The Central Bank says that even in the event of a Brexit deal being concluded, much uncertainty will surround the post-transition environment and any outcome will be negative for Ireland.

Deputy governor Sharon Donnery (pictured) said: “Whatever form it takes, Brexit will be negative for Ireland. Even in the event of a deal, much uncertainty still surrounds the post-transition environment and this could continue to put pressure on investment that is vital for jobs and economic growth.”

The bank’s latest Macro-Financial Review highlights the risks, which include:

• A further weakening of sterling that would make Irish exports to the UK more expensive. In the event of a hard Brexit, a weaker pound could coincide with an increase in tariffs on those exports. Large and persistent currency movements could also cause increase competition from UK providers, even for sectors previously sheltered from competition from the UK.
• Ireland’s retail banks’ loans books are heavily concentrated in property lending to Ireland and the UK, with British-based borrowers accounting for 26% of exposures. Shocks arising from Brexit could reduce bank profitability and have a material impact on the credit quality of banks’ loan portfolios.

Beyond these, the bank says that some risks to the wider financial system and economy have increased since the summer,  including:

• A reversal of investor sentiment in financial markets and a correction in asset prices.
• Increased market volatility due to both European and global geopolitical developments, including protectionism in international trade and changes in corporate tax arrangements.
• A robust domestic macroeconomic environment has raised concerns about the potential for capacity constraints emerging and the economy operating above potential in the near term. An external macroeconomic shock would be intensified if the economy were operating above productive capacity.
• Residential real estate price growth bringing valuations close to or above what would be consistent with broader economic developments. Infrastructure shortages, particularly in the housing sector, are a risk. On supply issues, prices for apartments have increased the most and yet apartments comprise only 14% of new builds.

Donnery added: “Beyond Brexit the risks facing Ireland’s current economic growth are wide ranging. It is important that households, banks and the financial system are building resilience. For our part, this includes reinforcing our well-established mortgage measures and requiring banks to hold sufficient capital so they can better weather any difficult times ahead.”

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The full Macro-Financial Review is available here.