Latest Macro-Financial Review highlights risks to the global and Irish economic outlook

On 14 June 2017 the Central Bank published the first edition of the 2017 Macro-Financial Review (MFR) which gives an overview of the current macro-financial environment, and is designed to help better evaluate financial risks. The review found that while the Irish economy continues to grow strongly, international and domestic risks to the economic outlook have increased.

Key points from the review:

• Global economic outlook risks remain elevated while risks to the projected output growth in the Irish economy remain to the downside
• Brexit and the possibility of changes in international tax and trade policy are among the factors currently causing uncertainty
• Market sentiment towards European financials has improved but cyclical and structural challenges in the European banking sector remain
• Irish household indebtedness remains high, with households vulnerable to interest rate rises

Speaking at the launch of the review Sharon Donnery, Deputy Governor (Central Banking) said: “The global economy is expected to grow modestly in 2017 and 2018, with risks to the outlook being elevated. The UK leaving the EU (Brexit) and the possibility of changes in international tax and trade policy are among the factors generating uncertainty at this time.”

Deputy Governor Donnery noted the strong performance of the Irish economy but warned that the impact of Brexit was likely to be negative. “The short-term impact of Brexit will be largely felt through the exchange rate channel. In the medium to long term, any new trade barriers faced by Irish exporters to the UK will likely have a significant impact on their activity, particularly in sectors such as agri-food and manufacturing,” she said.

Deputy Governor Donnery said that European banks were exposed to a sudden change in investor sentiment. “European banks, insurers and pension funds remain vulnerable to structural and cyclical challenges and to shifts in market sentiment. High stocks of non-performing loans arise in some Member States’ banking systems, while banks need to diversify profit sources and address overcapacity,” she said.

Deputy Governor Donnery noted that Irish household debt levels had fallen but cautioned that the sector was exposed to an increase in interest rates. “While household debt has been declining, the sector remains highly indebted, leaving it vulnerable to a rise in interest rates. Those in the 30-44 age category have high debt-to-income ratios relative to other age cohorts and by international comparison,” she said.

Read the full text of Deputy Governor Donnery’s remarks.

Also see the press release on the MFR. A video of the Macro-Financial Review press conference will be available later on the Central Bank YouTube channel.