philip r lane : the business environment in ireland address by mr philip r lane, governor of the central bank of ireland, to the dublin chamber of commerce, dublin, 9 november 2018. * * * introduction i am pleased to have the opportunity to address the dublin chamber of commerce. economic success depends on a thriving enterprise sector : the employment, investment and innovation decisions made by the over two hundred thousand private sector firms active in ireland are critically important in determining national economic performance. in addition, the behaviour of firms also has a wider impact in terms of making progress in meeting the country ’ s social, environmental and regional objectives. accordingly, it is important that there is an active dialogue between the business sector and the central bank : in one direction, our policies help to shape the business environment facing your members ; in the other direction, we seek to gather information and views from many perspectives in determining our own policies and risk assessments. for instance, we have benefited from our interactions with firms in the distribution sector in gaining a better understanding of the prospective impact of brexit on trade logistics and distribution networks. in what follows, i have divided my remarks into three parts. first, i will comment on the current macro - financial outlook. second, i will turn to the financing of the sme sector. third, i will briefly comment on the new strategic plan of the central bank that we are launching today. the macro - financial outlook the irish economy is currently experiencing a sustained expansion phase. this is underpinned by robust and broad - based growth in employment, which is driving an increase in incomes and, in turn, consumer spending. in addition, some key components of domestic investment have picked up strongly, including in the construction sector. looking ahead, the central bank ’ s central forecast is that underlying economic activity will grow at a relatively strong pace in 2018, with some moderation in growth in prospect in 2019 and 2020. it is important to emphasise that the current phase of strong economic performance is driven by strong fundamentals, rather than being fuelled by unsustainable increases in domestic credit. looking ahead, the central forecast remains positive : underlying domestic demand is projected to grow by 5. 6 per cent this year, moderating to 4. 6 per cent in 2019 and 3. 8 per cent in 2020. the projections for the labour market continue to signal that the economy is moving towards full employment, although some extra capacity is possible through further inward migration and increased participation in the labour market.

25 per cent in 2013 to 50 per cent in 2017. the average debt - to - turnover ratio among indebted firms fell from 48 per cent to 31 per cent over the same period. this survey evidence tallies with aggregate statistics, which show a large fall in outstanding bank credit to smes between 2010 and 2018. the substantial paying down of legacy debts incurred before the crisis have occurred in tandem with rapid growth in the issuance of new loans. our statistics report that new bank lending to smes outside of the financial and property - related sectors rose from €1. 9 billion in 2013 to €3. 7 billion in 2017. the agriculture and wholesale and retail sectors to have received the largest share of this new lending, at just over 45 per cent between them. regionally, sme lending is broadly balanced : the proportion of new lending to sme borrowers based in dublin is about in line with the capital ’ s population share. the increases in new bank lending volumes have occurred simultaneously with steady declines in the share of sme credit applications being rejected and a decline in the share of smes reporting more difficult financing conditions. an interesting feature of this new credit landscape is that loan application rates have not increased during the economic recovery, and are currently lower in ireland than in many european countries. as many as half of smes currently report that they are not applying for credit because they hold sufficient internal funding. one interpretation is that this simply reflects limited funding needs due to the nature of the activities undertaken by these firms. a possible alternative interpretation is the scarring effects of the crisis has increased risk aversion in the business community, limiting the appetite to undertake riskier or more ambitious investment programmes. there are a number of government initiatives to facilitate greater access to the finance, and have 2 / 4 bis central bankers'speeches formed an important part of the post - crisis response in ireland. the strategic banking corporation of ireland administers a range of schemes channelling funds through the traditional banking sector and through non - bank finance providers. by the end of 2017, sbci had facilitated over €900m in loans to smes. the ireland strategic investment fund ( isif ) also participates in the sme finance market, including by taking direct equity positions in companies and facilitating greater access to credit. at the end of 2017, isif had €663m in commitments to sme - orientated projects. in the first half of 2018, isif invested a further €110