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OECD raises possibility of ‘another property bubble’ as it warns of overheating in Irish economy

SIGNS of overheating have started to be seen in the Irish economy, the Organisation for Economic Cooperation and Development has warned – and Brexit remains the biggest risk.

In its latest biannual economic outlook, the Paris-based agency pointed out that new mortgage lending and loans to small businesses have risen sharply in recent months, as the property market remains buoyant despite high bank lending rates.

It advised that lending restrictions may need to be extended to cool credit growth.

It also raised the possibility of “another property bubble” if house price growth rates – currently at 13pc per year – continue.

The OECD raised concerns about Ireland’s property market in 2006, a short time before the financial crash. At that point, its warnings were largely ignored by the Government.

“Property prices may increase more strongly, which would boost further construction activity in the near term but may induce another property bubble associated with a strong surge in credit growth,” the OECD says in its latest report.

“Persistently high private indebtedness also poses a downside risk, as it leaves the economy sensitive to rising interest rates,” it added.

The biggest immediate risk to Ireland’s economic outlook remains Brexit, however.

“Economic activity in Ireland is projected to remain robust, but to ease gradually,” it added.

“Abstracting from volatile activities of multinational enterprises (MNEs), domestic demand will remain robust with solid employment growth and consumption.

“As the labour market tightens, wage pressures will be strong, feeding into higher inflation. Business investment will slow after its strong rebound, while the construction sector will retain its momentum.”

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