Ireland possibly facing sharp downturn in economy, Central Bank governor warns

Ireland is facing risks that could cause a sharp downturn in the economy, and a raft of changes are needed to solve the housing crisis, according to Central Bank governor Gabriel Makhlouf.

In an interview published with the ‘Financial Times’ today, Mr Makhlouf said that throwing money at housing at a time when the economy is running at full employment won’t solve the issue.

“Absolutely the supply of housing needs to be addressed,” he said in the interview. “Whether you can do that overnight is extremely unlikely, so it is going to take a while. It is not simply construction.”

Mr Makhlouf said changes needed to be made to Ireland’s planning system, to public infrastructure and labour availability.

“When you are running, as Ireland is at the moment, an economy at full capacity, you have to meet all of those challenges in my view to deliver the housing supply that you may want and need. It is more than a fiscal question.”

According to the Central Statistics Office, there were 21,241 home completions in Ireland during 2019 – way off the roughly 35,000 a year that it’s reckoned the market needs to meet demand. The Central Bank itself estimates that 34,000 a year are required.

However, the 2019 figure was an 18pc increase on the number of completions in 2018.

Sinn Fein has pledged to have 100,000 council and affordable homes built over the next five years if it gets into government. But it has also promised to cut USC and abolish property tax.

With the global economy, including Ireland’s, now facing the risk of a slowdown prompted by the spread of the coronavirus, the policy ambitions of whichever parties form the next government may be curtailed if the Exchequer’s coffers come under pressure.

“I’m calling this an interesting conjecture because in a bad scenario… you could suddenly find the fiscal surpluses that the current government has forecast are suddenly challenged very much by that change in sentiment and activity,” Mr Makhlouf told the Financial Times.

Ireland’s economy is poised to be one of the fastest growing in Europe again this year.

The Central Bank predicted last month that Ireland’s economy would expand by 4.8pc this year, compared to 6.1pc in 2019. Davy Stockbrokers said in January that it expects the economy to grow by 5.5pc, while accountancy group EY said last month it would grow by 3.4pc in 2020.

But the spread of the coronavirus – which is already hitting firms here – could dampen growth expectations.

Multinational giants and other large corporations contributed almost €10.9bn of Ireland’s total €59.3bn tax take last year.

The reliance on those top tier tax receipts from companies such as Google, Facebook and Apple has raised concerns that the next global downturn in the economic cycle could pose problems for our economy.

Finance Minister Paschal Donohoe has conceded that Ireland needs to run surpluses to prepare for such a downturn.

Planned changes to international tax rules are also likely to hit the Irish economy.