While many economists are getting hot under the collar over how much we are spending on mortgages and credit cards as private sector borrowing heads for the €300 billion mark, the risks associated with debt in the corporate sector have largely escaped the spotlight.

The unrelenting acceleration of house price growth led to the biggest monthly increase in residential mortgages in July, according to yesterday's report by the central bank. However, Irish businesses are also exposed to both rising interest rates and any downturn in the property market, leading business consultant Philip Halpin warned.

The proportion of debt accumulated by non-financial companies in Ireland last year was the highest of any country in the 12-member euro zone, with the exception of Luxembourg, Mr Halpin pointed out in a report entitled Ireland's Mounting Debt Problem. At 66.4 per cent of gross domestic product (GDP), the Irish ratio is well ahead of the euro area's average of 42.7 per cent and just short of the 74.1 per cent borrowing by domestic households.

Not only has the European Central Bank (ECB) raised borrowing rates three times this year, the hawkish tone of its president, Jean-Claude Trichet, following the latest hike indicated there may be more to come as the Frankfurt-based bank strives to stem inflationary pressures.

If short-term interest rates climb to 4 per cent next year, this would represent a doubling of rates over a two-year period and place a significant burden on both the personal and business sectors, Mr Halpin said.

While it is not possible to ascertain the risk of higher interest rates to the business sector from official statistics, much of the sector's debt is likely to be priced off Euribor, or wholesale short-term rates, given the personal sector's penchant for variable rates instead of fixed-rate funding, said Mr Halpin, a former head of treasury at National Irish Bank. About 84 per cent of residential home loans are based on variable interest rates.

Almost 80 per cent of the increase in lending to the business sector and households over the six years through the end of March was related to home mortgage finance, construction, and real estate activities, Mr Halpin's report shows, indicating the extent to which the property market has driven lending since the start of this decade.

In the corporate sector, it is probable most of this activity has been concentrated on commercial real estate.

"A lot of the lending to non-financial corporations has been property-related, so they will be exposed if there is a fallout in the property market," the consultant said.

"The rate of growth in private sector credit is so strong it will be of concern should there be any external shock to the economy and interest rates rise more than people expect. The ECB may act quite forcibly in the coming months."

A fundamental shift in the dynamic of the Irish economy has increased the exposure of the private sector to the property market. The manufacturing industry's share of total lending fell to 2.1 per cent by the end of March from 4.7 per cent six years earlier.

By contrast, personal lending grew to 44.4 per cent of the total from 34.4 per cent, and credit extended to the real estate sector jumped to 18.4 per cent of total lending from 8.4 per cent.