IRISH HOUSEHOLDS have suffered the most severe wealth destruction in Europe, according to a study published yesterday by the Central Bank using new Irish and European figures.
In the three years to the end of 2010, Irish household net wealth fell 23 per cent when measured as a proportion of disposable income.
Over the three-year period, Irish households went from being the third richest among 14 European countries, to a mid-ranking position of seventh-richest.
At the end of 2010, Irish households’ net wealth stood at 6.5 times their annual disposable income, slightly below the average.
The new study offers the first comprehensive assessment of how rich Irish households are compared to their European peers.
Of the 14 countries surveyed, Denmark experienced the second largest fall in household wealth, at 17 per cent, followed by Spain at 13 per cent.
Both countries suffered deeper recessions than the European average.
Austrian households were at the other end of the spectrum, enjoying a 7 per cent increase in their net wealth.
The net wealth of households in an economy is calculated by adding the value of all property assets and all financial assets (such as pensions, shares and insurance policies) and subtracting total debts.
Most Irish wealth destruction is the result of the biggest by far fall in property wealth in Europe.
In the three years to the end of 2010, household property wealth declined by 28 per cent. Denmark suffered the second largest fall, at 18 per cent.
Half of the 14 countries surveyed registered increases in property wealth over the period, with Austrian households seeing the biggest rise, at 8 per cent.
Irish households’ financial assets performed much better than property, rising by 5 per cent in the three years to the end of 2010.
The decline in net wealth has taken place even though Irish households have reduced their debts more rapidly than any of the other 14 countries. The reduction has occurred because people are paying down debts and because levels of new borrowing have been low since the banking bust.
The study found that households are saving not out of fear for their future prospects, but largely to pay down debt.
This lessens the chances that an increase in consumer confidence could trigger more spending and less saving, thereby fuelling a recovery, as senior Government figures have frequently suggested.
Despite paying down debt quickly, Irish households are still the third most indebted of the 14 countries for which figures are available.
Irish households’ debts were more than three times their annual disposable income at the end of 2010.
Belgian households were the least indebted, having debts of just 80 per cent of their disposable income.
The analysis is contained in a research paper published yesterday in the Central Bank’s quarterly bulletin.
The comparative figures used in the study understate the magnitude of the decline in Irish household wealth as they are expressed as percentage of disposable income.
Irish disposable income has fallen by more than in any other country surveyed.
Moreover, the figures only go up until the end of 2010. Since then, property prices have continued to fall sharply.
More up-to-date figures, also published yesterday but for which there are no cross-country comparisons, show that net worth of Irish households has fallen by 35 per cent since 2007.
As of the end of September 2011, household net wealth stood at €470 billion.
It was the 17th consecutive quarter of decline. In the second quarter of 2007 households’ net worth stood at €725 billion.