THE UK CRASHING out of the EU is one of the main risks facing the Irish economy, with a hard Brexit having the potential to the cause house prices to fall, the Central Bank has warned.

In its first Financial Stability Review, published yesterday, the Central Bank warned that external events were the main risks facing the Irish economy. 

These include a “disorderly” Brexit – with the UK crashing out of the EU – an abrupt tightening of global financial conditions, or the reemergence of sovereign debt sustainability concerns in the euro.

The report warns that a negative shock to the Irish economy – from Brexit or “some other unforeseen geopolitical event” – has the potential to cause house prices to fall. 

“Income falls due to such a shock would affect demand for housing,” the report states.

The Financial Stability Review outlines the risks facing the financial system in Ireland and the resilience of the economy to withstand adverse shocks. 

Among the other risks, an abrupt fall in Irish property prices and the possibility of more risk-taking behaviour in the banking sector are listed as potential problems. 

Preparing for Brexit 

The Central Bank said that it has taken action to mitigate some of the most immediate risks to financial services between the EU and UK in the event of a hard Brexit. 

“The main outstanding source of risk to financial stability and the wider economy is a larger-than-expected macroeconomic shock in a disorderly Brexit,” it states. 

Acting Governor of the bank – Sharon Donnery – said that, as a small and highly globalised economy, with a reliance of foreign multinational companies, “Ireland is both more sensitive to developments in the global cycle and more prone to structural macroeconomic shocks”.

“It is critical that we continue to identify, plan and prepare to mitigate the impact of those shocks, should they materialise,” she said. 

“Building a resilient system is central to this. Resilience is not something that can be built after an event, but is something that should be in place well before any issues arise.

We continue to expand our macroprudential framework to ensure we have the right tools to manage potential risks to financial stability and the addition of the Systemic Risk Buffer will be an important tool for us in building a resilient banking system with sufficient capital buffers to absorb these structural shocks.