The governor of Ireland’s central bank sees inflation – not recession – as a bigger economic threat.
Abriel Makhlouf says a recession is “unlikely” given the buoyant job market and rising tax revenues.
“My own view today is that it’s unlikely, but there’s always a risk,” he told reporters ahead of the release of the central bank’s semi-annual Financial Stability Report yesterday.
“I don’t think the risks of a recession are high because the evidence we’ve seen points in the opposite direction.
“There’s a whole host of factors that don’t really suggest the economy is slowing and moving into negative growth.”
Unemployment fell below 5 percent in April – widely regarded as near full employment – while tax receipts rose by a third compared to the same time last year.
Most official forecasts assume that gross domestic product growth, which includes multinational transactions, will average 4-5 percent over the next two years.
Although it’s a slight downward revision of previous forecasts of almost 6 percent, it’s a far cry from the severe slowdown forecast for the UK, US or the rest of the 19 eurozone countries.
The central bank forecast in April that GDP would average 5-6 percent over the next two years.
It said modified domestic demand — which excludes volatile aircraft leasing and patent deals — would average just over 4 percent through 2024.
Bank forecasters are still optimistic about Ireland’s prospects, despite concerns about the war in Ukraine and rampant inflation, which hit a nearly 40-year high of 7.8 percent in May.
“It would take a significant further negative shock, beyond what is really expected, to push the economy into recession,” said Mark Cassidy, the central bank’s director of economics and statistics, “but at the same time the outlook could be a bit weaker.” be than we expected in April.”
Even a Brexit trade war “would not push” the Irish economy “into recession,” Makhlouf said.
He was also optimistic about house price growth, which the National Statistics Office said had slowed in April for the first time in 19 months.
The central bank will decide later this year whether to raise its mortgage loan ceilings, which limit home loans to 3.5 times the gross salaries of homebuyers.
“The determinant of what will ultimately happen to house prices will be supply and demand. It won’t be where we are on mortgages or interest rates,” Mr Makhlouf said.
The upbeat economic outlook is part of the central bank’s calculations in its decision to tighten Ireland-specific rules on future bank lending.
It aims to increase a key capital buffer from zero to 1.5 percent by the middle of next year if pandemic risks recede.
It comes ahead of the European Central Bank’s rate-hiking “journey” which is due to start from July with a 0.25 percent hike in key lending and deposit rates.
The central bank estimates that a 1 percent hike in the ECB’s key interest rate could increase the cost of repaying the average tracker and standard adjustable-rate mortgage by €65 a month.
Around 54% of outstanding mortgages are adjustable rate, with the average monthly payment for such loans rising from €862 to €927.
The ECB’s rate hike announcement earlier this week caused the cost of borrowing in the euro zone to rise, with investors demanding a premium of over 4 percent to buy Italian 10-year bonds.
That was the highest return since 2014.
German yields surged to a 10-year high of 1 percent, despite charges falling on Wednesday after the ECB agreed to accelerate a new “anti-fragmentation tool” to clean up markets.
Ireland’s borrowing costs have recently risen to over 2 per cent from almost zero last year. But Mr Makhlouf said the government could continue to fund itself going forward.
“I think that as long as the government continues to focus on the sustainability of its borrowing and continues to pursue a prudent fiscal strategy, then I don’t think I would have such concerns.”
The central bank also intends to introduce credit limits and cash requirements for property funds, which hold assets worth around 40 per cent of Ireland’s GDP. The measures are expected to be completed later this year.
https://www.independent.ie/business/irish-recession-unlikely-says-central-bank-head-41756254.html Irish recession ‘unlikely’, says central bank governor