COMMISSION STAFF WORKING DOCUMENT In-Depth Review for Ireland in accordance with Article 5 of Regulation (EU) No 1176/2011 on the prevention and correction of macroeconomic imbalances Accompanying the COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE, THE COMMITTEE OF THE REGIONS AND THE EUROPEAN INVESTMENT BANK Economic policy coordination in 2021: overcoming COVID-19, supporting the recovery and modernising our economy
Date: 2021-06-02
Institutions: European Commission, Secretariat-General
Subjects: EU employment policy, European Semester, Ireland, coronavirus disease, economic recovery, epidemic, fiscal policy, investment policy, macroeconomics, structural adjustment

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 2.6.2021  SWD(2021) 402 final  COMMISSION STAFF WORKING DOCUMENT In-Depth Review for Ireland                                in accordance with Article 5 of Regulation (EU) No 1176/2011 on the prevention and correction of macroeconomic imbalances  Accompanying the COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE, THE COMMITTEE OF THE REGIONS AND THE EUROPEAN INVESTMENT BANK Economic policy coordination in 2021: overcoming COVID-19, supporting the recovery and modernising our economy {COM(2021) 500 final} - {SWD(2021) 401 final} - {SWD(2021) 403 final} - {SWD(2021) 404 final} - {SWD(2021) 405 final} - {SWD(2021) 406 final} - {SWD(2021) 407 final} - {SWD(2021) 408 final} - {SWD(2021) 409 final} - {SWD(2021) 410 final} - {SWD(2021) 411 final} - {SWD(2021) 412 final}  
 
 
CONTENTS 

Executive summary 

1.  Assessment of Macroeconomic Imbalances 

2.  Thematic Issue: Non-financial Corporate Debt 

3.  Thematic Issue: Household Debt 

LIST OF TABLES 

Table 1.1: 

Assessment of Macroeconomic Imbalances Matrix –- Ireland 

Table 1.2: 

Selected economic and financial indicators, Ireland 

Table 2.1: 

Non-financial corporations debt indicators, Ireland 

Table 2.2: 

Selected external indicators, Ireland 

Table 3.1: 

Household debt indicators, Ireland 

Table 3.2: 

Selected housing indicators, Ireland 

LIST OF GRAPHS 

Graph 2.1: 

Thematic Graphs: Non-financial corporate debt 

Graph 2.2: 

Thematic Graphs: Non-financial corporate debt (cont.) 

Graph 3.1: 

Thematic Graphs: Household debt 

Graph 3.2: 

Thematic Graphs: Household debt (cont.) 

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EXECUTIVE SUMMARY 

The  2021  Alert  Mechanism  Report  concluded  that  an  in-depth  review  should  be  undertaken  for 
Ireland  to  examine  further  the  persistence  of  imbalances  or  their  unwinding.  In  February  2020, 
under  the  previous  annual  cycle  of  surveillance  under  the  Macroeconomic  Imbalances  Procedure,  the 
Commission identified “macroeconomic imbalances” in Ireland. These imbalances related to high private 
and public debt and net external liabilities. The analysis shows that these vulnerabilities remain. It should 
be noted that the context of the assessment of vulnerabilities in this year’s new in-depth review (IDR) for 
Ireland is markedly different from last year. Also, the evolution of the COVID-19 pandemic, the strength 
of  the  recovery,  and  possible  structural  implications  of  the  crisis  are  all  still  surrounded  by  high 
uncertainty, requiring caution in the assessment. In general, policy action over the past year focused on 
cushioning  the  impact  of  the  COVID-19  shock  and  facilitating  the  recovery.  This  has  added  to 
indebtedness  but  should  support  adjustment  in  the  medium-term.  Looking  forward,  the  Recovery  and 
Resilience Plan provides an opportunity to address imbalances, investment and reforms needs.  

Main observations and findings of this IDR analysis are: 

  This  IDR  is  informed  by  the  2021  spring  forecast,  which  expects  an  acceleration  in  economic 
activity  in  Ireland  with  the  easing  of  the  COVID-19  crisis.  Despite  the  pandemic,  Ireland’s  real 
GDP increased by 3.4% in 2020, as multinational corporations, concentrated in pharmaceuticals and 
medical equipment as well as information and telecommunication technologies, performed very well. 
At the same time, the domestic economy of Ireland contracted. Real GDP is projected to increase by 
4.6% this year and 5% next year.  

  Vulnerabilities  related  to  the  still  relatively  high  stock  of  private  debt  remain,  though  the 
COVID-19  shock  has  so  far  had  a  limited  impact  on  borrowers’  balance  sheets.  Non-financial 
corporate debt is inflated by the presence of multinational companies, most of which have very few 
linkages  to  the  domestic  economy.  Excluding  this  effect,  the  debt  of  domestically  controlled  firms 
stood  at  81%  of  modified  gross  national  income  in  2019,  above  fundamentals-based  and  close  to 
prudential benchmarks, but credit flows were negative in 2020 and GDP growth positive. Household 
debt stood at 62% of modified gross national income in 2019, and while close to the fundamentals-
based  benchmark  and  below  prudential,  it  still  amounted  to  113%  of  household  gross  disposable 
income (GDI), remaining amongst the highest in the EU according to this metric. Household overall 
net credit flows (transactions) in percent of GDP were close to zero in 2020 and the gross disposable 
income of households increased, allowing for a sharp increase in the household savings rate.  

  The downward trend in government debt has been interrupted. The tax base is relatively narrow, 
with  government  revenues  strongly  dependent  on  corporate  tax  receipts.  Possible  reforms  towards 
fairer  rules  in  international  taxation  pose  downside  risks  to  these  tax  revenues.  The  public  debt-to-
GDP ratio increased to 59.5% in 2020, up from 57.4% in 2019 as the government responded to the 
unprecedented  crisis.  As  a  proportion  of  modified  gross  national  income  (GNI*),  debt  is  higher  at 
105.6%  in  2020.  Financial  market  perceptions  of  sovereign  risk,  however,  remained  favourable,  as 
reflected in low sovereign bond yields and credit default swap spreads. Public debt relative to GDP is 
forecast to increase to 61.4% in 2021 and decrease to 59.7% 2022. The general government balance is 
forecast to remain negative, at -5% of GDP in 2021 and -2.9% in 2022. 

  The net international investment position is still highly negative, though improving. It stood at -
168% of GDP in 2020. The large presence of multinational enterprises with very limited links to the 
domestic  economy  and  the  mutual  fund  sector  bloat  the  stock  of  net  external  liabilities,  while  they 
bear little connection to the underlying domestic economy. Adjusted figures (of around 57 to 82% of 
GNI*)  suggest  that  Ireland’s  net  external  debt  remains  elevated.  The  current  account  balance  is 
estimated at 4.6% in 2020, and forecast to remain in surplus in 2021 and 2022.  

  The banking sector has continuously reduced NPLs in the past years, but these may increase as 
support  measures  are  withdrawn.  In  2020,  the  NPL  ratio  remained  essentially  unchanged  from 
2019,  at  3.5%,  down  from  21.6%  in  2014.  The  remaining  NPL  stock  consists  mainly  of  long-term 

1 

 
mortgage arrears, which are a challenge for some households. However, there is a risk that NPLs may 
increase  once  specific  policies  to  protect  corporates  from  the  impact  of  the  COVID-19  crisis  are 
phased out.  

Executive summary 

2 

 
1.  ASSESSMENT OF MACROECONOMIC IMBALANCES 

Introduction 

In  February  2020,  over  the  previous  annual  cycle  of  surveillance  under  the  Macroeconomic 
Imbalances Procedure,  the  Commission identified “macroeconomic imbalances” in Ireland. These 
imbalances  related  to  large  stocks  of  public  and  private  debt  and  net  external  liabilities,  and  potential 
vulnerabilities associated to high levels of non-performing loans (NPLs) and rapidly rising house prices. 
The  2021 Alert Mechanism  Report published in November 2020 concluded that a new in-depth review 
(IDR) should be undertaken for Ireland with a view to assess the persistence or unwinding of imbalances.  

The  context  of  the  assessment  of  vulnerabilities  this  year  is  markedly  different  from  last  year's 
IDRs, which took place before the COVID-19 pandemic. The evolution of the pandemic, the strength 
of the recovery, and possible structural implications of the crisis are still surrounded by high uncertainty 
requiring caution in the assessment. Policy action over the past year focused on cushioning the impact of 
the COVID-19 shock and on facilitating the recovery. While this supports adjustment in the medium-term 
through  stronger  fundamentals,  it  also  has  added  to  indebtedness.  Follow-up  to  country-specific 
recommendations  from  2019  and  2020,  including  those  that  are  MIP-relevant,  is  taking  place  in  the 
context of the assessment of the Recovery and Resilience Plans (RRPs). The analysis of policies in the 
present  report  was  finalised  before  the  formal  submission  of  RRPs  and  does  not  draw  on  information 
included  in  RRPs.  It  is  therefore  without  prejudice  to  the  Commission’s  assessment  of  RRPs,  which  is 
ongoing at the time of publication of this report. 

The key features of the IDR remain unchanged. The assessment follows a similar structure as the IDRs 
that were included in Country Reports in recent annual cycles. This chapter presents the main findings for 
the assessment of imbalances, also summarised in the MIP assessment matrix. The assessment is backed 
by selected thematic chapters that look more at length at non-financial corporate debt and household debt. 
Spillovers and systemic cross-border implications of imbalances are also taken into account. In addition, 
also assessments of structural issues made in previous IDRs and in the context of fiscal assessments are 
considered if relevant.  

Macroeconomic context 

Real  GDP  grew  in  2020,  due  to  multinational  firms’  performance,  but  developments  in  domestic 
sectors have been more in line with those in other EU countries, with a recovery starting in 2021. 
Ireland’s real GDP grew by  3.4% in 2020, due  to the  strong performance of  multinational corporations 
headquartered there. In contrast, domestic sectors contracted, more in line with developments in the other 
EU  countries:  modified  gross  national  income  GNI*  decreased  by  4.2% (1).  Although  the  year  2021 
started with a new strict lockdown and slowing economic activity, overall Ireland’s economy is projected 
to grow by 4.6% in 2021 and by 5.0% in 2022. Potential growth is forecast to recover from the sharp drop 
in 2020 and reach 2.3% in 2022. The output gap is set to improve from  -0.5% in 2021 to 0.1% in 2022. 
The current account balance was positive in 2020 and is forecast to remain in a surplus of 4.5% of GDP in 
2021 and of 4.2% in 2022. The gross saving rate of households, which increased to unprecedented heights 
as a result of the COVID-19 crisis, is forecast to gradually decline, to 13% in 2022. The unemployment 
rate  is forecast to remain high, at 10.7% in 2021, but to decline to 8.1% in 2022, compared to 5.0% in 
2019. HICP inflation is projected to gradually increase to 1.3% in 2022, alongside economic recovery. 

