Ireland’s Central Bank Warns of Elevated Global Risks Despite Domestic Resilience

17 November 2025

By David Barwick – DUBLIN (Econostream) – Ireland faces a challenging global environment marked by elevated financial stability risks, even as domestic households, businesses and banks remain broadly resilient, the Central Bank of Ireland (CBI) said Monday in its Financial Stability Review 2025:II.

Global uncertainty remains far above historical norms, the CBI said, noting that trade policy risks had eased since the US-EU agreement in August but could re-emerge quickly. Growth forecasts have improved modestly, yet remain below where they stood at the start of the year, it said.

The review highlights what it calls a “disconnect” between high global uncertainty and the optimistic pricing of financial assets, with equity markets at record highs and corporate bond spreads at multi-year lows.

Elevated valuations in US technology and AI-related stocks, combined with rising concentrations in major indices, leave markets vulnerable to a sharp correction, the CBI cautioned.

Lending standards in private credit have come under scrutiny following several high-profile bankruptcies in September, and vulnerabilities within segments of the global non-bank financial intermediation sector could amplify market shocks, the CBI warned. Some non-banks show elevated leverage, liquidity mismatch or opaque links to other institutions, raising the risk of disorderly adjustments under stress, it said.

Sovereign debt dynamics also remain a concern, according to the review. Persistent fiscal deficits in many advanced economies, rising expenditure and projected increases in debt ratios are occurring alongside historically low sovereign spreads in the euro area. A sudden repricing would have adverse spillovers, the CBI said, particularly given interlinkages between sovereigns, banks and non-banks.

Inflation paths in both the US and Europe remain subject to volatile factors including tariffs, currency movements and energy prices, the review said. Although the monetary policy outlook is stable, the CBI noted that several drivers of recent disinflation in the euro area are themselves fragile.

Domestically, near-term risks have eased following the trade agreement with the US and continued resilience in spending and activity, according to the CBI. However, it expects the Irish economy to be about 1% smaller over the medium term than it would have been absent new tariffs, owing mainly to lower investment and a reorientation of exports away from the US.

Ireland’s structural openness and reliance on US foreign direct investment remain core vulnerabilities, with a small number of highly globalised sectors responsible for a disproportionate share of output, employment and corporate tax receipts, according to the CBI. Any weakening in Ireland’s attractiveness for FDI would pose a significant macro-financial risk, it said.

Government finances, though currently in surplus, remain exposed due to heavy reliance on windfall corporation tax receipts and the need for sustained investment in housing, energy and infrastructure, the CBI said. Balancing these pressures while avoiding overheating is essential, it said.

On the household side, debt-servicing capacity varies but remains broadly resilient despite past shocks to interest rates and inflation, the review found. Mortgage lending is rising at a pace aligned with income growth, and lending standards remain prudent, while house price inflation continues to reflect a structural imbalance between demand and supply, it said.

The commercial real estate market is stabilising, with capital values recovering in the industrial and retail sectors, though the outlook for offices remains mixed, according to the review. It noted that vacancy rates are improving only slowly, while non-prime office assets continue to face downside risks.

Banks remain profitable, with improving asset quality and resilience demonstrated in the 2025 EBA stress test, the CBI said. It called on domestic institutions to ensure preparedness for operational and cyber risks, citing recent international outages as reminders of vulnerabilities linked to third-party service providers.

Macroprudential buffers, including the 1.5% countercyclical capital buffer and unchanged O-SII buffer settings, continue to provide resilience proportionate to prevailing risks, the CBI said. Mortgage measures remain central to preventing an unsustainable relationship between credit and house prices, it said.

Developing a macroprudential framework for non-banks remains a priority as global reforms on leverage and liquidity in investment funds advance, the CBI said. It is assessing the use of liquidity management tools by Irish-domiciled funds and continues to monitor implementation of measures for Irish property funds and GBP-denominated LDI funds.