DUBLIN (Reuters) - Tail risks for the Irish and global economies are rising even as robust growth continues, Ireland’s central bank governor warned on Friday.
Ireland’s economy has grown faster than any other in the European Union for the last three years and is showing few signs of slowing down.
But changes in the global taxation system, volatility in financial markets and talk of protectionist trade measures all pose risks to the country’s open economy, which is “inescapably volatile”, Philip Lane said in a speech in Dublin.
“Prospects are good, there is a lot of positive momentum. But the tail risks are going up also,” said Lane, who is also a member of the European Central Bank’s Governing Council, which sets interest rates for the euro zone.
One possible trigger factor is if the strong growth seen in financial markets in recent years goes into reverse.
Lane described the recent fall in markets as a “welcome correction” but said a more significant correction could be negative for the global economy.
Proposals in the European Union and the United States to tweak the international tax system could hit big global players in the digital economy, many of whom have large offices in Ireland.
“A related international risk is the threat to the international trading system if there were a widespread adoption of — explicit or implicit — protectionist measures,” he said.
U.S. President Donald Trump raised fears of a trade war on Thursday when he pressed ahead with import tariffs of 25 percent on steel and 10 percent for aluminium but exempted Canada and Mexico and offered the possibility of excluding other allies.
The risks meant public and private sector decision makers should ensure that choices are robust enough to withstand unanticipated outcomes, rather than relying too heavily on the ECB’s central growth and inflation projections, Lane said.
“It is important to emphasise that fiscal prudence can be fully reconciled with ambitious fiscal plans,” Lane said in a reference to Irish government plans.
“However, it is necessary to recognise the genuine trade-offs that exist, especially if the labour market returns to full employment.”
Reporting by Conor Humphries; Editing by Catherine Evans