The economic recovery is expected to be mainly driven by a rebound in domestic demand and be 
supported  by  net  exports.  Consumption  is  set  to  benefit  from  the  reopening  and  the  accumulated 
savings. The vaccination process in Ireland has advanced.  Nevertheless, the restrictions  have been very 
stringent  and  are  being  lifted  only  gradually.  Investment  suffered  in  the  first  quarter  of  2021  when  all 
construction works except essential ones were banned but is set to rebound once the restrictions are lifted 

(1)  GNI* captures more accurately the underlying economic activity by eliminating some of the impact of multinationals. 

3 

 
                                                           
1. Assessment of Macroeconomic Imbalances 

and uncertainty dissipates. Exports are expected to continue to be a strong driver of GDP growth, led by 
multinational  corporations,  particularly  those  producing  medical  devices  and  pharmaceuticals  or 
providing information and communication services, and an improving external environment will benefit 
Ireland.  Policy  measures  to  protect  jobs  and  provide  liquidity  for  firms  were  extended  until  mid-2021. 
Downside risks to growth in the short term are a possible surge in corporate insolvencies once the policy 
support measures are wound down as well as labour market scarring effects and potential changes of the 
international taxation regime in the medium term.  

Imbalances and their gravity 

Private debt relative to GDP in Ireland is still high but continuously declining. It is expected to have 
decreased  to  184.4%  of  GDP  in  2020  amid  positive  GDP  growth  and  continuous  deleveraging  from 
households and corporates. In 2019, private debt amounted to 202.4% of GDP.  It has fallen substantially 
from  its  2015  peak  (305.1%  of  GDP)  as  a  result  of  strong  GDP  growth  and  deleveraging  by  both 
households  and  businesses.  In  2019,  it  still  stood  well  above  the  EU  average  (133.1%)  and  the  MIP 
threshold  (133%)  but  high  corporate  debt  levels  need  to  be  viewed  in  light  of  the  heavy  presence  of 
multinational  companies  (see  section  2).  Households  have  actively  been  deleveraging  since  2009. 
Household debt in proportion to GDP (37.2%) was below the EU average (50.4%) in 2019, but it more 
substantial when compared to modified gross national income (2) (61.9%, see section 3).  

Ireland’s  general  government  balance  deteriorated  in  2020  amid  emergency  borrowing,  thereby 
contributing  to  an  increase  in  the  general  government  debt  ratio.  The  stock  of  debt  increased  by 
around EUR 13.9 billion. Gross general government debt increased to 59.5% of GDP in 2020 from 57.4% 
in  2019.  Even  though  this  is  below  the  MIP  threshold  (60%),  a  range  of  alternative  metrics  show  that 
Ireland’s  stock of public debt remains  high by international and  historical  standards: as  a proportion of 
GNI* ,  debt  stood  at  95.6%  in  2019  and  increased  to  105.6%  in  2020  (Department  of  Finance). 
Nevertheless,  according  to  the  latest  debt  sustainability  analysis,  Ireland  faces  low  risk  in  the  medium-
term and medium risk in the long-term (3). Financial market perceptions of sovereign risk are favourable, 
as reflected in low sovereign  bond yields and credit default swap spreads. The interest to revenue ratio 
was estimated at 4.3% in 2020, compared to 5% at in 2019, continuing a decreasing trend from a 25-year 
peak of 12.6% in 2013. 

Despite  its  high  level,  the  burden  of  public  debt  is  mitigated  by  several  factors.  Government 
financing  benefits  from  favourable  conditions,  as  Irish  sovereign  credit  ratings  are  robust  and  their 
outlook is stable. Borrowing and debt servicing costs are low also due to monetary policy actions, such as 
the Pandemic Emergency Purchase Programme. The 10-year bond yield for Ireland was low at around  -
0.3% in December 2020. The vast majority of sovereign debt is at long maturities and fixed rates, which 
limits  the  risk  from  interest  rate  shocks.  The  effective  interest  rate  has  enjoyed  a  downward  trend  for 
about a decade, in line with the performance of the EU average. The maturity profile of the debt remains 
comfortable, as there are no redemptions until March 2022. 

The non-performing loan (NPL) ratio continued its steady decrease before the pandemic. The NPL 
ratio continued to fall to 3.4% in 2019  – approaching the 2019 euro area average of 2.7%. The share of 
NPLs was much higher for households (at 7.2%, see also section 3) than for corporates (at 3.2%, see also 
section 2). Irish banks had made substantial progress in decreasing the share of NPLs through successful 
restructuring  and  the  sales  and  securitisations  of  NPL  portfolios.  Arrears,  while  declining,  remained 
significant.  

The net international investment position improves but remains negative, even when taking out the 
distorting  impact  of  multinational  companies  operating  in  Ireland.  Ireland’s  net  international 
investment position (NIIP) of -168% of GDP at the end of 2020 was heavily influenced by the activities 

(2)  Modified Gross National Income (GNI*) reflects more accurately the income standards of Irish residents than GDP. It differs 
from  actual  GNI  in  that  it  excludes,  inter  alia,  the  depreciation  of  foreign-owned,  but  Irish-resident,  capital  assets  (notably 
intellectual property and assets associated with aircraft for leasing) and the undistributed profits of firms that have re-domiciled 
to Ireland. It is therefore a better reference for household debt affordability. 

(3)  See  Article  126(3)  report  (June  2021)  and  PPS  report  (June  2021).  The  Debt  Sustainability  Monitor  2020  contains  detailed 

methodological explanations. 

4 

                                                           
 
1. Assessment of Macroeconomic Imbalances 

of multinational companies and the large net position of a financial offshore centre with limited links to 
the domestic economy. Although the net external positions of some domestic institutional sectors such as 
commercial banks and the central bank have improved over the last two years, the NIIP remains negative 
even  when  adjusting  for  the  impact  of  multinational  companies  (see  also  section  2).  Commission 
estimates  of  Ireland’s  domestic  net  international  investment  for  2019,  net  of  multinational  firms  and 
Offshore Centre activity, suggest a much lower external liability position of between  -34% and -49% of 
GDP (i.e. -57% and -82% of GNI*), although still likely exceeding MIP thresholds of 35% of GDP and 
country-specific benchmarks.  

The  current  account  balance  is  positive  but  often  highly  volatile  due  to  the  heavy  influence  of 
multinational  corporations,  while  the  underlying  “domestic”  current  account  is  healthy  and 
positive. The current account swung to a surplus of 4.6% in 2020 from a large negative position in 2019 
(-11.3%  of  GDP),  in  both  years  largely  affected  by  the  multinational  corporation  activities.  Meanwhile 
the modified current account balance (4), which better reflects domestic economic activity, has increased 
to  4.6%  in  2019.  It  suggests  that  the  Irish  economy  appears  to  have  maintained  its  external 
competitiveness. 

While  house  price  growth  slowed  down  in  2020,  housing  affordability  remains  a  concern.  From 
10.2% in 2018, annual house price inflation has moderated substantially to 2.3% in 2019 and to 0.3% in 
2020, a level well below the 6% prudential threshold of the MIP scoreboard. Increasing housing supply, 
coupled  with  more  binding  macro-prudential  rules,  seem  to  have  contributed  to  this  sharp  slowdown. 
Although average national housing prices are not judged to be overvalued, affordability is still a concern: 
the number of  years of  gross  disposable income  required by an average household to buy a 100 square 
meters dwelling amounted to 14.5 in 2020, the third highest in the EU. 

Evolution, prospects and policy responses 

In  2020,  the  health  crisis  hit  the  Irish  economy,  in  particular  the  labour  market,  but  the 
government  intervention  reduced  the  risk  of  debt  defaults.    The  Irish  government  provided  income 
support  to  households  that  lost  jobs  due  to  the  COVID-19  pandemic  and  offered  payment  breaks  to 
affected borrowers. The crisis seems to have affected mostly people in lower income echelons, who hold 
less mortgage debt, while income of many mortgage holders remained unaffected (see also section 3). By 
November  2020,  most  payment  breaks  have  expired  and  a  majority  of  debtors  have  since  returned  to 
normal payments. In 2020, the real estate market froze for some time as  mobility and other restrictions 
reduced  transactions  but  with  the  reopening  of  the  economy  and  adjustments  to  the  “new  normal”  the 
market  revived  later  on.  In  the  last  months  of  2020,  house  prices  started  climbing  again  as  a  result  of 
constrained  supply  due  to  construction  works  being  temporarily  banned  as  a  part  of  COVID-19 
restrictions,  while  demand  remained  stable  or  even  increasing.  Consumer  loans  fell  as  pandemic 
restrictions constrained consumption and households increased forced and precautionary savings. 

Irish  companies  reduced  their  debt  in  2020,  postponing  investment  decisions  amid  very  high 
uncertainty.  Many  businesses  have  received  public  support.  The  prospects  of  domestic  small 
corporations  remain  uncertain.  In  contrast,  multinational  corporations  headquartered  in  Ireland, 
concentrated  in  the  pharmaceutical  and  information  and  telecommunication  sectors,  scored  well  in  the 
crisis with no negative impact expected on their debt (see also section 2).  

Policy efforts in 2020 focused mostly on short-term measures to address the impact of the COVID-
19 pandemic, contributing to an increase in government expenditure and contingent liabilities. The 
measures included the strengthening of the resources of the health system, a set of measures to preserve 
employment  (temporary  work  schemes,  exemption  of  social  security  contributions  etc.)  and  support  to 
companies  (direct  liquidity  support,  guarantees,  tax  deferrals,  moratoria  etc.).  The  delay  in  raising  the 
statutory pension age and a permanent increase of the  number of public employees in the health sector 
add to long term fiscal sustainability risks. In the Stability Programme Update, the Government set out a 
medium-term pathway for the debt-income ratio to be on a declining trajectory towards 2025. 

(4)  The modified current balance (CA*), developed by the Irish Central Statistics Office (CSO), is adjusted for the main following 
globalisation-related distortions: intellectual property imports, imports of aircraft related to leasing, the  depreciation of capital 
assets  owned  by  Irish  resident  foreign-owned  firms  and  the  repatriated  global  income  of  companies  that  moved  their 
headquarters to Ireland. 

5 

                                                           
1. Assessment of Macroeconomic Imbalances 

Government  revenues  are  strongly  dependent  on  corporate  tax  receipts.  This  constitutes  a 
vulnerability in the context of the ongoing review of the international corporate tax system which might 
have a negative impact on revenues as of 2022. A relatively  narrow tax base  weakens the resilience of 
public finances. The general government deficit is projected at 5.0% of GDP in 2021 and 2.9% in 2022, 
and the gross government debt-to-GDP ratio is projected at 61.4% in 2021 and 59.7% in 2022. 

Although the non-performing loan (NPL) ratio increased only modestly in 2020, short-term trends 
in NPLs need to be closely monitored. The capital and liquidity positions of the banks remain strong. 
However, the steady trend of NPL reduction was halted by the COVID-19 pandemic, with the NPL ratio 
increasing slightly from 3.1% in the first quarter of 2020 to 3.5% in the second and third quarters of 2020. 
This increase was driven by the NPL ratio for corporates, which grew from 3.1% in the first quarter of 
2020 to 5.3% in  the third quarter of 2020. (5) The increase in NPL ratios  would have been  much  more 
pronounced  without  the  wide-ranging  government  support  measures  in  response  to  the  COVID-19 
pandemic.  Corporate  insolvencies  declined  in  2020,  but  are  likely  to  increase  as  support  measures  are 
withdrawn (see section 2).  

