13 February 2019 Press Release
- No-deal scenario would have very severe and immediate disruptive effects that would permeate almost all areas of economic activity.
- Satisfied that the immediate cliff-edge risks of a hard Brexit have been largely addressed.
- The improvements in the resilience of the financial system over the last decade provide a vitally important buffer.
Addressing the European Financial Forum in Dublin today, Governor of the Central Bank of Ireland, Philip R. Lane, discussed the potential impact of Brexit on the Irish economy.
He noted that the Irish economy expanded at a strong pace in 2018, supported by the strength of activity on the domestic side of the economy and a still-favourable international environment. He said, “Looking ahead, the Central Bank’s latest central projection is that the outlook for the economy remains broadly positive, even if some moderation in growth is in prospect. This moderation partly reflects the limits imposed by domestic capacity constraints due to the tightening of conditions in the labour market and current bottlenecks in the housing market. It also is the domestic counterpart to the pullback in the international economic environment, even if this is partly offset by the expansion in domestic government spending.”
Discussing the impact of Brexit he said, “a sudden, no-deal scenario would have immediate disruptive effects that would permeate almost all areas of economic activity. The agri-food sector would be disproportionately affected, with a corresponding outsized impact on rural regions, especially near the Border. Our modelling work suggest that a disorderly Brexit could reduce the growth rate of the Irish economy by up to four percentage points in the first year.”
He said that because the work that the Central Bank and others have undertaken, the immediate cliff-edge risks of a hard Brexit have been largely addressed. These include the temporary permission by the European authorities for the UK central securities depository (CSD) to continue to serve Irish securities during the transition to an alternative EU27 CSD arrangement and legislation to provide a temporary run-off regime that will protect insurance customers.
“In terms of financial stability risks, our assessment is that the improvements in the resilience of the financial system over the last decade provide a vitally-important buffer. Taken together, the more balanced macroeconomic profile, the restructuring of the Irish banking system, the much-higher capital and liquidity ratios, the decline in the non-performing loan ratio and the more intrusive supervisory regime mean that the capacity to absorb negative shocks is much greater than in the past”, he added.