This document analyzes the linkages between different sectors of the Irish economy that contributed to the financial crisis. It discusses 3 key linkages: 1) How rising household credit led to rising debt levels. 2) How private sector debt accumulated and was transferred to the public sector balance sheet. 3) How expectations of continued growth were not met with reality as the economy entered a demand-deficient recession. The document uses charts and data to show trends in household borrowing, debt, asset prices, unemployment and other economic indicators to demonstrate these interlinkages and how Ireland's crisis emerged.
8. n Figure 3 Savings, Investment and Net Lending/Borrowing of
e Households
t €billions
r 50
e 40
a
30
A
20
e
g 10
d 0
–
-10
n
o -20
-30
-40
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
GFCF Net Capital Transfers
Shares Deposits
Loans Insurance&Pensions
Gross Savings
9. n Figure 3 Savings, Investment and Net Lending/Borrowing of
e Households
t €billions
r 50
e 40
a
30
A
20
e
g 10
d 0
–
-10
n
o -20
-30
-40
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
GFCF Net Capital Transfers
Shares Deposits
Loans Insurance&Pensions
Gross Savings
10. n Figure 3 Savings, Investment and Net Lending/Borrowing of
e Households
t €billions
r 50
e 40
a
30
A
20
e
g 10
d 0
–
-10
n
o -20
-30
-40
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
GFCF Net Capital Transfers
Shares Deposits
Loans Insurance&Pensions
Gross Savings
11. Figure 3. Household Debt to Gross Disposable Income
(percent)
230
Ireland
210 Spain
190 UK
USA
170
150
130
110
90
70
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Sources: OECD; and IMF staff calculations.
12. Figure
1.
An
explosion
of
lending
by
private
sector
banks
led
to
Ireland's
current
malaise.
Source:
Kinsella
and
O'Sullivan,
2012.
13. Figure 2: The Turn of the Credit Cycle
Billions of 2002 euros)
100 30
Consumption
95 Disposable income 25
Net borrowing/lending (RHS)
90 Net wealth (Index) 20
85 15
80 10
75 5
70 0
65 -5
60 -10
2002Q1
2004Q3
2005Q3
2008Q1
2010Q3
2011Q3
2002Q3
2003Q1
2003Q3
2004Q1
2005Q1
2006Q1
2006Q3
2007Q1
2007Q3
2008Q3
2009Q1
2009Q3
2010Q1
2011Q1
Sources: CBI; CSO; and IMF staff calculations.
14.
15. Maria Woods and Siobhán O’Connell Ireland’s Financial Crisis: A Comparative Context Central
Bank of Ireland Quarterly Bulletin 04 / October 12