Ireland is in the grip of deflation. Shop prices are falling at a rate of about 2 per cent per annum. Deflation usually means wages get cut, and plenty of anecdotal evidence shows this is happening. This is bad news for the country's housing market, because it means there is less money around for home purchases. Also, deflation makes the size of people's debts grows larger relative to their earnings, another good reason not to take out a home loan. No wonder mortgage lending is down two-thirds on a year ago.
Ireland has a lot of debt. Private sector indebtedness is 175 per cent of GDP, compared to the Eurozone average of 98 per cent, so it will be a long time before anybody wants to take on a big mortgage again.
The economy is forecast to contract by 8 per cent this year, so the downward pressure on property values is growing heavier.
In addition to deflation, another dreaded "d" word is looming large. If the economy contracts by 10 per cent this year that would mean Ireland had moved from recession into depression.
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