Central Bank of Ireland warns Ireland’s economy slowly grows but full impact of high interest rates lies ahead

The Central Bank of Ireland (CBI) announced a new report that highlights the resilience of Ireland’s economy in the midst of persistent inflation. However, it warns that the economy is still adjusting to high interest rates, and additional inflationary shocks may be down the road. The report was published in response to rising global economic concerns and increasing financial risks.

Opening up on the contents of their recent report,according to a Nov. 23 CBI press release, the report, "Financial Stability Review 2023 II," gauges the primary risks challenging the financial system, as well as the economy’s and financial system’s resilience to adverse shocks and policy actions to maintain stability.

Moving onto broader economic conditions,according to the CBI press release, in the global economy, high interest rates have persisted, which have elevated risks in the financial markets. Among the global economic risks: inflationary shocks, geopolitical tensions, symptoms of global economic fragmentation and extreme weather events.

Focusing on local effects,according to the CBI press release, while Irish households are experiencing "robust" income growth and less debt, the central bank stresses that the full impact of high interest rates has not arrived yet—but it is coming.

In further analysis of Ireland's situation,"The Irish economy has continued to expand since the last Review, albeit at a slowing pace. The labour market remains resilient with strong wage growth. However, we must also acknowledge that a range of previously-flagged risks are now closer to materialising than in June," Gov. Gabriel Makhlouf said during a press conference on Nov. 23.

Delving deeper into resilience factors,"Despite these emerging signals of risks crystallising, the domestic household, business and banking sectors continue to demonstrate resilience in aggregate, with a strong labour market being a key factor. Low levels of debt, prudent and appropriate macroprudential policy, and the fixed borrowing costs for many are also supporting resilience to the shock," Makhlouf said.