The Central Bank has told Finance Minister Paschal Donohoe to keep a tight grip over his budget plans in October, no matter how Brexit plays out.
In its annual pre-budget letter to the finance minister, acting governor Sharon Donnery said the economy faced risks even if a hard Brexit were avoided.
The risks of “a disorderly Brexit” would be made worse by the international tensions currently flaring over the global trade wars.
However, in the event that a hard Brexit was avoided, the risks of the Irish economy overheating would re-emerge, she said.
The letter was written before Boris Johnson moved to suspend the UK parliament next month, a manoeuvre that markets estimate has increased the chances of the UK crashing out of the EU at the end of October.
“Under the baseline forecast, already limited domestic spare capacity will continue to be reduced and there will be a material risk that continued expansion would give rise to overheating pressures,” she wrote.
The Central Bank again urged the Government not to peg its spending plans on corporate tax receipts.