The Central Bank of Ireland (BCI) has warned that a non-agreement Brexit is the main danger to the country's financial and economic stability because it would cause a "harder-than-expected" macroeconomic shock.
The BCI warning was published in the institution's latest quarterly report, which addresses uncertainty about the UK's exit from the European Union ('Brexit'), which is now scheduled for October 31.
According to the Irish central bank, a wild 'Brexit' would be the trigger for an abrupt hardening of 'global financial conditions' and would cause 'macroeconomic damage' in Ireland. BCI anticipates that this scenario would have "harmful effects", for example in real estate.
In the same report, the regulator recalls that after the collapse of the Irish banking system in 2008 the industry has been recovering for several years, but warns that housing prices could skyrocket if London ends the relationship with the European Union ( EU) in a disorderly way.
BCI points out that, in recent years, Irish and foreign investment funds have purchased several real estate portfolios to invest in the rental segment which has pushed up prices. At the same time, it has resulted in a significant number of first-time buyers being unable to access the market.
In a non-agreement 'Brexit' scenario, the crisis that would be set could lead to an increase in unemployment in the country and, at the same time, the hasty exit of the real estate market from investment funds. These two factors, according to the BCI analysis, would bring a sharp drop in housing prices.
In the same report, the financial market supervisor anticipates that a divorce without an agreement between London and Brussels could subtract up to six percentage points to Ireland's growth rate over the next two years.
Both the BCI and the Central Bureau of Statistics (CSO) estimate that Gross Domestic Product (GDP) grew by 8% in 2018, almost 2% more than forecast. Although this year forecasts are more modest, the two entities expect Ireland's economy to grow only 4.3% because of Brexit.
The BCI also warns that in addition to Brexit, the country's financial sector will also face the risks posed by other external factors such as the US-China trade war. This may cause a "sudden adjustment" of "global financial conditions" and the "resurgence of sovereign debt concerns" in the euro zone.
The report also notes that, after the last major crisis, the Irish banking system is better prepared to "absorb shocks" than to expand them, as it has in the past.