ireland or the European System of Central Banks. The authors would like to acknowledge, with thanks, the helpful comments of Joe McNeill. Irish Households: Assessing the Quarterly Bulletin 04 / October 10 63 Impact of the Economic Crisis 1. Introduction show financial balance sheets and transactions broken down by type of financial asset and In recent years the Irish economic environment