The Irish economy has been in a strong growth phase in
recent years, supported by both domestic and external demand.
Unemployment is forecast to fall below 5% in 2019, far below
its post-crisis peak above 15%. Some sectors of the economy
– especially construction – have yet to
emerge fully from the boom-bust cycle, such that the
post-crisis recovery process is not yet complete.
While near-term growth prospects look quite positive, there
are several clear downside risks. The Irish economy faces
potential external challenges including shifts in international
financial conditions, protectionist-motivated changes to
international trading arrangements and shifts in international
tax policies. As a small, highly-open economy, Ireland feels
the impact of any related adverse events more keenly than
others. Of course, Brexit has wide-ranging implications, given
the close ties between the Irish and UK economies: the net
impact will depend on the final outcome of the EU-UK
On the domestic front, the projections for the labour market
indicate that the economy is heading towards full employment.
As the Irish economy moves closer to capacity limits, a prudent
approach to fiscal policy is desirable, with the running of
surpluses during good times enabling a counter-cyclical fiscal
stance during future downturns.
While there has been considerable deleveraging, households
remain relatively highly indebted with Irish banks still
tackling the elevated stock of non-performing loans. A
considerable proportion of the latter comprise mortgage arrears
cases of long duration. The Irish retail banking system is
profitable and well capitalised, with loan volumes projected to
expand in line with the recovery in the economy.
As the designated national authority for macroprudential
policy in Ireland, the Central Bank has implemented a number of
macroprudential measures in recent years, with the goal of
increasing the overall resilience of the financial sector.
Borrower-based measures, including loan-to-value and
loan-to-income ceilings on mortgages, increase the resilience
of the banking and household sectors to adverse developments in
the property market and protect against credit-house price
In July 2018, the Central Bank announced a change to the
counter cyclical capital buffer (CCyB), raising it from 0% to
1% (effective July 2019). This measure increases minimum
capital requirements during the current economic growth phase
and helps protect banks against possible losses associated with
the build-up of cyclical systemic risk. Furthermore, a number
of systemically important institutions will be required to hold
additional capital (termed the O-SII buffer) from 2019