The continuous decline in household debt masks some legacy issues, such as high mortgage arrears. 
Long-term mortgage arrears remain an issue for many households, despite the existence of a number of 
schemes that help resolve those arrears (see section 3). These deep arrears are particularly persistent and 
use of some of those schemes has been low. On the other hand, the mortgage measures put in place by the 
Central Bank of Ireland are helping limit the share of risky mortgages and safeguard the resilience of both 
households and banks. The completion of the central credit register in mid-2019 will ensure safer lending 
and a better monitoring of financial stability risks. 

Ireland’s  overall  highly  negative  NIIP  has  improved  marginally  due  to  an  improvement  in  its 
domestic component. Its domestic component is projected to decrease further on the back of continued 
current account surpluses (see also section 2). The evolution of corporate external liabilities (in particular 
of multinational corporations and the International Financial Services Centre), which comprise the largest 
share, is hard to predict. That said, the links of these corporations to the domestic economy are limited, 
which  in  turn  reduces  domestic  exposure.  The  general  government’s  substantial  NIIP  share  has 
diminished  over  time  but  it  might  increase  due  to  borrowing  related  to  the  COVID-19  pandemic.  The 
risks associated with general government’s external liabilities are somewhat smaller as part of them are 
loans  disbursed  by  official  creditors  during  the  economic  adjustment  programme,  which  have  long 
maturity  and  low  interest  rates,  thus  posing  little  risk  in  the  short  and  medium  term.  The  net  external 
position of the central bank is positive and has gradually improved over recent years. Large increase in 
precautionary households savings will have a positive influence on the domestic component in the short 
run. The current account is expected to amount to 4.5% of GDP in 2021 and 4.2% in 2022. Stripping out 
the  activities  of  the  multinationals,  the  modified  current  account  is  expected  to  remain  stable  and 
increasingly positive, following the trend of previous years.  

While  policies  implemented  in  recent  years  seem  to  have  been  effective  in  curbing  house  price 
growth,  challenges remain in further increasing housing supply sufficiently. The housing stock  has 
continued  expanding  in  2020,  although  at  a  slower  pace  than  foreseen  as  restrictions  were  placed  on 
construction  works  due  to  the  COVID-19.  The  number  of  new  housing  units  commenced  in  2020  also 
decreased, by 17%. Even a  moderate  decrease  in completions  might fuel property and  rent prices,  with 
housing supply still running behind needs. Indeed, in the last months of 2020 and first quarter of 2021, a 
rebound  in  house  price  growth  was  already  visible.  Capacity  constraints  in  the  construction  sector  and 
administrative  deficiencies  in  the  vacant  site  levy  application  remain  insufficiently  addressed  to  help 
supply  growth  and  ultimately  improve  housing  affordability  in  the  medium-term  (see  also  section  3). 
House price growth is expected to accelerate in 2021 and 2022. 

In the rental sector price growth decreased markedly in 2020. The lack of international tourism led 
landlords  to  switch  from  short-term  letting  to  the  regular  renting,  temporarily  increasing  rental  supply, 

(5)  The NPL ratio for households was relatively stable around 7% in the first three quarters of 2020 (6.9% in Q1, 7.1% in Q2 and 

7.0% in Q3). 

6 

 
                                                           
1. Assessment of Macroeconomic Imbalances 

particularly  in  the  Dublin  area.  Furthermore,  emergency  legislation  during  the  lockdown  temporarily 
banned rent increases and evictions during some months of 2020 and 2021. 

Overall assessment 

Overall, risks to the domestic economy continued to abate, though stock imbalances, notably large 
public, private and external debt, still exist and uncertainties related to the COVID-19 crisis persist. 
Ireland  has  made  steady  progress  in  decreasing  indebtedness  and  NPLs,  but  vulnerabilities  associated 
with debt stock imbalances remain and these legacy imbalances can amplify adverse economic shocks. In 
2020,  policy  efforts  mostly  focused  on  short-term  measures  to  address  the  impact  of  the  COVID-19 
pandemic.  The  government  has  been  successful  in  these  efforts  (providing  income  support,  payment 
breaks and other alleviating measures), with NPLs increasing only marginally despite the unprecedented 
health  crisis.  The  full  impact  of  the  COVID-19  pandemic,  however,  is  likely  to  become  visible  with  a 
delay.  A  negative  impact  on  domestic  corporations  is  likely,  with  potential  repercussions  to  the  labour 
market.  In  contrast,  the  multinational  corporations  that  account  for  a  large  share  of  the  NFC  debt, 
performed  very  well  during  this  crisis.  Hence,  while  the  risk  stemming  from  high  private  indebtedness 
might have increased in the medium term, due to the dual nature of the Irish economy, it increased less 
than in many other European countries, as credit flows remained subdued in Ireland. While before 2020 
the NPL ratio had continued its steady decline towards the EU average, the likely delayed impact of the 
COVID-19 pandemic means the NPL ratio warrants tight monitoring. Public debt has increased as a result 
of countercyclical fiscal policy and the working of automatic stabilisers.  

External  vulnerabilities  linked  to  large  negative  NIIP  exist  but  seem  to  be  unwinding  and  the 
associated  risks  are  limited.  The  current  account  was  positive  in  2020  and  is  projected  to  remain 
positive  in  2021  and  2022.  While  the  NIIP  remains  very  negative,  the  imbalances  are  narrowing.  A 
further  mitigating  factor  is  the  presence  of  multinational  corporations  in  Ireland,  which,  although  they 
account  for  a  very  large  share  of  the  negative  NIIP,  have  been  beneficial  for  the  growth  of  the  Irish 
economy  (effectively  the  main  driver  of  growth)  and  their  performance  in  the  midst  of  the  crisis  has 
reduced risks rather than increased.  

Housing policies seem to have been effective but the crisis is set to have negative repercussions on 
housing supply. Policies implemented in recent years seem to have been effective in curbing house price 
inflation. Various measures to support housing supply contributed to increasing housing completions by 
almost 40% annually from 2017 to 2019. However, the pandemic has slowed housing completions, which 
could reignite inflationary pressure. Housing affordability remains problematic.  

7 

Table 1.1: 

Assessment of Macroeconomic Imbalances Matrix –- Ireland 

1. Assessment of Macroeconomic Imbalances 

(Continued on the next page) 

8 

   Gravity of the challenge Evolution and prospects Policy response  Imbalances (unsustainable trends, vulnerabilities and associated risks) Private debt  Corporate debt (165.2% of GDP at the end of 2019) was strongly influenced by the activities of multinationals. Debt of domestically-controlled firms stood at 48.5% of GDP (or 81% of GNI*1), above fundamentals-based benchmark and close to prudential benchmark. Private debt is expected to have further decreased to 184.4% of GDP in 2020 Household debt fell to 37.2% of GDP in 2019, well below the fundamentals-based and prudential benchmarks, though still very high in comparison to household gross disposable income (113.3% in 2019). Mortgages in arrears (7.5% of accounts, of which 5.3% in arrears for more than 90 days) remain a challenge for many borrowers.  The steady decline in household debt relative to GDP, observed since 2008, continued in 2019, supported by active deleveraging and GDP growth. In 2020, amid the COVID-19 induced crisis active deleveraging continued in the household and corporate sectors. The crisis seems to have had limited effect on mortgage-indebted households as these debtors tend to work in sectors less affected by the pandemic. Nevertheless, for some debtors the risk has increased. The prospects of domestic corporations are uncertain as they are getting public aid. Multinational corporations, accounting for large share of corporate debt in Ireland, performed well during this crisis. A number of policies were put in place to support households in the COVID-19 induced crisis. These included measures to preserve employment (temporary work schemes, exemption of social security contributions etc.), an emergency unemployment support payment, a temporary ban on rent increases and evictions freeze on mortgages and support to companies (direct liquidity support, guarantees, tax deferrals, moratoria etc.). Public debt  Gross general government debt increased in 2020 but remained just below 60% of GDP. Under alternative metrics, Ireland’s stock of public debt remained high, at 105.6 % of GNI* in 2020. Such debt could be considered a heavy burden, though there are mitigating factors such as favourable financing conditions. According to current projections, both the Debt-to-GDP and Debt-to-GNI* ratio should already peak in 2021 before starting a decreasing trajectory. The structural balance worsened to -4.6% in 2020 from 0.5% in 2019, and it is projected to decrease further (-4.7%) in 2021. The general government deficit is projected at 5.0% of GDP in 2021 and 2.9% in 2022, and the gross government debt-to-GDP ratio is projected at 61.4% in 2021 and 59.7% in 2022. Risks to the fiscal outlook remain skewed to the downside.   In the Stability Programme Update, the Government set out a medium-term pathway for the debt-income ratio to be on a declining trajectory towards 2025. Financial sector challenges  The non-performing loan (NPL) ratio continued its steady downward trend, falling to 3.4 % at end-2019 – approaching the euro area average of 2.7%.  Long-term mortgage arrears remained a major issue, despite the existence of a number of schemes that help resolve those arrears.  Bank profitability faced pressure from factors including relatively high costs and a reliance on net interest income.  The postponement of proposed NPL sales due to COVID-19 impacted negatively the pace of NPL reduction. At the same time, the NPL ratio increased slightly in the course of 2020, from 3.1% in the first quarter, to 3.5 % in the second and third quarter, driven by NFCs. It is likely that the NPL ratio will increase further when government support measures in response to the pandemic are phased out.  Banks remain well capitalised, with an average common equity tier 1 (CET1) ratio of 22.6 % in the third quarter of 2020. Liquidity is high, also supported by increased deposits.                                                                    
 
    
 
Table (continued) 

