On-trade

Strong economy boosts resilience but risks remain – Central Bank of Ireland

Central Bank of Ireland’s Financial Stability Review shows the global economy has been more resilient to higher interest rates than many had expected

While businesses have experienced an increase in costs, the domestic economy has supported small and medium-sized enterprises (Photo by RDNE Stock project via Pexels)

The strength of the Irish economy and the gradual easing of inflation continue to support the resilience of households and businesses, but risks remain amid rising geopolitical tensions, the Financial Stability Review published by the Central Bank of Ireland shows.

The report outlines the Central Bank’s assessment of the main risks facing the financial system, the resilience of the system to those risks, and policy actions to safeguard stability.

It shows the global economy has been more resilient to higher interest rates than many had expected and that some of the most acute risks have eased somewhat since the previous report last November. However, rising geopolitical tensions mean further shocks are possible, creating a particular concern for an open, highly-globalised economy like Ireland.

Governor Gabriel Makhlouf said: “Ireland is not immune from this shock and domestic capital values have fallen by over 25 per cent since 2019, while the Dublin office market is experiencing one of the largest increases in vacancy rates in Europe. Despite the size of the downturn, the impact on the Irish financial system has been contained to date, with diversification of investors and financing sources, coupled with resilience in our core domestic banking sector, helping the financial system to absorb – rather than amplify – the shock.” 

Commenting on the mortgage market, Governor Makhlouf said: “Regularly monitoring and assessing the role the measures are playing within the mortgage and housing markets remains a priority for the Central Bank. Our overarching view continues to be that structural forces such as the imbalance between supply and demand are the main driver of house price growth.” 

While businesses have experienced an increase in costs, the domestic economy has supported small and medium-sized enterprises (SMEs). “There are some signs of distress, however, with insolvencies increasing in certain sectors, albeit from very low levels, and we must continue to monitor closely for any delayed impact of recent shocks,” said the Governor.

The banking sector has experienced increased profits from higher interest rates, “but profits are expected to moderate this year if monetary policy develops as expected, while funding costs may increase through competition for deposits, and an increase in loan defaults would further weigh on the sector,” concluded Makhlouf.

To read more of Financial Stability Review, click here.


Sign Up for Drinks Industry Ireland

Get a free weekly update on Drinks Industry trade news, direct to your inbox. Sign up now, it's free