Assessing Ireland’s Resilience Amid Global Financial Shifts

The Central Bank of Ireland has published its second Financial Stability Review for 2025, presenting a careful evaluation of evolving economic and financial risks at home and abroad.

The latest review highlights that, while trade policy uncertainties have eased since mid-year, global economic risks remain pronounced. Market valuations have soared, particularly led by US technology and AI sectors, creating a disconnect with persistent economic uncertainty. This divergence signals vulnerability to corrections, as any negative shift in prospects for these sectors could trigger widespread market adjustments. The report also raises concerns over financial stability due to high-profile bankruptcies in the US, which draw attention to lax lending standards and opacity within non-bank financial institutions—a sector whose growing role could amplify adverse shocks. Meanwhile, the trend of rising fiscal deficits across advanced economies is pushing public debt to higher levels, which may ultimately restrict governments’ flexibility to respond effectively to downturns if market sentiment suddenly turns.

Closer to home, Ireland’s open economy remains heavily reliant on a handful of globalized sectors, increasing its exposure to international uncertainties—especially those impacting foreign direct investment. Yet, despite these risks, Irish households, businesses, and financial institutions currently display robust balance sheets. Domestic credit growth is steady and largely driven by mortgage lending to first-time buyers, with house price increases primarily stemming from constrained supply rather than speculative lending. The commercial real estate market is showing early signs of recovery, and the banking sector demonstrates resilience, with recent stress tests suggesting the capacity to withstand severe shocks.

The Central Bank continues to prioritize financial resilience through targeted macroprudential policies, such as maintaining a counter-cyclical capital buffer and sustaining mortgage lending safeguards. Progress is also being made to enhance oversight of non-bank property funds and to implement global reforms on non-bank leverage and liquidity risk. These steps aim to ensure the financial system remains robust amid heightened global volatility.

The review underscores the importance of ongoing vigilance and prudent management of Ireland’s economy and financial system in the face of global uncertainty, affirming the country’s current stability while recognizing the challenges ahead.