1. Assessment of Macroeconomic Imbalances 

Source: European Commission Services 

9 

External sustainability   Ireland had a negative net international investment position (NIIP) of --168% of GDP at the end of 2020. This is linked to the very sizeable onshoring of intellectual property assets to Ireland, arising from the tax optimisation strategies of a small number of multinational enterprises (MNEs) and the large net position of an International Financial Services Centre (IFSC) with limited links to the domestic economy. The riskier instruments of the NIIP belong largely to MNEs and IFSC sector, to which domestic sector has little exposure.  The underlying, domestically relevant, NIIP remains hard to gauge. Commission estimates indicate an underlying NIIP (NIIP*) to be between -57% to -82% of GNI* in 2019 (chapter 2). The NIIP adjusted little due to the presence of MNEs, but the external position of the domestic sectors has improved (chapter 2). The position of the domestic private sector might be affected by the pandemic induced lockdown. The current account was in surplus of 4.6% of GDP, also helped by household precautionary savings. The current account is nevertheless expected to be in surplus of 4.5% of GDP in 2021 and 4.2% in 2022. Stripping out the activities of the multinationals, the modified current account is expected to remain stable and increasingly positive, following the trend of previous years.  The maturity profile of external debt is generally favourable, in particular for external liabilities vis-à-vis official creditors.   Property market  Residential property price growth moderated in 2020 to 0.3% y-o-y in nominal terms (chapter 3). Rental price levels remain high, although rent inflation has decreased markedly in 2020.  At this stage, average national housing prices are not judged to be overvalued according to standard measures. However, affordability remains a concern. The number of years of gross disposable income required by an average household to buy a 100 square meters dwelling amounted to 14.5 in 2020, the third highest in the EU. If not addressed, constraints limiting the supply of housing could contribute to imbalances building up.  Despite improvements, housing supply is still falling short of demand. The pandemic induced lockdown of the construction sector had limited effect on new dwelling completions in 2020. However, the number of new housing units commenced decreased by 17% in 2020. The second half of 2020 saw significant increase in activity, due to pent-up demand, which combined with  deteriorating supply, contributed to a rebound in house price growth (chapter 2). House price growth is forecast to continue in 2021 and 2022. Rental price growth has decreased markedly in 2020, due to landlords switching from the short-term tourism related letting to the regular renting, increasing at least temporarily the rental supply, particularly in the Dublin area. Emergency legislation during the lockdown temporarily banned rent increases and evictions. In recent years, the government has actively intervened to address housing supply constraints. The impact of these measures is positive but requires continued monitoring. The legislative reforms to regulate the short term letting sector in areas of high housing demand, which came into effect in July 2019 and may contribute to increase permanently the rental stock (chapter 2).  The vacant site levy, increased from 3% to 7% in 2019, seems to have been effective in supporting land development. Solving administrative deficiencies in its application may help supply growth and improve housing affordability.  The Help-to-Buy (HTB) scheme has been expanded and extended to December 2021. Better targeting this scheme to lower-income FTBs might increase its effectiveness while reducing the risks of creating inflationary pressures. A new shared equity loan scheme for FTBs was announced for 2021. Main takeaways  Ireland has made steady progress in decreasing public and private indebtedness, but vulnerabilities related to large stocks of public, private and external debt remain. Legacy stock imbalances may amplify external shocks.  In the short term, the COVID-19 crisis seems to have lessened vulnerabilities for private debt, particularly household debt, although the longer-term impact on domestic SME debt is uncertain. The crisis has, however, increased vulnerabilities for government debt, which is high relative to GNI* and set to increase further. Current account figures are very volatile, to a large extent driven by MNE activity, while the “domestic” current account has been in surplus more consistently. Overall NIIP is large and negative, although its domestic component is smaller and improving. House price growth decelerated in 2020, but challenges remain in increasing housing supply sufficiently.  In 2020, the policy efforts mostly focused on short-term measures to address the impact of the pandemic. These included measures to preserve employment, an emergency unemployment support payment, a temporary ban on rent increases and evictions and various support to companies. While the economic impact of the COVID-19 crisis on real GDP was small, and Ireland was the only country in the EU that grew in 2020, the impact was broadly similar when the domestic economy excluding multinational corporations is considered. The strong performance of multinational corporations has also supported public finances amid the crisis.  
 
    
 
Table 1.2: 

Selected economic and financial indicators, Ireland 

1. Assessment of Macroeconomic Imbalances 

(1) NIIP excluding direct investment and portfolio equity shares         
(2) domestic banking groups and stand-alone banks, EU and non-EU foreign-controlled subsidiaries and EU and non-EU 
foreign-controlled branches.         
(3) The tax-to-GDP indicator includes imputed social contributions and hence differs from the tax-to-GDP indicator used in the 
section on taxation         
(4) Defined as the income tax on gross wage earnings plus the employee's social security contributions less universal cash 
benefits, expressed as a percentage of gross wage earnings 
Source: Eurostat and ECB as of 2021-05-05, where available; European Commission for forecast figures (Spring forecast 2021)         

10 

2004-072008-122013-182019202020212022Real GDP (y-o-y)5.7-1.44.55.63.44.65.0Potential growth (y-o-y)4.3-0.23.65.62.12.52.3Private consumption (y-o-y)6.0-1.42.63.2-9.05.58.6Public consumption (y-o-y)4.4-1.81.85.86.62.32.0Gross fixed capital formation (y-o-y)8.3-6.315.874.9-32.36.56.6Exports of goods and services (y-o-y)6.71.813.010.56.26.84.9Imports of goods and services (y-o-y) 8.2-0.511.532.4-11.37.75.8Contribution to GDP growth:Domestic demand (y-o-y)5.6-2.70.822.9-16.63.74.5Inventories (y-o-y)0.00.00.00.11.0-0.20.0Net exports (y-o-y)-0.32.04.0-17.520.71.10.5Contribution to potential GDP growth:Total Labour (hours) (y-o-y)1.3-1.71.01.40.50.40.4Capital accumulation (y-o-y)2.20.80.32.60.10.60.3Total factor productivity (y-o-y)0.80.82.31.61.51.51.6Output gap1.7-2.80.70.0-0.8-0.50.1Unemployment rate4.813.09.65.05.710.78.1GDP deflator (y-o-y)2.1-0.92.03.1-0.51.51.2Harmonised index of consumer prices (HICP, y-o-y)2.50.60.30.9-0.50.91.3Nominal compensation per employee (y-o-y)5.10.11.03.51.62.01.8Labour productivity (real, person employed, y-o-y)1.31.72.52.65.0..Unit labour costs (ULC, whole economy, y-o-y)3.8-1.6-3.60.9-3.2-5.91.8Real unit labour costs (y-o-y)1.7-0.7-5.4-2.2-2.8-7.30.6Real effective exchange rate (ULC, y-o-y)3.3-3.6-4.5-3.7...Real effective exchange rate (HICP, y-o-y)1.4-2.3-0.6-2.80.30.6-0.6Net savings rate of households (net saving as percentage of net disposable income)1.67.75.57.5...Private credit flow, consolidated (% of GDP)30.77.1-1.8-9.1...Private sector debt, consolidated (% of GDP)177.1260.7256.1202.4...of which household debt, consolidated (% of GDP)85.7107.665.437.2...of which non-financial corporate debt, consolidated (% of GDP)91.4153.2190.6165.2...Gross non-performing debt (% of total debt instruments and total loans and advances) (2)..11.82.9...Corporations, net lending (+) or net borrowing (-) (% of GDP)2.28.0-3.5-22.7-1.63.94.7Corporations, gross operating surplus (% of GDP)33.833.946.855.158.160.359.7Households, net lending (+) or net borrowing (-) (% of GDP)-8.42.22.12.16.33.02.0Deflated house price index (y-o-y)8.4-13.413.30.00.1..Residential investment (% of GDP)12.33.92.02.32.1..Current account balance (% of GDP), balance of payments-3.9-3.42.3-11.34.64.54.2Trade balance (% of GDP), balance of payments10.415.021.812.330.0..Terms of trade of goods and services (y-o-y)-1.1-0.7-0.61.9-1.50.3-0.2Capital account balance (% of GDP)0.20.1-7.1-9.9-4.9..Net international investment position (% of GDP)-31.4-120.4-161.1-174.0...NENDI - NIIP excluding non-defaultable instruments (% of GDP) (1)1.3-225.0-295.1-285.4...IIP liabilities excluding non-defaultable instruments (% of GDP) (1)951.01385.31418.91354.7...Export performance vs. advanced countries (% change over 5 years)9.9-2.131.168.050.8..Export market share, goods and services (y-o-y)-2.8-4.03.68.318.6-1.0-0.4Net FDI flows (% of GDP)11.2-4.0-5.3-24.5-19.7..General government balance (% of GDP)1.5-14.9-2.50.5-5.0-5.0-2.9Structural budget balance (% of GDP)..-2.90.5-4.6-4.7-2.9General government gross debt (% of GDP)25.584.288.557.459.561.459.7Tax-to-GDP ratio (%) (3)31.829.326.622.721.420.720.5Tax rate for a single person earning the average wage (%) (4)22.123.526.225.924.8..Tax rate for a single person earning 50% of the average wage (%) (4)7.18.312.112.211.4..forecast 
      
 
2.  THEMATIC ISSUE: NON-FINANCIAL CORPORATE DEBT 

Situation entering the COVID-19 crisis 

Excluding  the  foreign  debt  of  multinationals  and  re-domiciled  PLCs,  corporate  debt  stocks  in 
Ireland have been contained. Non-financial corporate debt in Ireland is significantly affected by foreign 
debt  of  companies  with  a  foreign  parent  (95%  of  GDP  in  2019),  which  pose  limited  risk  to  the  Irish 
economy,  and  by  debt  of  re-domiciled  PLCs  (22%  of  GDP  in  2019). (6)  The  amounts  concerned 
correspond roughly to the FDI and foreign arm’s length loans (Graph 2.1(a)). The ratio of non-financial 
corporate debt to GDP, excluding the foreign debt of MNEs and re-domiciled PLCs, amounted to 48.5% 
of  GDP  in  2019,  which  stands  below  the  prudential  benchmark  and  close  to  the  fundamentals-based 
benchmark.  However,  including  also  re-domiciled  PLCs,  the  ratio  is  close  to  prudential  (Table  2.1). (7) 
Using gross national income (GNI*) as the denominator to exclude the impact of MNEs, domestic non-
financial corporate debt amounts to close to 81% of GNI* (or 117.5% including the debt of re-domiciled 
PLCs  corresponding  to  the  grey  area  in  Graph  2.1(b)). These  values  are  above  the  fundamentals-based 
benchmark adjusted for GNI* and close to the prudential threshold, which might however be overstated 
in the case of Ireland. (8) 

Up  to  the  start  of  the  pandemic  credit  flows  to  the  domestic  non-financial  corporate  sector  were 
limited and deleveraging took place. The domestic non-financial corporates deleveraged in 2018 and to 
a lesser extent in 2019 (Graph 2.1(b)). In both years, deleveraging was supported by GNI* growth, but in 
2018 there was also a decline in nominal debt stocks. Available data on net credit transactions and other 
changes in debt (e.g. valuation effects) is distorted by the presence of multinationals and is more difficult 
to  interpret,  but  also  points  to  debt  reduction  (Graph  2.1(c)).  Deleveraging  is  also  observed  in  debt-to-
equity and debt-to-financial assets (Graph 2.1(d)). NFC debt held by banks has substantially fallen, with 
the  share  held  by  other  financial  institutions  exceeding  the  share  held  by  banks  in  recent  years 
(Graph 2.1(a)).  Loans  to  the  real  estate  sector  continue  to  represent  the  largest  share  of  non-financial 
corporate bank loans, even though substantial deleveraging has taken place in this sector (Graph 2.2(a)).  

Distortions  in  the  aggregate  balance  sheet  structure  of  non-financial  corporations  are  likely  to 
inflate  the  negative  net  financial  asset  position.  Net  financial  assets  of  non-financial  corporations 
reached an accumulated balance of -211% of GDP in 2019, much more negative than that of other euro 
area countries. Both assets and liabilities are significantly inflated by the presence of multinationals and 
re-domiciled PLCs (Graph 2.1(e)), but equity liabilities may be disproportionately inflated.  

