Brexit continues to pose major risk to economy, Central Bank warns
Brexit continues to pose a major risk to the Irish economy despite progress in negotiations over the border, the Central Bank has warned.
Changes to trading relations post Brexit threaten to hit export demand and disrupt supply chains, according to the bank's latest assessment of the Irish economy.
The agri-food and manufacturing sectors are particularly vulnerable, the review said.
Sharon Donnery, deputy governor of central banking, said the recovery of the Irish economy continued to strengthen.
But she warned that risks were "real and varied".
"The agreement reached between UK and EU negotiators last week is to be welcomed, but Brexit continues to pose a major risk to the Irish economy given that any final deal is still subject to continued negotiations which will be both significant and complex," she said.
"Without the detail of any final deal, it is prudent that we continue to call out the risks.
"Sectors such as agri-food and manufactured goods, which are highly dependent on the UK for trade, remain vulnerable.
"In the absence of a final trade deal, disruption to supply chains is also a possibility, with many firms currently using the UK as a land bridge for transporting goods here.
"Any change to transport routes or increased border waiting times might mean a knock-on increase in prices for Irish shoppers.
"Meanwhile, high levels of indebtedness in many Irish firms may deter investment and leave them vulnerable to any economic downturn or unable to raise the finance required to alter business models post-Brexit."
The Central Bank noted that a Brexit-related slowdown in the UK economy could negatively impact Irish retail banks' profitability in the long term, as they have significant exposure in the UK market.
The potential of firms to relocate to Ireland is likely to heap additional pressure on the Dublin property market, both residential and commercial, the bank added.
It said, to date, the main impact of Brexit has been exchange-rate movements, particularly the weakening of sterling - a move that has put downward pressure on goods price inflation.
The warnings were outlined in the Central Bank's second edition of the 2017 Macro-Financial Review (MFR).
The review also flagged risks to the economy posed by gaps in transport and communications infrastructure and the nation's large debt burden.
The MFR said demand in the housing market continued to outstrip supply and many households were vulnerable to debt and interest rate rises.
It said the continued journey towards full employment in Ireland could prompt an overheating of the wider economy.