Geoeconomic fragmentation has moved from being a risk to becoming a reality, and as a small, open economy, Ireland finds itself at the cross roads of these geopolitical headwinds, Central Bank Governor Gabriel Makhlouf said today.
The Governor made his comments in an address to the Institute of International and European Affairs (IIEA) in Dublin today.
Mr Makhlouf said that Ireland and its partners in Europe are undergoing significant economic transitions in climate, in demography and in technology.
"On the face of it, we are also undergoing a significant economic transition in how international trading relationships are made and nurtured. The growing fragmentation of the global economy is a challenge to Ireland's openness, which has been one of the defining features of its economy and a key platform for the country’s living standards," he said.
"Building economic resilience - through investment in physical and human capital in particular - is the most effective way of helping to manage these transitions," he stated.
On inflation, Governor Makhlouf said the disinflation process remains subject to risks, and there is a very high degree of uncertainty surrounding the outlook.
He said the ECB stands ready to react to changes in the outlook, for both inflation and growth, but added that the ECB continues to believe that it should not commit to any specific future path for interest rates.
Speaking at the IIEA, Governor Makhlouf said that Ireland faces some profound economic challenges and significant opportunities.
"I see two particular economic challenges that need to be addressed without delay - the infrastructure deficits which are affecting housing, transport, energy, water and waste water, and the risks to the Exchequer from the over-reliance on a relatively narrow tax base, especially in the context of a changing global environment," he said.
He also said that Ireland and Europe's ageing demographics pose significant challenges, adding that these shifts carry far-reaching policy implications, impacting working age and pension sustainability, healthcare resourcing, infrastructure, and broader fiscal resilience.
On climate, Governor Makhlouf said concerted investment efforts are needed to reduce carbon emissions.
"We still have an opportunity to make a considerable impact on reaching our targets, and the next five years will be critical for the transition towards climate neutrality, but there is considerable work to do," he said.