Local investment is dominated by construction, which is necessary to catch up with the insufficient 
supply, particularly in housing, but is arguably less productivity-enhancing for the local economy. 
While provision of housing in Ireland is a long-standing issue, since housing shortage in some areas may 
constrain  labour  supply  and  increase  labour  cost,  other  productivity  enhancing  investment  are  also 
important and might be more supportive of higher growth potential and of sustainable corporate debt. Net 
investment  reached  30%  in  2019,  but  the  increase  in  net  debt  financed  just  a  small  part  of  it 

(6)  On re-domiciled PLCs please see: 

https://www.cso.ie/en/releasesandpublications/ep/p-ia/internationalaccountsq12020final/redomiciledplcs2019/#d.en.241712. 
These  are  mostly  pharmaceutical  companies,  headquartered  in  Ireland,  formed  following  a  merger  between  a  small  Irish 
company and a large MNE. 

(7)  Fundamentals-based benchmarks are influenced by the initial stock of debt (1995 in this case), but the presence of MNEs and 
PLCs in 1995 is negligible in the case of Ireland. For details on the methodologies, see Bricongne, J. C., Coutinho, L., Turrini, 
A.,  Zeugner,  S.  (2019),  “Is  Private  Debt  Excessive?”,  Open  Economies  Review,  1-42  and  European  Commission  (2018), 
“Fundamentals-based private debt benchmarks: enhanced sample and robustness checks”, note to LIME June.  

(8)  Modified  GNI  is  an  indicator  that  was  recommended  by  the  Economic  Statistics  Review  Group  and  is  designed  to  exclude 
globalisation effects that are disproportionally affecting the measurement of the size of the Irish economy. To arrive to modified 
GNI, one needs to adjust the standard GNI for factor income of redomiciled companies, depreciation on R&D service imports 
and  trade  in  IP,  and  for  depreciation  on  aircraft  leasing.  Please  see  https://www.cso.ie/en/releasesandpublications/ep/p-
nie/nie2019/mgni/. Prudential thresholds are not sensitive to changes in the denominator used, however they are conditional on 
relative  output per  capita,  which is  overstated  in the  case  of  Ireland.  Fundamental based-benchmarks,  which derive  from  the 
accumulation of equilibrium flows to an initial stock of debt (1995 debt in this case), can be affected by the denominator used. 
Part of the foreign debt of firms with an Irish parent could be inter-company, representing lower risk. 

11 

 
                                                           
2. Thematic Issue: Non-financial Corporate Debt 

(Graph 2.2(d)). In terms of composition, total gross fixed capital formation is dominated by the activities 
of  multinationals,  with  R&D  representing  66%  of  total  investment  and  transport  equipment  12%. 
Construction investment, including dwellings and other structures, amounted to 16% of total investment, 
while  other  investment,  including  machinery  and  equipment,  represented  only  6%  of  the  total  and  has 
been contracting since 2014.  

Credit developments and repayment capacity 

For non-financial corporations net bank credit flows were negative in 2020, despite a moratorium 
for loan payments, due to the relatively low gross credit flow (Graph 2.2(c)). There has been a peak in 
suspended payments at around mid-2020 (13% of all loans – both NFC and household), with the share of 
suspended credit facilities declining since then. A public guarantee scheme was introduced in September 
2020,  but  with  a  relatively  low  take-up  (possibly  also  due  to  Brexit-related  uncertainties).  The  cost  of 
borrowing  for corporates remains  higher in Ireland than in the euro area (Graph  2.2(b)) and,  while this 
differential has been increasing since 2015, in 2021Q1 the level of interest rates appears to have driven up 
corporate  credit  demand  according  to  the  ECB  lending  survey  (Graph  2.2(f)).  In  2020  corporate  credit 
demand was instead motivated mostly by inventory and working capital needs. 

The payment breaks (moratoria) that were granted under the EBA-compliant moratorium scheme  
have almost all expired, with most borrowers resuming capital and interest payments in full. From 
March 2020 to September 2020, Irish banks provided payment breaks of up to 6 months (12 months for 
large corporations) under a national industry-led scheme. At the peak in June 2020, 13% of loans (18% 
for  corporate  loans)  were  subject  to  such  a  payment  break.  The  moratorium  scheme  stopped  accepting 
applications at end-September 2020, but support can still be provided to borrowers that need assistance on 
a  case-by-case  basis.  By  end-December,  the  vast  majority  of  these  payment  breaks  had  resumed  a  full 
repayment  schedule  according  to  the  Banking  and  Payment  Federation  Ireland  -  with  active  payment 
breaks representing less than 1% of total outstanding loans in terms of outstanding value. 

Credit developments reflected in part measures taken by the government to shield companies from 
liquidity  pressures.  Companies  have  been  shielded  from  liquidity  pressures  since  the  start  of  the 
pandemic, not only by the moratorium on loan payments but also by a range of fiscal support measures 
including a wage subsidy scheme and tax deferrals. Rent and trade credit payment breaks also added to 
the support. 

The non-financial corporate debt-to-GDP ratio is estimated to have declined in 2020, owing to the 
limited  credit  transactions  and  positive  GDP  growth  (Graph  2.1(c)).  In  this  respect,  Ireland  is  an 
outlier  in  the  EU  with  the  GDP  increase  attributable  mostly  the  multinational  sector  (ICT  and 
pharmaceuticals),  while  modified  domestic  demand,  reflecting  better  domestic  activity,  has  contracted.  
However,  the  increase  in  non-financial  corporate  debt  in  percent  of  modified  domestic  demand  is 
contained by the low level of net credit transactions in 2020. 

Non-financial  corporate  deposits  in  the  banking  sector  have  increased,  while  local  investment 
declined. Irish non-financial corporations saved in 2020, with corporate  deposits increasing by close to 
3% of GDP (ECB BSI  data), amidst  heightened uncertainty relating to the pandemic and the impact of 
Brexit. Simultaneously, modified domestic investment decreased by 8.5% y-o-y, driven primarily by the 
negative contribution of construction (-5.7 pps). According to the ECB bank lending survey, investment 
plans  contributed  negatively  to  explaining  the  demand  for  credit  by  NFCs  in  2020,  but  switched  to 
positive in 2021 Q1, indicating that more firms plan to invest (Graph 2.2(f)).  

The  commercial  real  estate  sector  is  particularly  vulnerable  to  structural  implications  of  the 
COVID-19  pandemic.  There  has  been  an  annual  decline  in  capital  values  of  5.6%  in  commercial  real 
estate  (CRE)  property  in  2020Q3  and  year-on-year  rental  deflation  of  0.8  per  cent. (9)  Irish  banks’ 
exposure to the sector has declined since 2012, with investment funds (often funded from abroad) holding 

(9)  Financial 

Stability 

Report 

2020, 

https://www.centralbank.ie/docs/default-source/publications/financial-stability-

review/financial-stability/financial-stability-review-2020-ii.pdf?sfvrsn=9  

12 

                                                           
2. Thematic Issue: Non-financial Corporate Debt 

a  significant  share  of  the  market  (above  40%),  making  the  sector  vulnerable  to  withdrawal  of  foreign 
capital. (10)  

Non-performing loans 

After a reduction from nearly 40% in 2014 to 3% in 2019, non-financial corporate non-performing 
loans started to increase again in 2020 amid the pandemic. Non-performing  non-financial  corporate 
loans  started  to  rise,  to  4.5%  of  non-financial  corporate  loans  in  2020Q2  and  5.3%  in  2020Q3 
(Graph 2.1(f)). There  were  signs  of  significant  credit  tightening  in  2020Q4,  but  less  severe  in  2021Q1, 
according  to  the  ECB  bank  lending  survey  (Graph  2.2(e)).  The  tightening  can  be  mostly  attributed  to 
higher risk perceptions. Reduced access to credit for non-financial corporations could delay the recovery. 

Corporate  insolvencies  declined  in  2020,  but  are  likely  to  increase  as  support  measures  are 
withdrawn. Insolvencies in 2020 were held back not only by temporary impediments to the procedures, 
but  also  by  the  support  measures  in  place. (11)  Calculations  based  on  data  from  the  company  registry 
indicate that in 2020 the rate of insolvent liquidations was close to the “normal annual rate” for Ireland, 
estimated  at  around  0.25%  of  active  firms,  and  do  not  reflect  the  economic  impact  of  the  COVID-19 
crisis. (12) Between March and September 2020,  only the most affected sectors such as Accommodation 
and Food Services and Wholesale and Retail Trade, displayed signs of higher liquidations relative to the 
same period in 2019.  

The  insolvency  framework  may  face  challenges  should  the  flow  of  applications  increase  once 
support  measures  start  to  be  withdrawn.  Ireland  scores  lower  than  other  EU  countries  in  the  World 
Bank  Index  of  Strength  of  the  Insolvency  Framework  (with  lower  scores  in  creditor  participation  and 
reorganization  proceedings),  as  well  as  on  the  Quality  of  the  Judicial  Index  (with  lower  scores  on  case 
management and court automation). (13) Despite a relatively benign impact of the COVID-19 crisis when 
compared  to  other  countries,  Ireland  may  therefore  benefit  from  additional  measures  in  the  area  of 
insolvency to cope with a possible additional inflow of filings. Companies facing financial difficulties in 
Ireland  can  enter  into  Examinership  for  possible  restructuring  (26  applications  in  2019,  20  of  which 
returned to normal status and 1 entered into liquidation) or Receivership, for piecemeal liquidation or sale 
as going concern (2,188 firms under receivership in 2019). (14) The use of Examinership is comparatively 
lower.  The  process  has  considerable  court  involvement  and  entails  significant  costs,  particularly  in  the 
case of SMEs. The 2019 EU Directive on Preventive Restructuring encourages Member States to enhance 
the availability of solutions with more limited court involvement. (15) 

External position 

Irish external statistics are distorted by the impact of multinational enterprises. As it is the case with 
corporate debt and GDP, the headline current account and the net international investment position (NIIP) 
also  give  a  distorted  picture  due  to  MNEs’  activities.  The  current  account  balance  jumped  from  6%  of 
GDP in 2018 down to  -11.3% of GDP in 2019 and back up to 4.6% of GDP in 2020 and is forecast to 

(10)  According to the Central Bank of Ireland Financial Stability Report 2020, Irish retail bank lending to the domestic CRE sector 

stood at €10.8 billion in 2020Q2, down from €11.7 billion in 2019Q2 and approximately €38 billion in mid-2012. 

(11)  Prior  to  the  pandemic,  there  was  a  requirement  to  hold  a  physical  meeting  with  creditors  to  initiate  a  creditors’  voluntary 
liquidation. This became impractical during the acute phase of public health restrictions and so the main channel for insolvent 
liquidations was blocked, but in late-April, the Consultative Committee of Accountancy Bodies of Ireland issued guidance that 
creditors’ meetings could be held by telephone or video conferencing. 

