Monday, August 17, 2020

Improvement in net worth per capita stalls

There are lots of things that can go on a national balance sheet.  National accounts can give one perspective.  As set out in a previous post there this gives essentially four things that can go on the national balance sheet:

  • Financial assets (such as deposits, equity and pension savings), and
  • Financial liabilities (such as loans)
  • Produced fixed assets (such as buildings, infrastructure, equipment and IP)
  • Non-produced fixed assets (such as land)

There is lots of detail on these in the previous post.  For now we’ll just update (to 2018 for most countries) the net worth per capita chart for the EU15 (ex Lux).  This is based on the first three items above, i.e. the value of non-produced fixed assets such as land is excluded.

National Balance Sheet EU15 Net Worth Per Capita 2001-2018

Ireland’s net worth per capita displays a volatility that is not present for the other countries in the chart.  Excluding Luxembourg, Ireland had the third-highest nominal net worth per capita in the EU15 in 2006. 

This, of course, was based on property prices which had been unsustainably boosted by a credit bubble. By 2011, Ireland had the lowest net worth per capita of the selected group.  It was only in 2015, that Ireland’s per capita net worth began in to rise.  As can be seen this slowed in 2017 and actually reversed in 2018 leaving Ireland with the fifth-lowest nominal net worth per capita.

One of the issues with Ireland’s balance sheet is that some of the the gross amounts are immense relative to the size of the economy. 

For example, total economy financial assets and liabilities were each in the vicinity of €7 trillion at the end of 2018.  We also know that the fixed assets side has its quirks.  Included are hundreds of billions worth on aircraft for leasing and IP of US MNCs.

Small movements in these, most of which have little direct impact on the well-being of Irish residents, can have significant effects on net outcomes and even more so in per capital terms.  In the main though, we can expect this issues to net out.  Financial liabilities of the IFSC are offset by related financial assets and the aircraft and IP assets have offsetting financial liabilities.

One reason why Ireland’s net worth per capita stalled in 2018 is because the improvement in the household financial balance sheet stalled somewhat in 2018. 

Household Sector Balance Sheet 2017-18

Yes, deposits rose and loans fell as would be expected but contrary moves in the value of listed shares held and insurance technical reserves meant there was little change in the net financial worth of the household sector in 2018.  The value of assets such as dwellings which are included in the initial chart are excluded from this table while, as noted, the value of land is wholly excluded here.

Maybe there will be some bounceback in the 2019 figures but the gap to the next-ranked country in 2018 (Italy) suggests that Ireland will remain as having the fifth-lowest nominal net worth per capita in the EU15.

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