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The Central Bank building in Dublin. Niall Carson/PA Archive/PA Images
Gabriel Makhlouf

Covid-19 poses 'unprecedented' test of Irish economy, warns Central Bank Governor

The Central Bank has warned that the longer the pandemic lasts, the greater the risk to the Irish economy.

THE COVID-19 CRISIS has caused an economic shock “unprecedented in scale and speed”, the Governor of the Central Bank has warned. 

Speaking to reporters today, Governor of the Central Bank, Gabriel Makhlouf, said that the pandemic was a “a test of the financial system like no other in the last decade”.

“We are perhaps only at the end of the beginning of seeing those challenges emerge,” he said. 

The unprecedented impact of the Covid-19 pandemic – which has seen hundreds of thousands of people put out of work – is the subject of the Central Bank’s first stability review of 2020, which was published this afternoon.

Amid fears that Ireland and other countries could face a potential ‘second wave’ of the virus, the Central Bank is warning that the “longer it takes to successfully combat the public health crisis, the greater the risks to the macro-financial outlook”. 

Speaking to reporters today, Makhlouf said that even if Ireland was able to suppress the virus and prevent a second wave, the economic recovery will remain heavily reliant on how other countries are able to respond to the spread of coronavirus. 

“As a small open economy, we’re exposed to macro events around the world,” he said in response to a question from

“We’re exposed to the world so we’re exposed to the impact not just of a second wave, but to the pace other countries recover to the first wave.”

“The many risks we were facing before the crisis haven’t gone away,” he added, citing global trade tensions and the UK’s departure from the EU. 

“We are dependent of the actions and the decisions made elsewhere. We can influence them, some directly, but the most important thing we can do is build up our resilience.”


Both the stability review and Makhlouf stressed that one of the positive points from the crisis is that the economy is a more stable position than it was during the financial crash. 

“Households, businesses and the financial system have entered into the current phase in a more resilient position compared to the onset of the financial crisis a decade ago,” Makhlouf said. 

The report from the Central Bank makes a similar claim. “In contrast to the domestic and Global Financial Crisis of the late 2000s, the financial sector is responding to, as opposed to being at the root of the challenges posed by the pandemic,” the review states. 

This time around, businesses and households are much more secure financially – but that doesn’t mean all will be able to get through the crisis unscathed, the report warns. 

“While the starting resilience of households and firms is significantly stronger compared to the onset of the financial crisis a decade ago, the scale of the economic shock is unprecedented and will create pressure on the financial position of borrowers and lenders.”

Makhlouf repeatedly warned that while banks will be able to sustain some losses, “that resilience is not unlimited”.


During the crisis, focus has turned to the long-term impact of the virus on various sectors of the economy.

Cash-flow challenges for businesses and lower house prices are set to be one of the most likely impacts into the short-term, with the longer-term fall out remaining to be seen.

As of the end of May, nearly 193,000 payment breaks had been agreed between customers and the five main banks – totaling €24.9 billion in loans.

These breaks, the review found, represents over 13% of the total loans for Irish retail banks, “making the outcome for borrowers beyond the payment breaks period a material consideration for financial stability”.

With 47% of mortgage holders working in a sector at risk from the pandemic, the report warns that Covid-19 payments are not enough to support those who face may mortgage repayments. 

At the start of the crisis, the government introduced a Pandemic Unemployment Payment and a Wage Subsidy Scheme to support workers and businesses – two measures that have added major pressures to state finances, with the budget deficit in May at €6.1 billion. 

“Uncertainty remains about the likely mortgage default rate resulting from Covid-19,” the report states. It predicts that once payment breaks end in several months time, applications for forbearance and restructuring are likely to increase. 

“In some cases, the income shock for mortgage borrowers will persist beyond the length of the payment break and will require additional forbearance, restructuring or resolution”, states the review. 

For businesses, a better economic position than the financial crisis doesn’t mean that all will be insulated into the future. Small and medium-sized businesses, the report warns, will face difficulties the longer restrictions remain in place. 

“Overreliance on debt risks diminishing medium-term resilience, if increased borrowing simply finances pandemic-related losses,” the report warns. 


The UK’s exit from the EU may also mean Ireland faces greater risks from Covid-19, the Central Bank warns. The possibility of negotiations between the UK and the EU ending with no post-transition agreement in place may pose difficulties as the economy struggles with the effects of the pandemic. 

“The macroeconomic shock of reverting to a WTO regime for trade in goods between the EU and UK from 2021 could be material for Ireland, with more severe effects in certain regions and sectors,” the report warns. 

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