(12)  McGeever N., C. Sarchi and M. Woods (2020), “Irish company births and insolvent liquidations during the COVID-19 shock”, 
Central  Bank  of  Ireland  Economic  Letter  Vol.  2020,  No.  13.  Data  on  corporate  insolvencies  is  not  homogeneous  across 
countries. This study uses data from the company registry on exit by status. Insolvent liquidations combine creditors voluntary 
liquidation with court ordered liquidations for which the status of the company is insolvent, however, there are also a number of 
companies  involuntarily  stricken  off  the  registry  for  not  submitting  annual  returns  and  financial  statements,  with  unknown 
status. 

(13)  World Bank Doing Business Indicators 2020. The low availability of electronic means in the Irish judicial is also reflected in 

the assessment of the EU2020 Justice Scoreboard. 
(14)  Companies Registration Office Annual Report 2019. 
(15)  Directive  (EU)  2019/1023  of  the  European  Parliament  and  of  the  Council  of  20  June  2019  on  preventive  restructuring 
frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning 
restructuring, insolvency and discharge of debt, and the amending of Directive (EU) 2017/1132 (Directive on restructuring and 
insolvency)  [2019]  OJ  L  172/18.    Article  4(6)  states  that  Member  States  may  put  in  place  provisions  to  limit  judicial  or 
administrative  authority  involvement  to  where  it  is  ‘necessary  and  proportionate’  while  ensuring  that  rights  of  any  affected 
parties and relevant stakeholders are safeguarded 

13 

                                                           
2. Thematic Issue: Non-financial Corporate Debt 

remain above 4% in 2021 and 2022 (Table  2.2, BoP). To adjust for the MNEs effects, the Irish Central 
Statistical  Office  (CSO)  developed  complementary  indicators,  such  as  the  modified  current  account 
balance (denoted as CA*), which adjusts the headline current account figures in a way consistent with the 
calculation of the GNI*. (16) CA* is often expressed in % of the GNI* and it has been much less volatile 
than  the  headline  measure.  It  amounted  to  4.6%  of  GDP  in  2019,  up  from  3.7%  in  2018,  which 
corresponds  to  7.7%  of  GNI*,  up  from  6.1%  in  2018,  indicating  a  large  and  widening  gap  between 
domestic savings and domestic investment, which is supporting the correction of the negative NIIP. 

The headline net international investment position of Ireland has been very negative over the last 
decade. The Irish NIIP reached -174% of GDP in 2019 (-180% in 2020Q1), far below the MIP threshold 
of -35%, but also below the prudential and fundamental NIIP benchmarks amounting to -135% and 7% of 
GDP,  respectively. (17)  The  NIIP  excluding  the  non-defaultable  instruments  (NENDI)  was  even  more 
negative  at  -285%  of  GDP.  However,  the  NIIP  is  strongly  affected  by  the  large  negative  position  of 
MNEs  and  specifically  of  the  International  Finance  Service  Centre  (IFSC) (18),  to  which  the  domestic 
sector  has  only  very  little  exposure.  A  sectoral  breakdown  shows  a  negative  NIIP  of  the  general 
government at -35% of GDP in 2019, (slightly worsening to -37.5% in 2020Q1) and positive net positions 
of around, respectively, 13% and 9% of GDP for the monetary authorities and for monetary and financial 
institutions  (MFI)  not  in  the  IFSC  sector.  Thus,  the  substantial  negative  NIIP  originates  from  other 
sectors, with financial intermediaries in the IFSC sector (other than monetary authority and MFI) holding 
gross external assets and liabilities in excess of the tenfold of GDP in 2019, and their net position equal to 
-53%  of  GDP  (-50%  in  2020Q1). (19)  The  NFC  sector (20)  has  had  gross  external  assets  and  liabilities 
amounting to, respectively 272% and 441% of GDP end of 2019, yielding a negative NIIP of -173% of 
GDP (178% in 2020Q1). 

The estimated NIIP adjusted for  the impact of  multinationals is  much less  negative and has  been 
improving  over  recent  years.  To  adjust  the  NIIP  for  the  MNEs  effects,  one  can  start  with  the  earlier 
NIIP figures known to be less affected by the offshore activities than the current data and cumulate the 
modified current account balances. (21) For 2019, this procedure yields an estimate range between  -34% 
and -49% of GDP (i.e. -57% and -82% of GNI*), depending on the choice of the base year. This is much 
more favourable than the headline NIIP, but still considerably below the  fundamental NIIP benchmark. 
The adjusted NIIP has been improving steadily at least since 2014, given the CA* surpluses and growing 
GDP and GNI* recorded over this period.  

(16)  For more details see https://www.cso.ie/en/releasesandpublications/ep/p-macip/macroeconomicscoreboard2019/hi/#indicator_8. 
(17)  Prudential NIIP threshold is a country-specific threshold that denotes the level of NIIP below which an external crises becomes 
more likely. The fundamental NIIP benchmark is the NIIP that would be obtained if a country had run its current account norm 
in the past.  It is obtained by cumulating CA norms (current account balances explained by fundamentals) over time. For the 
methodology see: Turrini and Zeugner (2019), "Benchmarks for Net International Investment Positions", European Economy, 
Discussion Paper 097/2019. 

(18)  The International Finance Service Centre is a hub for international financial transactions that does not play an important role in 
financing of the domestic economy (European Commission (2019), Country Report Ireland 2020, Commission Staff Working 
Document SWD(2019) 1006 final, Publications Office of the European Union, Luxembourg. 

(19)  The  MFI  in  the  IFSC  also  hold  substantial  gross  assets  and  liabilities  (of  around  250%  of  GDP),  but  a  comparatively  small 

positive net position equal to 9% of GDP end of 2019. 

(20)  Implicitly 

includes 

households, 

see 

Table 

7.4 

at: 

https://www.cso.ie/en/releasesandpublications/ep/p-

ia/internationalaccountsq12020final/internationalinvestmentposition/  

(21)  For  details,  please  see  European  Commission  (2020),  “Interpreting  external  sector  statistics:  taking  into  account  the  role  of 

financial globalization and MNEs”, Note for the attention of the EPC LIME Working Group, January. 

14 

                                                           
2. Thematic Issue: Non-financial Corporate Debt 

Table 2.1: 

Non-financial corporations debt indicators, Ireland 

(f) European Commission forecast. (1) Benchmarks for flows (% of GDP) are estimated on the basis of non-consolidated flows. 
(2) Gross non-performing bank loans and advances to Non-financial corporations (% of total gross bank loans and advances 
to Non-financial corporations). (3) Quarterly data is annualized. 
Source: (a) Eurostat, (b) Ameco, (c) European Commission calculations, (d) ECB 

Table 2.2: 

Selected external indicators, Ireland 

(1) Flow data refer to national account concept, unless indicated otherwise. 
(2) Cyclically adjusted Current Account is the Current Account adjusted for the domestic and foreign output gaps, taking 
into account trade openness. 
(3) The average Current Account needed in order to stabilise the NIIP is based on T+10 ECFIN projections.  
(4) The Current Account explained by fundamentals refers to the expected Current Account given the level of its 
fundamentals with respect to world average.  
(5) The Current Account or Trade Balance needed either to halve the distance to fundamental NIIP benchmark, or to reach 
the prudential NIIP benchmark in 10Y, whichever is higher. Based on T+10 ECFIN projections. 
(6) The country-specific prudential benchmark denotes the NIIP level beyond which the probability of an international 
economic and financial crisis becomes higher. The NIIP level explained by fundamentals (‘NIIP norm’) represents the NIIP that 
would result if a country had run its current account in line with fundamentals since 1995. For details see Turrini and Zeugner 
(2019), "Benchmarks for Net International Investment Positions", European Economy, Discussion Paper 097/2019. 

Source: (a) Eurostat, (b) AMECO, (c) European Commission calculations, (d) WIOD database 

15 

2003-072008-122013-17201920202021f|20Q220Q320Q4SourceStocksDebt, consolidated (% of GDP)(a,d)89153207165149|160147149Debt, consolidated (% of potential GDP)(a,b,d)90149211165148|159146148Prudential threshold (% of GDP)(1)(c)947499110109109|Fundamental benchmark (% of GDP)(1)(c)517461485050|Debt, consolidated (% of gross operating surplus)(a,b,d)262450431300257|282256257Interest paid (% of gross operating surplus) (3)(a,b)8.210.97.96.6|7.37.0Debt, consolidated (% of gross financial assets)(a,d)86784939|Domestic  loans in forex (% dom. Loans)(d)10.710.210.512.510.3|11.711.210.3FlowsCredit flows (transactions, % of GDP) (2)(a)12.19.6-2.8-9.1-3.20.0|3.4-27.0-1.1Benchmark for flows (% of GDP)(1)(c)|Investment (% of value added)(b)20.619.032.854.434.634.6|Savings (% of value added)(b)25.222.336.337.638.842.9|p.m. Banks NFC NPLs (% of NFC loans)(2)(d)18.73.2|2003-072008-122013-172018201920202021f2022fFlows (1)Source:CA balance as % of GDP, NA(b)-3.0-3.40.7|6.0-11.35.04.54.2CA balance as % of GDP, BoP(a)-3.0-3.40.7|6.0-11.34.64.54.2Cyclically adj. CA balance as % of GDP (2)(c)-2.6-4.74.0|5.5-13.614.08.44.8CA req. to stabilize NIIP above -35% (3)(c)-0.9-2.41.4|8.99.510.0CA explained by fundamentals (CA norm) (4)(c)-0.70.21.6|2.93.23.53.43.5Required CA for specific NIIP target (5)(c)0.40.65.5|13.414.214.8Trade bal. G&S, % of GDP, NA(b)11.315.020.6|28.412.330.029.928.9Required TB for specific NIIP target (5)(c)18.514.020.5|30.431.134.1Capital account bal. as % of GDP, NA(b)0.20.1-2.9|-15.9-9.9-4.9-2.5-0.3StocksNENDI as % of GDP(a)13-225-283|-257-285-286of which: net portfolio debt(a)179226375|368408408of which: net mutual fund shares(a)0-444-638|-597-691-738of which: net other investment(a)-13-15-26|-31-641NIIP as % of GDP(a)-30-120-167|-181-174-168Prudential NIIP/NENDI benchmark (6)(c)-94-87-106|-131-135-136-137-137Fundamentally expl. NIIP benchmark (NIIP norm) (6)(c)-10-10-4|47111316 
 
    
 
 
 
    
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Graph 2.1: 

