Speaking during a European Movement online seminar, Sharon Donnery said people need to be preparing for the worst because of the levels of uncertainty.

She said a huge amount of progress had been made in readying the financial system for Brexit and it is in a relatively good space.

“In terms of the financial system consequences, not to be complacent about it, firms still have responsibility to do things that need to be done,” she said.

“And there are things that will still need to be worked out and so on, but it is a relatively known set of issues and we have clear visibility and probably a bit more sight over them.”

But regarding the economic effects, she said the primary focus should be on the impact on different sectors and not only on the effects of tariffs but also non-tariff barriers like paperwork, customs checking and the challenges around use of the land bridge across the UK.

The considerable levels of uncertainty that remain mean there are still issues there that firms in those sectors need to be thinking about, she added.

“But from our point of view in the Central Bank we really have to be in a situation now where we prepare for the worst given the uncertainty levels that are there and we need to be thinking about that,” she said.

“Given the short deadlines and so on people have to be thinking along those lines and reorienting their businesses and supply chains and so on.”

She said the potential economic effects for Ireland of a no-trade deal Brexit would be very high on the risk list, along with the Covid-19 pandemic consequences.

“Whatever the outcome of negotiations, our economic analysis shows that the outcome for Ireland will be worse than the status quo and will cause significant disruption,” she said.

“And the considerable uncertainty, disruption and differing sectoral effects due to Covid-19 will add to the stresses faced by firms as the transition period ends.”

She said the banking system had been able to support the economy in the first phase of the Covid-19 pandemic, but the shock has not yet fully transmitted to the balance sheet of the banking system.

“However, as we transition from temporary forbearance measures that addressed liquidity for borrowers there is a need for longer term solutions for those borrowers experiencing solvency and affordability difficulties,” she stated.

She also highlighted potential risks from the non-bank, market based finance system which now accounts for 60% of total euro area financial assets.

She pointed out that Ireland hosts 10% of global money market funds  assets and 5% of global investment fund assets.

“However, like all forms of financial intermediation, market-based finance can contribute to a build-up of financial vulnerabilities,” she said.

“Vulnerabilities linked to market-based finance include those related to liquidity mismatches and excessive leverage.”

Ms Donnery said the shock from Covid-19 had resulted in stress across global financial markets and parts of the global funds sector  including funds resident in Ireland experienced a sharp increase in redemptions and challenges in liquidity management, with €72 billion of net redemptions from Irish-resident funds in March.

“At an individual level, the vast majority of funds managed to meet investor redemption requests, with limited use of tools such as suspensions and gating observed.

“However, this needs to be seen in the context of unprecedented central bank interventions that played a key role in restoring market functioning,” she said.

Ms Donnery also spoke about how for Ireland as a small open economy on the periphery of Europe, particularly vulnerable to global shocks, being part of the Single Market had been critical to our growth and prosperity in recent decades.

“And our resilience to shocks would likely have been weaker, absent the common market, currency and policy actions of Europe behind us,” she said.