Sun still shining on Irish economy, but Brexit storm clouds are gathering on horizon

Sun still shining on Irish economy, but Brexit storm clouds are gathering on horizon

The latest health check on the Irish economy has delivered a cautious thumbs up, despite sterling taking a fresh tumble amid heightening fears of a no-deal Brexit happening in October.

Investec, in its latest quarterly economic commentary, said Ireland’s position as one of the best performing developed economies is set to continue with GDP growing by 4.3% this year and by 3.4% next.

“While there are a number of storm clouds on the horizon, there is good momentum behind most segments of the economy at this time,” said Investec Ireland economist Philip O’Sullivan.

“In terms of the risks to the economy, these are mostly external.

“Ireland is a hyper-globalised economy, with exports and imports summing to a remarkable 210% of GDP. Brexit, trade wars and shifting monetary policies all pose risks.

The evidence, thus far, suggests that Ireland is navigating them as well — if not better than — might have been hoped for.

However, Investec highlighted a potential denting in Ireland’s competitiveness levels; the continuing housing crisis; and legacy credit issues — including long-term mortgage arrears — as parallel threats from the domestic economy.

“Data show that Dublin has secured more Brexit relocations than any other city in Europe. Cork has won the same number of relocations as each of Barcelona and Munich.

While global trade flows are under pressure, the evidence shows that Ireland’s seaports have never been busier.

“A more dovish ECB is helpful for Ireland’s households — the fifth most indebted in the EU28 behind Denmark, the Netherlands, Sweden and the UK — and the sovereign,” Mr O’Sullivan said.

Investec’s outlook coincided with sterling tumbling to a five-month low versus the euro amid signs that arch-Brexiteer Boris Johnson may be a step closer to becoming Britain’s next prime minister and risks of a disruptive Brexit were rising.

Mr Johnson — who won the second Tory leadership vote yesterday — has said he will take Britain out of the EU by October 31 whether or not there is a deal with Brussels to smooth the transition.

The pound has weakened more than 6% against the euro since early May as investors have raised their bearish bets against the British currency on worries that Britain may crash out of the EU without a deal at the end of October.

However, UBS wealth management said it believed fears of a no-deal Brexit at the end of October, the deadline for Britain to leave the EU, were overdone.

Meanwhile, new figures from the Central Bank show that net new lending for house purchases reached €1.1bn in the 12 months to the end of March.

Household deposits grew by €1.8bn, or 1.8%, over the first quarter of the year — the largest quarterly increase in household deposits since the fourth quarter of 2008.

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