Thematic Graphs: Non-financial corporate debt 

2. Thematic Issue: Non-financial Corporate Debt 

Source: European Commission Services 

16 

-50.00.050.0100.0150.0200.0250.0300.00506070809101112131415161718192021*% of GDP(a) Non financialcorporations debt liablities by creditorDomestic loans from banksDomestic loans from other fin.Domestic loans from gov't & HH   domestic bond holders   foreign bond holdersDebt security liabilities:Unallocated loans   of which RoEA bank loans   of which other arms-length  Foreign arms-length loans:  FDI loans & unallocForeign loan liabilities:Debt assets, F2-F4 ex FDI debtDebt assets incl FDI debtGross debt liabilities (cons.,Estat)Source: Calculations based on Eurostat and ECB050100150200250300040608101214161820*Ratios of debt to equity, GDP and total financial assets (%)(d) Non financial corporate debt in relation to equity and financial assetsDebt / GDPDebt / equityDebt / financial assetsSource: Eurostat-1000-800-600-400-200020040060080005060708091011121314151617181920*% of GDP(e) Non financial corporation balance sheetA, debt securities (F3)L, debt securities (F3)A, loans (F4)L, loans (F4)A, equity and inv. fund shares (F5)L, equity and inv. fund shares (F5)A, insurance, pensions & s.g. (F6)L, insurance, pensions & s.g. (F6)A, other accounts (F8)L, other accounts (F8)A, currency and deposits (F2)A, fin. deriv. & employee stock op. (F7)L, fin. deriv. & employee stock op. (F7)Net financial assetsSource:Eurostat024681012141617Q117Q217Q317Q418Q118Q218Q318Q419Q119Q219Q319Q420Q120Q220Q3(f) Non financial Corporations Non performing loans% of NFCs loans andadvancesSource:Non performing loans and advances, ECB consolidated data-60-40-20020406080100120070809101112131415161718192020Q4y-o-y change(c) Decomposition of non financial corporations debt flows Credit flowReal growthInflationOther changesD/GDP, changeSource: Eurostat050100150200250300350400450201420152016201720182019% GNI*(b) Composition of private sector debtIrish Parent (Irish Debt)Irish Parent (ROW Debt)Foreign Parent (Irish Debt)Re-domiciled PLCsForeign Parent (ROW Debt)Irish Parent and Irish DebtPrudential benchmarkFundamentals-based benchmarkNote: ROW: rest of worldSource: CSO         
 
Graph 2.2: 

Thematic Graphs: Non-financial corporate debt (cont.) 

2. Thematic Issue: Non-financial Corporate Debt 

Source: European Commission Services 

17 

0123456782007-062007-122008-062008-122009-062009-122010-062010-122011-062011-122012-062012-122013-062013-122014-062014-122015-062015-122016-062016-122017-062017-122018-062018-122019-062019-122020-062020-12Cost of borrowing -ECB index(b) Non financial corporations cost of borrowingCost of borrowing for corporations - IECost of borrowing for corporations - Euro AreaSource: ECB MIR02468101214161820% GDP(a) Sectoral composition of non financial corporations bank loans (NACE rev.2)A - agricultureB - miningC - manufacturingDE - electricity, gasF - constructionG - tradeHJ - transp. inform. com.I - accommodationL - real estateMN - prof. adm. activitiesremaining activitiesSource: ECB and Ameco-50-40-30-20-10010203040506004050607080910111213141516171819% of GDP(d) Non financial corporations investment financing capital transfersnet other fin liab./residualincrease in net equity liab.increase in net debtself-financing/net savingnet investmentSource:Calculatiosbased on Eurostat-200-150-100-5005010008Q209Q210Q211Q212Q213Q214Q215Q216Q217Q218Q219Q220Q221Q2(f) Credit demand conditions for non financial corporationsFixed investmentInventory and working capitalAlternative external financingInternal financingInterest rate levelOtherActualexpectationsTighteningEasingSource:ECB bank lending survey-2002040608010012014008Q209Q210Q211Q212Q213Q214Q215Q216Q217Q218Q219Q220Q221Q2(e) Credit supply conditions for non financial corporationsbanks' risk tolerance (from 2015)risk perceptionscompetitioncost of funds and balance sheet constraintsActualexpectationsTighteningEasingSource:ECB bank lendingsurvey-20-15-10-50510152009Q110Q111Q112Q113Q114Q115Q116Q117Q118Q119Q120Q121Q1% of GDP (over last 4 quarters)(c) Bank loans to non financial corporations (net flows)domestic NFC loansdomestic corporate bondsSource:ECB BSI     
3.  THEMATIC ISSUE: HOUSEHOLD DEBT 

Situation entering the COVID-19 crisis 

The  stock  of  household  debt  in  Ireland  has  declined  since  the  Irish  banking  crisis,  though 
deleveraging  needs  may  remain.  The  ratio  of  household  debt  to  GDP  declined  significantly  from  an 
average of 108% in the period 2008-2012 to 37% in 2019 (Table  3.1 and Graphs 3.1(b)). Deleveraging 
has concerned not only bank debt but also other debt liabilities (Graph 3.1(a)) and was achieved through 
both negative net credit flows (transactions) and GDP growth (Graph 3.1(c)). The household debt stock in 
2019,  at  37%  of  GDP,  was  significantly  below  the  prudential  benchmark  and  below  but  close  to  the 
fundamentals-based  benchmark. (22)  However,  GDP  in  Ireland  is  overstated  by  the  presence  of 
multinationals  and  is  misleading  as  a  denominator  for  household  debt.  Household  debt  in  percent  of 
modified  gross  national  income  (GNI*),  which  is  a  better  measure  of  domestic  output,  stood  at  62%,  
below  prudential  (72%),  but  this  benchmark  could  be  overstated  in  the  case  of  Ireland. (23)  Irish 
household debt still amounted to 113% of household gross disposable income (GDI) in 2019, remaining 
amongst the highest in the EU according to this metric.  

The  household  sector  on  aggregate  holds  a  significant  stock  of  liquid  financial  assets,  including 
currency and deposits. The ratio of debt to gross financial assets was close to 32% in 2019 (Table 3.1) 
and households hold a significant share of deposits (Graphs 3.1(f)). In the third wave (2017) of the ECB 
household  finance  and  consumption  survey,  about  3%  of  households  with  mortgage  debt  showed  a 
negative net wealth. (24)  

Despite the relatively comfortable aggregate net wealth position, arrears remained  high for  many 
borrowers entering into the COVID-19 pandemic. The ratio of household non-performing loans in the 
banking sector remained at 7%, despite a significant decline since peak (Graph 3.1(d)). This stock was a 
legacy from the global financial crisis. A significant percentage of household borrowing from the banking 
sector  (and  arrears)  corresponds  to  collateralized  housing  loans  (Graph  3.2(a)),  thus  household  debt 
sustainability  in  Ireland  is  linked  to  housing  market  developments  analysed  below.  A  number  of 
government schemes have been implemented to help resolve long-term mortgage arrears, but the take up 
has been low (25). On the other hand, the mortgage measures put in place by the Central Bank of Ireland 
are helping limit the share of risky mortgages and safeguard the resilience of both households and banks, 
while the completion of the central credit register in mid-2019 will also help in this respect. 

Credit developments and repayment capacity 

Net  bank  lending  to  households  has  been  negative  in  2020,  despite  the  possibility  of  payment 
breaks. New credit to households declined in 2020 relative to 2019 and net bank credit transactions have 
been overall negative (Graph 3.2(c)). The take-up of payment breaks was relatively moderate, with a peak 
of  13%  (for  all  loans  –  both  NFC  and  household)  observed  around  mid-2020  and  take-up  steadily 
declining  since.  The  cost  of  borrowing  for  households  has  been  relatively  stable  in  2020,  but  remains 
above the average costs in the euro area (Graph 3.2(b)).   

(22)  For  details  on  the  methodologies,  see  Bricongne,  J.  C.,  Coutinho,  L.,  Turrini,  A.,  Zeugner,  S.  (2019),  “Is  Private  Debt 
Excessive?”,  Open  Economies  Review,  1-42  and  European  Commission  (2018),  “Fundamentals-based  private  debt 
benchmarks: enhanced sample and robustness checks”, note to LIME June. 

(23)  Prudential  benchmarks  are  not  affected  by  the  choice  of  denominator,  however,  they  are  conditional  on  relative  output  per 
capita and this has been oerstated in the case of Ireland.  Fundamental based-benchmarks, which derive from the cumulation of 
equilibrium flows to an initial stock of debt (1995 debt in this case), can be affected by the denominator used. 

(24)  https://www.ecb.europa.eu/home/pdf/research/hfcn/HFCS_Statistical_Tables_Wave_2017.zip,Table F3. 
(25)  The Mortgage-to-rent scheme (under which a total of 5,749 cases have been submitted of which 1,179 have been completed), 
the Personal Insolvency Arrangement (5,209 arrangements approved between 2014 and 2020), and the Abhaile scheme, which 
supports  homeowners  with  mortgage  arrears  mainly  by  providing  advice  (helped  14,623  households  between  July  2016  and 
December 2019). 

18 

 
                                                           
Table 3.1: 

Household debt indicators, Ireland 

3. Thematic Issue: Household Debt 

(f) European Commission forecast.  
(1) Benchmarks for flows (% of GDP) are estimated on the basis of non-consolidated flows.  
(2) Gross non-performing bank loans and advances to Households and non profit institutions serving households (% of total 
gross bank loans and advances to Households and non profit institutions serving households).  
(3)  Quarterly data is annualized. 
Source: (a) Eurostat, (b) Ameco, (c) European Commission calculations, (d) ECB 

The household debt-to-GDP ratio is estimated to have slightly declined in 2020, owing to the limited 
credit  transactions  and  positive  GDP  growth.  This  was  due  to  the  limited  net  credit  flows 
(transactions)  that  were  overall  close  to  zero  in  percent  of  GDP  reflecting  the  limited  credit  from  the  
banking sector, and to the positive GDP growth (Graph 3.1(c)). In this respect Ireland is an outlier in the 
EU, but modified domestic demand, which excludes the impact of MNEs has declined.   

Household gross disposable income increased in 2020, allowing for sharp increase in the household 
savings  rate.  Household  incomes  in  2020,  which  have  been  supported  by  a  range  of  government 
measures have increased by 5% in 2020. The household savings rate has increased in 2020 well above the 
increase for the euro area, as private consumption was contained. 

A tightening of credit conditions for households has  been observed  in 2020 but there are signs of 
ease in 2021 and the income of mortgage borrowers seems to have been less affected. According to 
the  ECB  bank  lending  survey,  credit  conditions  for  households  tightened  in  2020  on  account  of  higher 
risk perceptions, but have eased in 2021Q1 (Graph 3.2(d)). Although unemployment increased from 5% 
in 2019 to 5.7% in 2020 and is forecast to peak at 10.7% in 2021 (26), the crisis appears to have affected 
mostly  the  lower  income  echelons,  typically  holding  less  debt,  while  the  income  of  many  mortgage 
borrowers and potential borrowers with higher earnings remained unaffected. 

Housing Market 

A large share of loans to households are collateralised mortgage loans, with collateral values having 
recovered about half way relative to the 2008 peak. Prices have recovered since the trough of 2012 but 
do not seem to approach unsustainable levels, as they did in 2008. A certain share of mortgage loans is 
therefore  likely  to  have  remained  “underwater”,  making  legacy  issues  more  difficult  to  resolve  (Graph 
3.2(e)). Nominal house price growth slowed down in the last years (10.2% in 2018, 2.3% in 2019, 0.3% 
in 2020), likely due to a combination of increased supply and macroprudential measures. The slowdown 
has been driven by a decline at the high end of the market (i.e. Dublin). However, in the last months of 
2020  Irish  house  prices  have  accelerated,  due  to  pent-up  demand  from  the  spring  lockdown  combined 
with fewer new units built, curtailing supply. 

