Speaking in Dublin, the Eurocrat told the Irish Republic its citizens are more exposed to the effects of a hard Brexit than other EU nations due to its close trading relationship with the UK.
He also pledged to stand behind the Republic and back Ireland as Brexit comes into play in March.
Mr Draghi said: “The impact on the Irish economy is both direct through trade and indirect through financial channels.
“We also see limited overall risks to the euro area financial stability. Without sufficient mitigating action, however, a cliff-edge Brexit could have an adverse impact in certain areas of centrally cleared derivatives markets.”
He added “Sources of risk from outside the EU have grown since May. A stronger US dollar and heightened trade tensions triggered renewed stress in a number of emerging market economies.”
Mr Draghi also advised Irish businesses to take precautions and explained the only way the ECB can take mitigating action against Brexit will be once the final terms of the UK’s exit form the EU become clear.
He told the Finance, Public Expenditure and Reform Committee: “Things can be managed, however if the private sector were to decide there is going to be a cliff-edge or an unmanaged process, then the private sector behaviours could be a source of instability and that is something we have to monitor very closely.
“I think the most likely thing is gradual transition, which will allow all parties to negotiate in the best possible way.”
He added: “Ireland is now growing at the fastest pace of any euro area country. Unemployment has been falling too and now stands well below the euro area average.”
But his comments were challenged by committee chairman John McGuinness who said the devastation caused by the financial crash has been “absolutely horrific” and still continues today.
Mr McGuinness said: “It is wrong to say we are experiencing a recovery, certain parts are but vast amounts of people are still caught in courts and their homes are being taken from them.
“People are being threatened because of what happened in the past and the system is ignoring them.”
He added: “They do not experience the recovery as much as the EU would tell them and the banks here are a disgrace.”
His remarks were echoed by Sinn Fein politician Pearse Doherty who said “not everything is going great in Ireland”.
He said: “There’s 4,000 children who won’t have a home and will sleep in emergency accommodation and wake up on Christmas Day so not everything is going well.”
Today Prime Minister Theresa May secured Brexit victories on governance and the Irish backstop during her negotiations with Brussels, according to one senior EU diplomat familiar with the talks.
The move towards a UK-wide backstop solution has been accepted by Brussels in order to help Mrs May sell the deal to the Cabinet at home, the source added.