Opening Bell: Euro bank shares shake while Ireland's take a hit, Goodbody downgrades Irish forecast

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European bank shares have been rocked in early August trading as negative interest rates, stress test results, and a possible banking crisis in Italy weigh on investor sentiment.

The Euro Stoxx Banks Index which measures the performance of the shares of European lenders, fell by 4.9% yesterday, following a 2.8% decline on Monday.

Investors are not sure how banks can increase their profits while interest rates are low or negative, and economic activity across Europe remains sluggish.

The banking sector is also feeling the impact of a number of high profile financial institutions issuing disappointing results in recent days.

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Irish banks have not been immune to this suffering, after the publication of the results of the European Banking Authority's latest stress tests Bank of Ireland closed down by more than 8.6% yesterday, while Permanent TSB fell by 2.8%.

The small portion of AIB which is floated fell by 11%.

Professor Philip Lane, Governor of the Central Bank, has warned that Ireland will be especially vulnerable to a downturn in global financial confidence as the make-up of the new relationship between the UK and EU becomes clearer over the coming months.

While he sees the leading Irish banks as "adequately capitalised," Ireland would be most at risk in the event of a "Brexit-related reversal" in sentiment.

However, the risks within the banking sector are "manageable at a system-wide level."

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A new report on the Irish economy from Goodbody has downgraded its growth outlook.

Its predicted growth rate for 2016 is now 4.2% - down from 5%. Looking further ahead its forecast rate for 2017 falls from 4.4% to 3.7%.

This is a reflection of increased uncertainty caused by the Brexit vote.

It says that the effects of the result of the referendum will take the shine off another year of strong growth - it described the current outlook as "unusually clouded."

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A UK think tank is predicting that the British economy is heading for a marked slowdown with a good chance of a recession over the next 18 months.

Growth is expected to hit 1.7% overall this year with a decline of 0.2% in the third quarter.

The country's National Institute of Economic and Social Research also says GDP growth will slow to 1% in 2017 while inflation is forecast to reach more than 3%.