Quarterly Bulletin No.1 January 2016

06 December 2016 Quarterly Bulletins

Quarterly Bulletin No.1 2016 was published on 26 January 2016.

Read the full Quarterly Bulletin No. 1 2016, or access the individual sections and watch our economists discuss parts of our Quarterly Bulletin below.

Forecast Summary Table

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Economic data confirm the continuation of a strong upswing in Irish economic activity over the past year, with GDP now projected to have grown by just below 7 per cent in 2015. The strong growth performance reflects a recovery which has become broadly based and has increasingly come to be driven by a significant rebound in domestic demand.

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Domestic Economy

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Following strong growth last year, GDP is forecast to grow by 4.8 and 4.4 per cent, respectively, in 2016 and 2017. Supported by rising employment and incomes, growth has increasingly come to be driven by domestic sources. Growth is also benefitting from the boost to purchasing power from lower energy prices, favourable financial conditions and some improvement in household and firm balance sheets. With these supports expected to remain in place, the growth outlook is broadly favourable, though rising global risks pose a threat. 

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Financing Developments in the Irish Economy

Despite favourable financing and economic conditions, outstanding credit extended by domestic banks to households and non-financial corporates continued to decline. Slight improvements in the net credit flows to these sectors are beginning to emerge, however they remain negative with repayments continuing to outstrip new lending. The combination of deleveraging and strong economic growth has generated significant improvements in household net worth, while the debt-to-disposable income ratio and number of mortgages in arrears continued to fall. 

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Developments in the Euro Area Economy

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Growth in the euro area continues at a gradual but steady pace driven mainly by private consumption, supported by lower oil prices, rising real wages and lower unemployment. There are significant external risks surrounding the strength of growth in some emerging market economies and the effect of diverging monetary policy actions by advanced economies. Inflation rates in the euro area are forecast to remain very low. Economic activity in the final quarter is expected to maintain the same momentum but the recovery is still reliant on very accommodative ECB policy.

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Recent Developments on Resolution Planning for Credit Institutions and Investment Firms

On 15 July 2015, the Minister for Finance designated the Central Bank of Ireland as the Irish resolution authority under the transposition of the EU Bank Recovery and Resolution Directive (BRRD) into domestic legislation. In its capacity as resolution authority, the Central Bank is responsible for the orderly resolution of failing credit institutions and certain investment firms. The new recovery and resolution framework will enhance both the resilience and the resolvability of EU financial institutions, which should now be better prepared to deal with and recover from a crisis situation. 

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Signed Articles

Interconnectedness of the Irish banking sector with the global financial system

by Niamh Hallissey

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For banks, connections can act as shock-absorbers for smaller shocks but can amplify larger shocks. The level and distribution of connections are also important. Domestically-focussed banks’ interbank large exposures are much lower than the internationally-focussed banks relative to the size of their assets, reflecting the latter’s intragroup exposures. Internationally-focussed banks are primarily exposed to other credit institutions and domestically-focussed banks to households and corporates. Both types of banks have a large proportion of their corporate lending with property-related sectors.
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Statistical Appendix

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