Ireland is now experiencing "an unprecedented contraction" in output, which is set to persist this year and next, Central Bank governor John Hurley told a Dáil Committee this morning.
In his opening statement to the Oireachtas Committee on Economic Regulatory Affairs, Mr Hurley said “we face significant challenges and it is critical for present and future generations that we work together now to confront them. If we do so, our economy will recover and has the potential to grow solidly again in the medium term”.
Mr Hurley told TDs that Irish GDP is set to shrink by more than 6 per cent this year, while the unemployment rate will surpass 11 per cent.
"While the initial downturn in activity was driven by the sharp decline in the Irish property and construction sectors, this has now broadened out into a marked weakening of domestic demand, which is being significantly amplified by the contraction in export demand as a result of the movement into recession of all our main trading partners".
Mr Hurley also said the architecture of financial regulation and supervision, both in Ireland and internationally, needs broad-ranging review and reform in light of the crisis over the past two years, adding "no one should be in any doubt about the seriousness of the global situation, which is not easing, and the seriousness of our own difficulties".
Attending the meeting with Mr Hurley were Tony Grimes, the director general of the Central Bank and Tom O’Connell, assistant director general of the Central Bank.
Speaking ahead of the meeting, which took place in Leinster House at 11am, Michael Moynihan, the chair of the Committee said the 'light-touch' approach to regulation employed by the supervisory authorities in Ireland had been widely criticised for downplaying the risk of rising bad debts on substantial property loans.
"I understand that a key problem with the current system is that the financial regulator has no obligation to act on reports from the governor of the Central Bank which may warn in financial stability reports about, for example, excessive lending by banks," said Mr Moynihan.
"This meeting will give members of the Committee the opportunity to question the Central Bank governor about our regulatory system and co-operation between his organisation and that of the financial regulator and whether this impacted on the ability of supervisory authorities to deal with the crisis in our banking system," he added.