Ris­ing risk of fi­nan­cial shocks

Irish Examiner - - Business - Ge­off Per­ci­val

The po­ten­tial for fur­ther neg­a­tive eco­nomic shocks to the Ir­ish econ­omy has in­creased over re­cent months, the Cen­tral Bank has warned.

In its lat­est macro-fi­nan­cial re­view, the fi­nan­cial reg­u­la­tor said the higher de­gree of tur­bu­lence in Eu­rope’s fi­nan­cial mar­kets over re­cent months “im­plies greater po­ten­tial” for neg­a­tive shocks.

Changes in in­ter­na­tional cor­po­rate tax ar­range­ments in the EU and the US; a move to­wards pro­tec­tion­ism in in­ter­na­tional trade; and Brexit re­main the key in­ter­na­tional “risk trig­gers”.

How­ever, the Cen­tral Bank also warned of do­mes­tic risks — above nor­mal prop­erty price rises, bank ex­po­sures to prop­erty-related lend­ing, high lev­els of house­hold and pub­lic debt (Ire­land cur­rently be­ing the fourth most in­debted mem­ber of the EU), and the small num­ber of pay­ers ac­count­ing for a large share of cor­po­ra­tion tax re­ceipts.

“While the do­mes­tic econ­omy is per­form­ing well, this — in it­self — gives rise to po­ten­tial risks,” said Cen­tral Bank deputy gov­er­nor Sharon Don­nery.

“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 said.

The po­ten­tial for con­sumers and busi­nesses to post­pone in­vest­ments un­til the fu­ture trad­ing re­la­tion­ship with the UK is clearer, a slow­down po­ten­tially in­creas­ing non-per­form­ing loan lev­els, and UK in­sur­ance firms los­ing the right to do busi­ness here and af­fect­ing com­pe­ti­tion and prod­uct avail­abil­ity are Brexit risks.

“The risks aris­ing from Brexit, es­pe­cially a hard or dis­rup­tive Brexit, are far reach­ing for Ire­land. The win­dow of op­por­tu­nity for re­solv­ing a range of is­sues for firms is clos­ing fast and con­tin­gency plans need to be fully pre­pared,” Ms Don­nery said.

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