Ireland Central Bank Statement

Author: IFLR Correspondent | Published: 24 Sep 2019
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The Irish economy grew strongly in 2018. Positive developments in the domestic environment are visible across most segments of the economy and financial system. There are 24% more people in employment since the low of 2012, and this is broad-based across the economy. Female participation has increased, albeit from a comparatively low base.

The Irish government's debt burden as a share of national income is on a downward trajectory, although it remains among the highest in the EU when measured appropriately. The cost of government borrowing is at a record low and the budget appears to be close to a balanced position when the effects of the cycle are accounted for.

Against this backdrop, there has been an unforeseen favourable upswing in corporation tax receipts. The capitalisation of the Irish retail banking system has strengthened considerably in recent years, credit has started flowing back to the economy and there has been a decline in the value of non-performing loans. However, growth is forecast to moderate somewhat in 2019, as global risks and uncertainty slow prospects in key trading partners.

The domestic positive outlook is clouded by external uncertainty. The increased likelihood of a no-deal Brexit is particularly concerning. Such a scenario would have severe implications for the Irish economy. Moreover, increased global trade tensions and changes to the international tax regime are also downside risks given the significant contribution of the multinational corporate sector to the Irish economy. In these uncertain times, the importance of building resilience cannot be overestimated. Balancing growth at home with global uncertainty would suggest prudent fiscal management of the exchequer with the running of surpluses during good times enabling a counter-cyclical fiscal stance in the event of an unexpected downturn.

Building the resilience of the domestic banking system is a core function of the Bank as the designated national authority for macroprudential policy in Ireland. The counter-cyclical capital buffer is set at 1%, raising minimum capital requirements during the current economic growth phase. The Other Systemically Important Institutions (OSIIs) buffer was phased in, in July 2019, adding to our macroprudential toolkit. The Bank recently requested the authority to activate a systemic risk buffer (SyRB), this would improve loss-absorbing capacity if a systemic risk event occurred. Borrower-based measures (both loan to income and to value) have been in place for a number of years and are used to increase the resilience of both borrowers and the banking sector while also dampening the pro-cyclicality of credit and house prices, so that a damaging credit-house price spiral does not emerge.

In line with our mandate, the Bank is committed to playing its part in addressing climate change. We can do this through analysis, regulation, or the design of appropriate frameworks to ensure that the risks are considered and the opportunities are recognised in order to ensure that the financial system operates in the best interests of consumers and the wider economy.

While times are good, it is important we put in place the structures to build the resilience of our small, open, globalised economy to future risks and shocks.