Ireland's economy open to global shocks, must keep tight reins on debt - Makhlouf
Ireland's exceptional exposure to global trade is "a source of vulnerability" that requires public and private debt to be kept in check, including on mortgages, Central Bank governor Gabriel Makhlouf has told students in Waterford.
"Ireland has clearly benefited from opening itself up to the world and this openness has become a defining feature of the Irish economy. However, this openness can also be a source of vulnerability," he said in an address today at the Waterford Institute of Technology.
Current risks include "the ongoing possibility of a disorderly Brexit and the risk of an escalation of trade wars, as well as cyclical developments, such as a sudden change in global financial conditions," he said.
Mr Makhlouf said the potential shocks from slumping external demand, curtailed markets or disrupted supply chains "mean we need to build resilience" – and that, he said, meant keeping a tight rein on public and private debt.
He called the Central Bank’s limits on lending "a permanent feature of the mortgage market. They have been key to enabling sustainable lending and are a core component of our macroprudential toolkit. The annual review of the measures allows us to challenge ourselves to ensure they are set in a way that ensures bank and borrower resilience is maintained - and that we don’t see a damaging credit-house price spiral emerging."
He noted that Irish household debt reached a 2008 peak of €203bn, right before the global debt crisis that led to Ireland’s international bailout. That private debt load has decreased by 32.5pc to €137bn today, most of it in residential mortgages.
"Irish households now have lower debt repayments and are less sensitive to shocks to interest rates or incomes. … However, Ireland’s household debt-to-income ratio remains the fifth highest in the EU," he said.
Mr Makhlouf said the Central Bank’s lending rules - criticised in some quarters as many home hunters struggle to afford properties on the market, particularly in Dublin - were currently under review.
"However, I want to emphasise that the measures are aimed at strengthening borrower and bank resilience. And our focus remains on avoiding a return to the credit-house price spirals of the past," he said.
He said while deficit spending had declined thanks in part to strong corporate tax collections, the national deficit remains high by EU norms and could worsen through the mid-2020s "if a disorderly Brexit or a permanent loss of corporation tax revenue" were to hit exchequer returns.