Major risk for Irish economy despite deal

Brexit poses major risk to Irish economy despite deal

Brexit will remain a risk to the Irish economy even after a deal was struck last week. The deal is aimed at ensuring that there will be no hard border with the North after the UK leaves the EU, the Central Bank has said. In the 2017 Macro-Financial Review published by the regulator regarding the current state of the macro-financial environment in Ireland, it highlighted a number of risks to the Irish economy and the country’s financial system. This is, despite the fact that the global economy continues to strengthen.

The review cited brexit, disruptions to global trade arrangements, overheating in the economy, and high levels of indebtedness in both households and firms as the risks posed to the country’s economy. The review also said that economic slowdown due to brexit will adversely affect Irish retail banks as these banks have significant exposures in the UK market.

Central Bank deputy governor, Sharon Donnery said Irish exporters remain at risk from the Brexit. Whilst the recovery of the Irish economy continues to strengthen, the risks are both real and varied. She said that the agreement reached between UK and EU negotiators last week is to be welcomed, but Brexit continues to pose a major risk to the Irish economy given that any final deal is still subject to continued negotiations which will be both significant and complex. She further said that without the detail of any final deal, it is prudent that the bank continues to call out the risks. Sectors such as agri-food and manufactured goods, which are highly dependent on the UK for trade, remain vulnerable.

Donnery further said that in the absence of a final trade deal, disruption to supply chains is also a possibility, with many firms currently using the UK as a land bridge for transporting goods. She stated that any change to transport routes or increased border waiting times might mean a knock-on increase in prices for Irish shoppers. Donnery said that high levels of indebtedness in many Irish firms may deter investment and leave them vulnerable to any economic downturn or unable to raise the finance required to alter business models post-Brexit.

Brexit will have another impact on Ireland which will be in the property sector. As businesses move to Ireland in wake of brexit, Dublin property market will see an influx of businesses, which is already overstretched and there will be a further aggravation of the situation. The review said that it will be even more problematic due to the lack of infrastructure in transport and communications. The review said that infrastructural deficits in transport, communications, and residential property pose a risk to growth by, on one hand, the constraint they impose on growth and, on the other, as the additional expenditure required to address them may add to overheating pressures. Moreover, banks’ loans remain concentrated in property-related lending, leaving banks vulnerable to adverse developments in residential and commercial real estate markets.

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