Central Bank warns of recovery challenges despite positive developments
THE pace and effectiveness of dealing with the bad loans in the banks could hit domestic demand and stymie the ability of the economy to recover, the Central Bank has warned.
And it said the level of distress among small and medium borrowers is “particularly acute” endangering not only the profitability of the banking sector but has far reaching consequences for the viability of the businesses and jobs they generate.
The Dame Street bank struck a relatively downbeat tone in its latest Macro Financial Review, stating further austerity and high levels of private sector debt will weigh on domestic demand and constrain consumption and investment activities.
“Despite a weak first quarter, GDP is projected to increase marginally in 2013 and by about 2pc in 2014 as a pickup in domestic demand begins to complement continued export growth,” the review stated.
“The economic outlook, nevertheless, remains uncertain and dependent on external demand.
“The pace and effectiveness of loan arrears resolution and the related ability of the banking system to support the recovery may impact domestic demand and the capacity of the Irish economy to benefit from any improvement in the external environment.”
In a more upbeat tone, however, the Central Bank said that while high unemployment continues to be of concern, recent developments are positive.
“The related, albeit small, rise in nominal disposable income which is expected over the period will help ease the high household debt to disposable income ratio,” it said.