“The main risks for Ireland actually are similar to the rest of Europe. It’s the impact on growth, the impact on inflation,” Mr Makhlouf said in an interview with Bloomberg. But Ireland is in a “better position than a number of other countries” thanks to its growth rate and a financial system that weathered the shocks of the Ukraine war and Covid pandemic, he added.
Conflict in the Middle East adds to risks already present in Ireland’s small, open economy, which relies heavily on corporation taxes from a small number of US multinationals such as Apple Inc and Eli Lilly and Co.
The war in Iran has not fundamentally changed my views of the Irish economy
That revenue has contributed to Ireland having one of the few budget surpluses in Europe and helped the economy to grow, but leaves it exposed.
“The war in Iran has not fundamentally changed my views of the Irish economy,” Mr Makhlouf said.
“But I would expect some small changes which will be consistent with what’s been happening.”
He previously forecast modified domestic demand (MDD) to grow 3pc in 2026, citing multinational investment, but he expects a small change in the regulator’s upcoming forecast due to the recent shock.
MDD is the most accurate measure of the economy as it tries to strip out multinational sector activity. The governor, who also has a seat on the interest rate-setting panel of the European Central Bank (ECB), has repeatedly warned the government against spending measures that would fuel inflation.
ECB president Christine Lagarde. Photo: Bloomberg
ECB president Christine Lagarde urged European governments to exercise fiscal restraint when helping citizens handle the soar in energy prices, as Italy approved a temporary cut to excise taxes on fuel this week and Germany considers a windfall levy on oil companies.
Policymakers in Ireland should ensure any potential fiscal supports fit in the overall fiscal envelope and leaving it unchanged, Mr Makhlouf added, and find ways to become more energy independent, echoing earlier remarks by Finance Minister Simon Harris.
“If one thing we’ve learn from this latest crisis is, it just underlines the need to reduce our – never mind doing it for climate change reasons – reliance on fossil fuels,” Mr Makhlouf said. “In Ireland, we’re blessed with the fact that we have lots of wind.”