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News : Irish Last Updated: Apr 24, 2009 - 5:31:05 PM

Household Wealth in Ireland to surpass €1 trillion in 2008: National Irish Bank says there are more Mercedes per capita in Ireland than in Germany where they are made
By Michael Hennigan, Founder and Editor of Finfacts
Feb 12, 2008 - 9:39:32 AM

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  • A new report from National Irish Bank, ‘The Emerald Isle – The Wealth of Modern Ireland’ shows that aggregate wealth in Ireland has surpassed €1 trillion for the first time in 2008.

  • However the recent weakness in property and equity markets contributed to a decline in the rate of growth in aggregate wealth from 16% in 2006 to less than 3% in 2007.

  • As a country, many aspects of Irish households’ management of wealth tend to be unplanned, which could potentially lead to significant problems, particularly the lack of diversification that typifies many households’ assets.

A new report from National Irish Bank, The Emerald Isle – The Wealth of Modern Ireland’  shows that aggregate household wealth in Ireland has surpassed €1 trillion for the first time, despite a far slower rate of growth in 2007. By the start of 2008, the average Irish household had a wealth holding of €674,000. Excluding owner-occupied housing, the figure is €352,000. The corresponding level of household debt is €127,000.

According to Garvan Callan, Head of Wealth Management, National Irish Bank, “There has been a transformation in Ireland’s aggregate wealth holdings over the last decade. The extraordinary rise in the wealth of Irish households was fuelled by the takeoff of the Celtic Tiger economy, resulting in higher incomes and higher savings. However the single most important driver of wealth in Ireland has been the increase in property values.”

The rate of growth of households’ wealth was relatively low in 2007, declining from 16% in 2006 to less than 3% in 2007. The weakness in property and equity markets resulted in Irish households producing a negative capital return compared to inflation. The overall increase in wealth was a result of continued savings, which was sufficient to offset the decline in capital values.

The impact of the weakness in domestic property was made worse by the fact that Irish households are relatively undiversified, with much of the wealth of the nation tied up in housing. Owner-occupied housing accounted for almost half of all wealth, while another fifth was housing held as an investment. Much of the remainder is accounted for by stocks and shares.

Callan commented “Irish households have done incredibly well on the back of the rise in house prices, though the experience of 2007 should act as a wake-up call. If Irish people want to achieve good investment returns in the future, while also protecting against the volatility that we saw in 2007, they will need to invest in a broader pool of assets than they have in the past. National Irish Bank’s Wealth Management division has been established to assist customers in this changing economic environment and we would encourage Irish consumers to talk to us about protecting, generating and growing their wealth.”

National Irish Bank says its rapidly expanding team of Financial Planning Managers work closely with customers to prioritise their financial needs and prepare tailored solutions, based on the Bank’s specialist model.

Dr Ronnie O’Toole, Chief Economist, National Irish Bank and co-author of the report, commented “While the current economic slowdown is likely to limit future growth to low single digit figures in the years to come, the aggregate level of wealth is unlikely to decline. The trend we are witnessing of the rise in wealth holdings is a result of very long term factors. Economic cycles will come and go, though this transformation of our wealth holdings reflects a fundamental change in our society.”

Callan continued “You only have to look at the changes in lifestyle to gauge the amount of wealth that now exists. Take travel - Irish people are spending more on holidays than ever before, and are choosing ever more exotic locations. Many third level institutions are also noticing another trend – that of the successful business man or woman who either takes time out or retires early in order to go back to university. Look at the cars we are now buying – since 2000, Jaguar has increased its market share by one-third, Mercedes by a half, while the market share of Porsche has tripled. There are more Mercedes per capita in Ireland than in Germany where they are made.”

Finfacts comment: Last year,Bank of Ireland Private Banking, said Ireland was the second-wealthiest nation on earth. Before wishing to be No. 1, check the links below:

Japan's real wage index fell by 2.7% in 2007 - Earnings are down 11% compared with a decade ago

Toyota has 110,000 temporary workers in Japan on $10.50 an hour as Annual Dividend payout exceeds 20%

Economist Pocket World in Figures 2008: Quality of life best in cold Norway and Iceland - Ireland 4th and Japan 7th where domestic car sales have hit 30-year low and high level of anxiety about daily lives is at 40-year high

Average wealth that is very much property related, should be viewed with caution. We recently reported on statistics on house price increases in 18 developed countries since 1970 and Irish price growth was even outpacing the successful economies of Europe, when we were much poorer overall - check link below.

The Scottish-Philosopher Adam Smith wrote in The Wealth of Nations in 1776 on the folly of depending on housing to build sustainable economic growth and his words are still relevant for a world today, beyond the short-term (see below).

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