, and declining pro tability in some banking systems. across the euro area and domestically, government action has alleviated immediate corporate liquidity constraints and contained insolvencies during the acute phase of the crisis. 4 alongside our accommodative monetary policy, the measures have helped to maintain favourable nancing conditions for households and rms. so, in the context of this macro - nancial shock, how has the nancial system fared? the euro area banking sector has been resilient so far but the economic fallout of the pandemic will lead to a deterioration in asset quality, particularly when government supports to rms and households start to be withdrawn. and there are well documented pre - existing weaknesses in pro tability. 5 the european banking authority ’ s 2021 euwide stress test exercise will help us assess the resilience of the european banking sector. in ireland, as elsewhere, the full transmission of the shock to the economy and nancial system will take time. looking slightly further ahead, our latest macroeconomic forecasts suggest modi ed domestic demand will increase by 2. 9 per cent this year, following an estimated decline of around 7. 1 per cent in 2020. 6 we see a further rise in modi ed domestic demand of 3. 6 per cent in 2022. but of course, this remains contingent on key assumptions regarding covid - 19 developments. https : / / www. centralbank. ie / news / article / speech - managing - risk - rebuilding - resilience - governor - gabriel - makhlouf - 11 - feb - 2021 2 / 7 11 / 02 / 2021 " managing risk, rebuilding resilience " governor gabriel makhlouf at the end of last year, we judged that the loss - absorbing capacity of the domestic retail banking system was suf cient to absorb shocks that were materially worse than existing baseline projections. but that loss - absorbing capacity is not without limits and lenders should continue to prepare for a wide variety of potential outcomes. no one can afford to be complacent, given the uncertainty over the macro - nancial outlook. while the banking sector as a whole – largely on the back of post - crisis reforms – has proved resilient, there are parts of the non - bank nancial sector where the covid - 19 shock exposed signi cant pre - existing vulnerabilities. for example, around the time a pandemic was declared by world health organisation (

11 / 02 / 2021 " managing risk, rebuilding resilience " governor gabriel makhlouf " managing risk, rebuilding resilience " governor gabriel makhlouf 11 february 2021 speech remarks by governor gabriel makhlouf at the european financial forum on 11 february introduction it is a pleasure to address the forum again this year. i am delighted that the organisers have managed to ensure it goes ahead virtually, to give us all the opportunity to engage and communicate with one another. i will return to the theme of engagement later on in my remarks. reading the overview for this year ’ s forum, some key themes immediately jumped out at me : the reshaping of the nancial sector, digital transformation, nancing the transition to a more sustainable future, the need to “ build back better ”. while the pandemic has ampli ed some of these issues, none are new. and they ’ re all relevant to all segments of the nancial services industry, and indeed the central bank of ireland. we have seen a lot of change in the nancial sector over the last decade, not least the rapid growth in market - based nance in ireland and internationally. and the pace of technological change is something i have spoken about before. 1 financial institutions have little option but to adapt to these changes if they want to be successful. the resilience built - up in recent years put the nancial system in a better position to absorb the shock from the pandemic, supporting households and businesses. it has been drawn upon heavily over the last 12 months and over time, we will need to restore it. in fact, we will need to ensure it is ready for new challenges, perhaps “ building better for the future ” as the transition to a low - carbon economy will require adjustments by all of us, households, businesses and policymakers. what is of course new has been the pandemic. it has up - ended all of our plans, forcing us to adapt the way we work, the way we engage, the way we do business. it has exposed vulnerabilities, some we knew about, and some we discovered. it has created new challenges. the pandemic has also accelerated the pace of change to an extent that we could not have imagined. and we all have to adapt to the new reality. this requires us to balance near - term crisis responses with managing risks over the medium term. the main theme of my remarks today is resili