The Central Bank has warned that while there are further signs of recovery the economy remains fragile with further efforts needed to reinforce market confidence.
Commenting in its latest Macro-Financial Review, the Central Bank said there was salient evidence of continuing macroeconomic imbalances, including the high level of non-performing loans, as well as high unemployment and levels of public indebtedness.
It noted that while GDP growth is expected to rise by around 2 per cent this year and to a projected 3.2 per cent in 2015, considerable problems remain.
The Central Bank said the key systemic issue for the Irish economy remains the high level of impaired bank loans.
“Despite some recent reductions, mortgage arrears remain high, while the number of cases of very long-term arrears of over 720 days continues to increase. Loan-servicing arrears among small and medium enterprise (SME) borrowers are also a significant problem,” it said.
The Central Bank said that while commercial property prices were recovering, “the positive headline figures, however, mask the uneven nature of the recovery across sectors and locations”.
With regard to residential property, it said that while there appears to be broad agreement that the overall trend in house price movements remain positive, the volatility of the market makes analysis difficult.
It noted that supply shortages were an important factor in recent house price increases, with just 8,000 new units built last year compared to an average annual output of about 33,000 since 1970.
“By their nature, they take time to address and, accordingly, should be a priority for policy, if imbalance in the housing market is not once again to become a potential source of financial instability,” it said.
“A protracted delay in addressing these shortages has the potential to put house prices on an unsustainable path. Forward-looking indicators such as commencements notices do not give the impression that an increase in the supply of new builds is likely any time soon,” it added.
