The International Monetary Fund (IMF) has judged that the Irish economy has bounced back stronger than those of most eurozone countries following the pandemic while pointing to persistent challenges such as housing and infrastructure and warning of uncertainty stemming from the war in Ukraine.
The Washington-based watchdog forecast that the economy would grow by a "robust" 7.5% this year, slowing from 13.5% in 2021, largely due to a "deceleration" of exports in the multinational-dominated IT and pharmaceutical sectors as an indirect result of the Ukrainian conflict.
The IMF also pointed to lower retail bank profitability in Ireland compared to its peers, with Ulster Bank and KBC Bank Ireland set to exit the market and non-bank lenders trying to fill the imminent void.
"[Non-bank lenders] have tripled their share of new mortgage lending over last two years (to 13% in 2021)," the IMF said. "Ireland is host to a large market-based finance sector, which requires enhancing risk analysis and reinforcing regulation in collaboration with international partners."
It continued: "Several pre-pandemic challenges remain, including housing shortages, infrastructure, social and green investment gaps, and the need to strengthen MNE’s inward linkages to broaden growth and make it more inclusive."
In Association with
The IMF praised the government for its "careful withdrawal" of Covid-19 supports and encouraged policymakers to "enhance fiscal sustainability" in response to rising inflation and weakening global demand and to strengthen financial sector resilience.
Structural reforms should also be advanced to address bottlenecks in the economy, mitigate the impact of Brexit on SMEs, increase productivity and reduce inequities
The body's directors added that any additional measures to assist households and businesses with the rising cost of energy should be "carefully targeted at the most vulnerable" while commending efforts to bolster pension sustainability and broaden the tax base in the face of uncertainty over corporation tax revenues.
The directors also emphasised the need for the financial sector to address outstanding legacy issues from the crash, for greater state oversight to be given to the complex, growing banking, non-bank, and fintech sectors.
In fact, in its staff report, the IMF recommended reducing operating restrictions on banks, addressing issues around the repossession of homes with mortgages in long-term arrears, and expediting plans for the state to divest from bailed-out banks.
The staff report also called for housing policy to be strengthened to address affordability, increase productivity in construction and to improve the planning process.
"Policies should also aim at facilitating post-pandemic labour reallocation and reducing labour shortages, including through re-skilling and reducing barriers to occupational licensing," it added.
Responding to the IMF's findings, Minister for Finance Paschal Donohoe said he noted the challenges, talked up fiscal supports of €2.4bn to address inflation, and highlighted the Fund's view that government budgetary policy is "broadly appropriate".
"I share the Fund’s assessment of key structural issues, such as the need to further increase housing supply and to continue to implement measures to address climate change," he added. "These are priority areas for government, and we are working hard to address these important issues.”
(Pic: Getty Images)
