The Irish economy and financial system have strengthened but still remain vulnerable to adverse external shocks. This is according to the first Macro-Financial Review of 2018 published by the Central Bank of Ireland.
The report provides an overview of the current state of the macro-financial environment in Ireland and highlights risks to the economy and financial system.
The Central Bank report notes the domestic economy is growing substantially, but this in itself gives rise to potential risks. The assessment takes into account progress made to date in reducing private and public debt and non-performing loans in the banking sector.
According to the report, Brexit-related risks to the economy include the potential for domestic businesses and households to postpone investment decisions until the future trading relationship with the UK becomes clear.
Further risks include a Brexit-related slowdown in UK and Irish economic growth affecting Irish bank loan portfolios with a potential rise in NPLs and new operational challenges for Irish banks looking to issue debt through the UK and UK insurance firms potentially losing the right to do business in Ireland, affecting competition and product availability.
Commenting on the report, Deputy Governor at the Central Bank, Sharon Donnery said, "While the domestic economy is performing well, this in itself gives rise to potential risks. Stronger growth could add to overheating pressures if not managed prudently. The array of risks facing Ireland, coupled with the fact that we are a small and open economy naturally prone to volatility, make it hard to predict what the future holds."
She added, "What we can do is to ensure that the banks and financial system are sufficiently resilient to withstand unexpected shocks. As such, it is right that we now give active consideration to using all of the tools available to us to help maintain sustainable and balanced growth."