Global market wobbles and soaring stock prices may put Irish economy at risk, Central Bank warns

OVERSTRETCHED PRICES IN global financial markets and ongoing uncertainty in the world economy are the biggest risks facing Ireland’s financial system, the Central Bank of Ireland has warned.

The warning comes in the Central Bank’s latest Financial Stability Review, which examines the pressures that the country may face and how well the system can handle them.

In their review, the Central Bank noted that the global economic outlook has improved slightly due to clarity on US trade tariffs, but this improvement depends on existing agreements staying in place.

There’s currently a 15% reciprocal tariff rate on US-bound Irish goods under the new EU-US trade framework introduced in August, though a number of exemptions were made in recent days on food imports.

At the same time, share prices, especially for major US technology and AI companies, have reached record highs.

“A negative development in the outlook for US technology and artificial intelligent related companies could lead to a market correction,” Central Bank Governor Gabriel Makhlouf said.

“Given the significant exposure of global investors to US markets, this could in turn lead to a shift in broader risk sentiment and a repricing in other markets.”

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Corporate bonds are also priced as if risks are low, the Central Bank added.

This combination, according to the Central Bank, shows a clear gap between the level of uncertainty in the global economy and how confident markets appear to be.

Rising government debt in many countries was another concern flagged by the Central Bank, as debts could limit how much governments can respond if economic conditions deteriorate.

Ireland is particularly exposed to these risks due to the country’s close ties to global trade and heavy reliance on US multinationals.

“Risks from economic and trade uncertainty are significant given Ireland’s structural openness and reliance on US foreign direct investment,” the Central Bank said.

While households, businesses and banks in Ireland are currently in a strong financial position, international developments could have an outsized impact on the country’s open economy, the Central Bank warned.

Irish banks, it added, remain resilient and capable of absorbing a severe shock.

In his remarks, Makhlouf said it will take time to see the full effects of changing global trading arrangements.

“A sudden shift in sentiment could lead to unplanned fiscal corrections and wider market disruption,” Makhlouf said.

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