When will the tipping point arrive for the Irish economy? Of three increases in interest rates implemented so far by the European Central Bank (ECB), those of last December and March have not yet halted the relentless momentum of growth in borrowing.
Yesterday's credit statistics for the month of May - a full two months after the second such increase - show that far from slowing down, the annual rate of increase in private sector borrowing accelerated to 29.8 per cent, its highest rate since March 2000. Although not confirmed by the time that rise in borrowing took place, the more recent June rate increase was anticipated by those borrowers whose decisions drive these numbers.
As pointed out by several commentators, there is a danger that the economy's senses as regards interest rate increases have been numbed by the release of SSIA money this year, assisted by strong increases in Government spending. But we need those senses around us. Monetary policy works best when it encourages a gradual adjustment of behaviour. Including commercial and personal debt, the total stock of non-government debt stood in May at over €282 billion and is over €62 billion higher than a year previously, a significant increase in the economy's vulnerability to rises in interest rates.
The continued acceleration in house price inflation makes it more likely that adjustment will be abrupt and sudden. So do indications from several "hawks" on the ECB's governing council that the pace of interest rate rises may be more sudden than expected. One commentator has even suggested rates may rise again next week.
Last Monday the Irish Intercontinental Bank and the ESRI calculated that some 50,000 borrowers are presently feeling squeezed as rates rise. They predict that this number will grow significantly as rates rise further. On Thursday, the Irish Financial Services Regulatory Authority warned the Irish League of Credit Unions to take action against the rising incidence of bad debts, a trend that now threatens some credit unions with bankruptcy. These are more than unrelated news items. They are an important signal that key sectors of the borrowing public - including young house buyers and those on low incomes - are starting to feel the heat.
Whatever their precise timing, interest rates should rise a further three quarters of a percentage point before the next election. A recent mood of trepidation is now evident among borrowers as expectations on interest rates produced sharp declines in consumer sentiment in June. Next week's meeting of the ECB's governing council will not allay these fears and may even produce a surprise increase in interest rates. As Exchequer figures will most likely confirm next Tuesday, Government finances are increasingly dependent upon the housing market, itself dependent on the tide of debt washing over our economy. We might ask what is going to happen when that tide goes out. So might the Government.