“Consumers, businesses and regulators should expect, and plan for, more frictions and divergence” - Governor Gabriel Makhlouf

12 February 2020 Press Release

Central Bank of Ireland

  • The UK’s withdrawal from the Single Market represents a substantive change for the Irish economy.
  • The impact of the coronavirus outbreak in China adds to already existing uncertainties and risks at the global level.
  • We must ensure that our regulatory frameworks are fit for purpose for the decade ahead. As a central bank, we must also be agile and responsive to change, adapting to and shaping the world around us.

Speaking at the European Financial Forum today, Governor Gabriel Makhlouf said that “Brexit-related uncertainty and risks have weighed on confidence and sentiment. Tensions in relation to international trade and geopolitics have escalated. And our main trading partners have shown weaker growth. Despite all this, the most recent data indicate that the Irish economy continued its strong trend growth in 2019.”

However, he cautioned that “The economic impact of the new trading arrangements with the UK will depend on how close or how far they are from current arrangements. But it seems likely and unsurprising that any future economic relationship between the EU and the UK will have more hurdles than the status quo.

“Consumers, businesses and regulators should expect, and plan for, more frictions and divergence.

“There are no straightforward answers here and it is inevitable that uncertainty will have an impact on economic activity. But minimising that uncertainty by using the transition period to plan for change would be my advice to all businesses, all consumers and all regulators.”

Assessing the potential economic impact of the coronavirus in China, Governor Makhlouf said that it “adds to already existing uncertainties and risks at the global level. While it is premature to reach any conclusions, there is the potential for a negative shock to the growth of the international economy in the short-term. Beyond that, however, we must wait and see, though recognising that uncertainty has increased.”

He added that “Any impact on the Irish economy would be felt through both direct and indirect channels. From a decline in demand for Irish exports to China, to the negative impact on overall world demand and a consequential impact on Irish exports. As a small open economy Ireland is particularly exposed to disruption in world trade and as China accounts for a large and growing share of world output - about 19% of world GDP in 2018 – we would expect a disruption to China’s economy to have an impact on Ireland in purchasing power parity (PPP) adjusted terms.”

Governor Makhlouf also announced that the Central Bank was looking at its key frameworks to ensure that they fit for purpose for the decade ahead.

He said that “For us, these include micro-prudential frameworks, macro-prudential frameworks, and frameworks for consumer protection. And our focus is not just domestic, but European too.” This work includes reviews of the consumer protection, macro-prudential and European frameworks.

Governor Makhlouf concluded by announcing that the Central Bank was also undertaking a review of its stakeholder engagement to identify best practice in this area to deliver “a consistent, comprehensive and inclusive approach to how we engage and who we engage with.”