Strong Irish economy vulnerable to Brexit

Strong Irish economy vulnerable Brexit
14/06/2018. Macro-Financial Review of 2018. Pictured is Sharon Donnery, Deputy Governor, Central Banking in Central Bank of Ireland at a media briefing for the publication of the Central Bank of Ireland’s first Macro-Financial Review of 2018.Photo: Leah Farrell/

Irish economy still growing substantially but Brexit is ‘a major threat’, says Ireland’s Central Bank High levels of household and public debt also cause for concern Ireland’s economy is still showing strong growth but Brexit poses major risks, according to the country’s Central Bank.

Its first Macro-Financial Review of 2018 says Ireland’s domestic economy is projected to grow, in gross domestic product (GDP) terms, by 4.8 per cent this year and 4.2 per cent in 2019.

“Business sentiment has been improving over recent quarters and increased building and construction is contributing to investment growth,” says the report.

It says Brexit is “a key risk to the Irish economy, (but) there is also a concern that as the economy approaches full employment, upward pressure on wages and skills shortages, as well as infrastructure deficiencies, could threaten competitiveness”.

Changes in international corporate taxation rates “could affect foreign direct investment and economic performance more generally”, it adds.

The main Brexit-related risks to the Irish economy include:

• Domestic businesses and households to postponing in- vestment until the future trad- ing relationship with the UK becomes clear

• Brexit-related slowdown in UK and Irish economic growth affecting Irish bank loan portfolios, with a potential rise in Non-Performing Loans (NPLs) or bad debts

• Difficulties in Irish banks raising money in the UK

• UK insurance firms potentially losing the right to do business in Ireland, affecting competition and product availability

Deputy Governor of Central Banking Sharon Donnery, said: “The risks arising from Brexit, especially a ‘hard’ or disruptive Brexit, are far-reaching for Ireland. Contingency plans need to be fully prepared.”

Irish households remain highly indebted and vulnerable to adverse employment, income or interest rate shocks, she added.

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