Valuation  gaps  are  slowly  closing  compared  to  previous  years,  though  affordability  remains  low. 
Price-to-income  gap  was  15.8  in  2019  (Graph  3.2(f)),  the  second  highest  in  the  EU.  Housing  stock  is 

(26)  The COVID-19 pandemic has however impacted the unemployment statistics and the forecasts should be taken with caution. A 
monthly unemployment measure adjusted for  the COVID-19 impact has ranged between about 16% and 30% in the months 
between March 2020 and March 2021. 

19 

2003-072008-122013-17201920202021f|20Q220Q320Q4SourceStocksDebt, consolidated (% of GDP)(a,d)81108623735|363635Debt, consolidated (% of potential GDP)(a,b,d)82104623735|363635Prudential threshold (% of GDP)(1)(c)674863727171|Fundamental benchmark (% of GDP)(1)(c)467259495354|Debt (% of gross disposable income)(a,b,d)172206156113104|109107105Interest paid (% of gross disposable income) (3)(a,b)5.04.71.51.7|2.12.1Debt (% of gross financial assets)(a,d)51.462.241.832.0|31.230.429.4Share of variable rate loans for house purchase (%)(d)82.182.565.927.723.3|Domestic  loans in forex (% of dom. loans)(d)1.41.40.50.10.1|FlowsCredit flows (transactions, % of GDP) (4)(a)14.2-2.5-1.5-0.10.00.1|0.6-0.40.2Benchmark for flows (% of GDP)(c)6.43.12.03.13.12.9|Savings rate (% gross disposable income)(b)8.912.49.612.223.815.5|Investment rate (% gross disposable income)(b)26.28.75.56.25.66.2|p.m. Bank HH NPLs (% of HH loans)(2)(d)17.0|                                                           
 
  
 
3. Thematic Issue: Household Debt 

expanding, and dwelling completions hit a record in 2019, increasing by 40% in just two years, but still 
falling below estimated needs. Although prices measured in years needed to buy an average dwelling are 
relatively  high,  internal  benchmark  metrics  do  not  overall  signal  overvaluation.  Housing  supply  is  still 
running  behind  needs.  Due  to  the  COVID-19  pandemic,  completions  experienced  a  drop  in  2020, 
although relatively mild compared to expectations. However, building commencements show a worrying 
drop, probably due to the lockdown restrictions of the construction sector. Therefore, house price growth 
is forecast to become again more dynamic in 2021 (12.9%) and 2022 (8%). 

The  government  has  actively  intervened  to  address  housing  supply  constraints.  The  impact  of 
measures has been overall positive but requires continued monitoring. Measures include (1) regulating the 
short-term letting sector in areas of high housing demand. This came into effect in July 2019. However, in 
light of the COVID-19 disruption of the tourism industry, the impact of recent reforms has been difficult 
to  monitor.  (2)  a  vacant  site  levy  to  support  land  development  was  introduced,  with  the  rate  increased 
from  3%  to  7%  in  2019.  Legal  provisions  may  need  some  refinement  to  increase  its  effectiveness.  (3) 
extensive  construction  of  social  housing  was  conducted  through  the  “Rebuilding  Ireland”  government 
programme. (4) on the demand side, the 2021 budget included the extension of the Help-to-Buy (HTB) 
providing a refund  for  first time  buyers (FTBs) under certain conditions of  up to 10%.  Better targeting 
this  scheme  to lower-income  FTBs might increase its effectiveness  while reducing the risks of creating 
inflationary  pressures.  (5)  the  government  announced  the  introduction  of  a  shared  equity  loan  scheme, 
still to be  approved by parliament,  which  will further provide a 20-30% equity stake to FTBs of newly 
built homes. 

Table 3.2: 

Selected housing indicators, Ireland 

The forecast of house prices is computed on the basis a housing valuation model shared with Member States in the context of 
the EPC LIME working group. The forecasts represent real house price percentage changes expected based on economic 
fundamentals (population, disposable income forecast, housing stock, long-term interest rate, and the price deflator of 
private final consumption expenditure), as well as the error correction term summarising the adjustment of prices towards 
their long-run relation with fundamentals. The source for the forecast of other variables is Ameco. 
(1) Price to income in level is the number of years of income necessary to buy an assumed 100m2 dwelling. See Bricongne, J-
C, A Turrini, and P Pontuch, 2019, “Assessing House Prices: Insights from HouseLev, a Dataset of Price Level Estimates”, 
Discussion Paper 101, European Commission, available in ""https://ec.europa.eu/info/publications/assessing-house-prices-
insights-houselev-dataset-price-level-estimates_en"".  
(2) Price to income and price to rent gaps are measured in deviation to the long term average (from 1995 to the latest 
available year).  
(3) The model valuation gap is estimated in a cointegration framework with nominal house prices as the dependent variable 
and five fundamental explanatory variables:  total population, real housing stock, real disposable income per capita, real 
long-term interest rate and price deflator of final consumption expenditure. See Philiponnet and Turrini, Assessing House Price 
Developments in the EU (2017) available in ""https://ec.europa.eu/info/publications/economy-finance/assessing-house-price-
developments-eu_en"" and revision notes presented to LIME in October 2019 and June 2020.  
(4) The average house price gap is the simple average of the price-to-inome, price-to-rent and model valuation gaps. 
Source: (a) Eurostat, (b) Eurostat, OECD, ECB, BIS, Ameco, national sources, European Commission calculations, (c) European 
Commission calculations, (d) ECB, Ameco (e) Ameco (f) ECB 

20 

2003-072008-122013-1720182019202020Q120Q220Q3House price developmentsUnitSourceReal house price, yoy growth%(a)8.7-13.38.67.90.00.1-1.21.4-0.9Nominal house price, yoy growth%(a)11.5-14.09.510.22.30.31.00.3-0.8Price to income in level (1)years(b)19.615.113.716.415.814.514.514.214.5Valuation gapsPrice to income gap (2)%(c)25.6-3.3-11.85.01.6-7.2-8.6-6.8-6.7Price to rent gap (2)%(c)35.36.9-17.9-10.6-13.1-13.0-17.6-13.0-11.2Model valuation gap (3)%(c)35.85.1-24.0-20.3-25.5-31.0-34.5-30.7-29.6Average house price gap (4)%(c)32.22.9-17.9-8.6-12.3-17.1-20.2-16.8-15.9Housing creditMortgages (% GDP)%(d)52.756.233.623.321.520.1Mortgages, yoy growth%(d)19.1-6.9-2.51.80.5-3.6Housing supplyResidential construction - dwellings  (% GDP)%(e)11.93.91.72.32.32.1Residential construction - dwellings, yoy growth%(e)4.2-28.314.119.50.1-7.6Non-residential construction (% GDP)%(e)6.84.74.45.15.65.0Value added in the construction sector, yoy growth%(e)5.4-15.09.411.87.5-12.7Building permits, yoy growth%(a)5.4-39.529.440.134.813.5Number of transactions, yoy change%(f)-4.0-22.625.0Other housing market indicatosShare of owner-occupiers, with mortgage or loan%(a)34.534.433.432.431.3 
     
 
 
Graph 3.1: 

Thematic Graphs: Household debt 

3. Thematic Issue: Household Debt 

Source: European Commission Services 

21 

020406080100120% of GDP(a) Household debt liabilities by creditorLong-term bank loansshort-term bank loansloans by OFIsOther domestic debt liab.Foreigntotal consolidatedSource: Calculations based on Eurostat and ECB0.020.040.060.080.0100.0120.0140.09899000102030405060708091011121314151617181920%GDP(b) Household debt and benchmarksHousehold debt, %GDPFundamentals-based benchmark, household debtPrudential benchmark, household debtSource: Eurostat and European Commission-30-25-20-15-10-50510150708091011121314151617181920y-o-y change(c) Decomposition of household debt flowsCredit flowReal growthInflationOther changesD/GDP, changeSource: Eurostat and Ameco-8-6-4-202468051015202504060810121416182022'y-o-y                  % change%(e) Household saving rateGross household saving rate Euro Area 19 (lhs)Gross household saving rate Ireland (lhs)Real adj. gross disposable income* Ireland (y-o-y %) (rhs)Source: Eurostat-150-50501502500405060708091011121314151617181920*% of GDP(f) Household balance sheetsL, fin. deriv. & empl. stock op. (F7)A, fin. deriv. & empl. stock op. (F7)A, currency and deposits (F2)L, other accounts (F8)A, other accounts (F8)L, insurance, pensions & s.g. (F6)A, insurance, pensions & s.g. (F6)L, equity and inv. fund shares (F5)A, equity and inv. fund shares (F5)L, loans (F4)A, loans (F4)L, debt securities (F3)A, debt securities (F3)Net financial assetsSource: Eurostat02468101214161817Q117Q217Q317Q418Q118Q218Q318Q419Q119Q219Q319Q420Q120Q220Q3(d) Households non-performing loans% of household loans and advancesSource: Non-performing loans and advances, ECB consolidated banking data.          
 
Graph 3.2: 

Thematic Graphs: Household debt (cont.) 

3. Thematic Issue: Household Debt 

Source: European Commission Services 

22 

01020304050607006070809101112131415161718192021*% of GDP(a) Bank loans to households by typeLoans for house purchaseLoans for consumptionLoans for house purchase, EALoans for consumption, EASource: ECB BSI01234562007-062007-122008-062008-122009-062009-122010-062010-122011-062011-122012-062012-122013-062013-122014-062014-122015-062015-122016-062016-122017-062017-122018-062018-122019-062019-122020-062020-12Cost of borrowing -ECB index(b) Households cost of borrowing           Cost of borrowing for households for house purchase - IECost of borrowing for households for house purchase - Euro AreaSource: ECB MIR020406080100120140160180-30-20-10010203006Q207Q208Q209Q210Q211Q212Q213Q214Q215Q216Q217Q218Q219Q220Q22015=100Rate of change y-o-y (%)(e) House prices and mortgage credit growthMFI loans for house purchase (y-o-y growth rate)Real House Price Index (2015=100), right axisNominal House Price Index (2015=100), right axisSource: Source: ECB Bank Lending Survey-40-30-20-1001020304050600002040608101214161820% deviation of current price(f) House prices valuation gapsModel-based valuations gapPrice to income vs. hist. avg.Price to rent vs. hist. avg.Overall valuation gapSource: Source: ECB Bank Lending Survey.-10-8-6-4-202409Q110Q111Q112Q113Q114Q115Q116Q117Q118Q119Q120Q121Q1% of GDP (over last 4 quarters)(c) Bank loans to households (net flows)Source: ECB BSI-40-2002040608010012014008Q209Q210Q211Q212Q213Q214Q215Q216Q217Q218Q219Q220Q221Q2(d) Mortgage credit supply conditions for householdsbanks' risk tolerance (from 2015)risk perceptionscompetitioncost of funds and balance sheet constraintsActualexpectationsTighteningEasingSource: ECB BSI