‘Irish economic activity continues to expand at a reasonably healthy pace’ – Deputy Governor, Sharon Donnery addresses GIC Central Banking Series

• Looking beyond headline statistics, indicators of economic activity suggest growth of approximately 5 per cent.
• Non-performing loans continue to contribute to banks’ balance sheet fragility.
  Heightened Brexit uncertainty could dampen consumer demand and investment decisions by firms.
• Economic growth in Ireland continues to be supported by the current accommodative monetary policy stance of ECB.

Deputy Governor of the Central Bank of Ireland Sharon Donnery, today addressed the Global Interdependence Center Central Banking Series in Dublin on the theme ‘The Outlook for the Irish Economy’.

The Deputy Governor addressed the current challenges presented by economic statistical data, the Irish economy during a period of accommodative ECB monetary policy, and the potential impact of Brexit.

She said that looking beyond the headline GDP and GNP figures to other more reliable spending and activity indicators ‘while not growing at a rate of 26 per cent, economic activity continues to expand at a reasonably healthy pace’.

Financing conditions, she noted have eased across the Irish economy as a result of the monetary policy stimulus. On the banking sector she said that although the pass-through of reductions in policy interest rates is evident at the euro area aggregate level, lending rates continue to be higher in Ireland, with mortgage rates and SME interest rates comparatively higher.

In this context, she said: ‘Non-performing loans contribute to banks’ balance sheet fragility, impinge on profitability and strain capital buffers, impeding bank lending.  Therefore, the continued deliberate and determined work-out of NPLs coupled with ongoing improvements in the Irish economy, will reduce the burden they pose and support the extension of new loans to the real economy.’

She concluded that the outlook for the economy is complicated by the outcome of the Brexit referendum in the UK.  ‘The economic impact of Brexit on Ireland is difficult to estimate with any precision.  It is clear, however, that the impact will be negative and material, both in the short-term and in the longer term. The long-run economic impact of Brexit on Ireland will be influenced by the nature of the withdrawal agreement between the EU and the UK and the subsequent evolution of both economies’, she said.