The outlook for the Irish economy remains uncertain until the UK decides how it will go about exiting the EU, the European Commission has said.
And the risks here are somewhat heightened because of the large number of multinationals which are sensitive to the global trade wars between the US and China, it said in its country-by-country summer economic forecasts.
“The economic outlook remains clouded by uncertainty, particularly relating to the terms of the UK’s withdrawal from the EU and changes in the international taxation environment.
“More generally, the difficult-to-predict activities of multinationals could drive headline growth in either direction,” the commission said.
Nonetheless, the commission gives the Irish economy a generally positive end-of-term report card. It notes that employment numbers soared in the first half of the year, unemployment fell, while earnings, disposable incomes, retail sales, and construction and industrial output all rose.
And it projects that Irish GDP will rise 4% this year before slowing to an expansion of 3.4% in 2020, as the opportunities for exports growth are curtailed.
It sees inflation rising to 1.3% next year, “mainly driven by service prices as wage pressures build up in a tight labour market”.
However, it said that “diminishing spare capacity point to an economy possibly operating above its potential”, as it again warned the Government against using “potentially short-lived” corporation tax bounties that could help lead to the economy overheating.
Other EU economies remain “clouded”, said the commission, by the global trade conflicts and manufacturing and the wider European economy will be affected in the second half of the year.
Meanwhile, Brexit, along with housing shortages for employees, top the list as the greatest concerns of Cork businesses, according to the latest survey by the Cork Chamber, which also showed slippage in confidence from earlier sky-high levels.
The survey covers April, May, and June, when the hardline rhetoric of Tory Party contenders to succeed Theresa May as the next British leader started again to raise fears that the UK will crash out of the EU without a deal at Halloween.
The survey evidence reflected calls from business leaders for Finance Minister Paschal Donohoe in his October budget to usher in an “accelerated housing programme”, to boost rental and private house supply, and for him to provide more spending on infrastructure in the area.
Cork business leaders also want supports for firms that are most likely to be affected by the Brexit fallout, according to the survey.
Most respondents want the budget to focus on boosting spending on public services and on business supports and infrastructure projects. Just a tenth of respondents seek income tax cuts in October.
The vast majority of the respondents remain confident about the business and economic outlook, though slightly fewer than in the previous quarter.
And over half of the survey (which includes employers from manufacturing, technology, tourism, construction, and financial services) say they plan to hire new staff, as skills shortages and longer vacancy times start to bite.
“While we see hugely exciting growth happening across the city and metropolitan area, with new developments taking shape and in planning, there are also palpable concerns among the business community,” said the chamber president Paula Cogan.
“Ongoing Brexit uncertainties and the frustrations around housing and accommodation supply both feature as the top-ranking threats to business growth. The business community needs certainty for planning, decision-making, and investment. We need an accelerated pace of activity and a policy framework to support certainty.”
Brexit fears about the UK crashing out of the EU has sent sterling plummeting this week.
The UK currency has been a reliable barometer of investors’ fears over a hard Brexit since the summer of 2016 when the UK voted to leave the EU.
Against the euro, sterling traded close to 90p in the latest session, reflecting heightened investor concerns about any new British leader embracing a crash-out Brexit.
And concerns about trade policy and a weak global economy “continue to weigh on the US economic outlook” and the Federal Reserve stands ready to “act as appropriate” to sustain a decade-long expansion, Federal Reserve chairman Jerome Powell said in remarks that could bolster expectations of a US interest-rate cut later this month.
In prepared remarks to a congressional committee, Mr Powell contrasted the Fed’s “baseline outlook” of continued US growth against a considerable set of risks — including persistently weak inflation, slower growth in other major economies, and a downturn in business investment driven by uncertainty over just how long the Trump administration’s trade war with China and other countries will last and how intense it will become.
Fed officials at their June policy meeting signalled that those concerns might warrant lower rates, and “since then, based on incoming data and other developments, it appears that uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the US outlook”, Mr Powell said.
“Apparent progress on trade turned to greater uncertainty, and our contacts in business and agriculture reported heightened concerns over trade developments,” he said, noting that business investment, an important component of economic growth, “seems to have slowed notably” in recent months.
The benchmark S&P 500 in the US breached the 3,000 points mark for the first time at one stage, as hopes of an interest rate cut later this month were lifted by Mr Powell’s comments.
“Powell’s really making the case that an insurance rate cut is important so July is looking much more likely despite the fact we had a pretty good jobs report,” said Chris Zaccarelli, chief investment officer, at Independent Advisor Alliance.
“He’s coming across as very dovish. A lot of his quotes are much more on the easing side,” he said.
Since a series of President Trump trade tweets in late May, investors and the Fed have begun shifting their stance, with markets now expecting a cut of at least a quarter of a percentage point when Fed policymakers meet at the end of the month.
“The Fed has never disappointed a market with such strong expectations of action,” Joseph Lavorgna at Natixis, said.
- Additional reporting Reuters