in addition to the state ’ s share in injecting funds to meet these estimated losses ( which has already been announced and widely discussed ), the remainder has in effect, been absorbed by the shareholders. i mention this not so much to emphasize the scale of the problem as to dispel any impression that the policy and shareholder response in restoring capital levels might have grossly low - balled loss estimates. yet investor confidence has been slow to recover fully. in part, this doubtless reflects the conventional observation that credit and confidence are lost quickly and recovered much more slowly. it will not have helped that the laborious process mandated for nama loan valuations have taken such a long time and that the first nama haircuts, high though they were, unexpectedly proved to be less harsh on average than the rest, leading to a sequence of bad news events. undoubtedly, the severity of these haircuts has led some observers to read across to the non - nama book ( and indeed the central bank has applied such a readacross on a bank - by - bank basis in respect of the property loans in the €5 – €20 million category that are no longer nama - bound, and banks are being required to hold that much more capital ). a read across also from concerns in the us that american banks could experience further loan - losses given the slow recovery of the property market there may also have caused observers to question the adequacy of loan - loss provisions in the irish residential mortgage books especially given the downward revisions in some of the medium term macro forecasts for employment and gdp growth in ireland ( even though the stress case expected loss ratio to 2012 of 5 per cent used by the central bank for the irish residential loan books to determine required capital levels is well outside historic experience in ireland ). despite recent trends in arrears and reschedulings, there is as yet no hard indication that the stress levels would be exceeded. undoubtedly there are many stressed households with burdensome mortgage debts, not least in the buy - to - let category ; the policy challenges that this presents in terms of achieving workable and fair solutions are more complex than the mere issue of the likely loan - losses that might be involved, for which ( as i have mentioned ) an allowance well in excess of the banks ’ own accounting provisions has already been made. winning investor confidence in anticipation of next year ’ s update of the pcar exercise, the central bank is embarking on a

gabriel makhlouf : the economic outlook remarks by mr gabriel makhlouf, governor of the central bank of ireland, at market news international, 11 june 2020. * * * accompanying slides of the speech. introduction good afternoon. it is a pleasure to speak to you today. 1 in my opening presentation i would like to first discuss the developments in the euro area economy, the economic outlook for the euro area, and give some views on the recent decisions taken by governing council of the ecb. i will then give an overview of how the pandemic has impacted the irish economy and financial sector in ireland and discuss some pre - existing risks, like the uk ’ s departure from the eu. * * * developments and economic outlook for the euro area economy it is now clear that the covid - 19 pandemic has caused a very substantial shock to the global economy. for the euro area, gdp had an unprecedented decline of 3. 6 % in the first quarter of this year, which is a sharper contraction than was seen during the global financial crisis. ( figure 1 : euro area gdp growth ( quarter - on - quarter, % ) ) higher frequency pmi data shows the sharp contraction has continued through the second quarter. there has also been a sharp deterioration in labour markets across the euro area, feeding through to incomes and to consumption patterns. these developments, among others, have caused sharp downward revisions in the recent macroeconomic projections for the euro area, released by eurosystem staff. ( figure 2 : euro area purchasing managers ’ indices ) the latest projections for 2020 to 2022, have changed greatly compared to those released just three months ago. it is not only the numbers that look different in this round of projections ; there has also been a change in how the uncertainty surrounding the key forecasts is presented. previously, we used historical data but these cannot reflect the unprecedented current economic uncertainty we are experiencing. instead, a scenario analysis is provided as a better way to show potential alternate paths for the economy. ( figure 3 : eurosystem staff macroeconomic projections ) in the baseline scenario, there is an assumption of some resurgence in infections over the next couple of quarters that leads to ongoing containment measures, although not as stringent as the initial ones. the economy is expected to “ re - open ” gradually, in phases, through a post - lockdown transition period, which ends by the middle of 2021. at this point, it is also assumed that medical solutions to