Central Bank: Ireland avoids worst Brexit fears

The effect on the Irish economy of the decision by the UK to quit the EU has so far not been as dire as some had feared, though huge risks remain, Central Bank officials have said.

Central Bank: Ireland avoids worst Brexit fears

Presenting its latest quarterly economic bulletin, bank officials also said that there was no need for further stimulus for the economy but they had no major concerns about the direction of fiscal policy ahead of the budget next week.

The bank pared its GDP growth forecasts this year to 4.5% from the 4.9% expansion it previously projected in the immediate aftermath of the Brexit vote, in July, and left unchanged its growth forecast of 3.6% for 2017.

Stripping out the enormous distortions caused by multinationals to Irish GDP numbers, it estimates that domestic demand will grow by an underlying 3.9% this year — down from the 4.9% in 2015 — and expand by 2.7% next year.

The outlook is broadly similar to the conditions it assessed in its July report, though the economy faces the same risks from Brexit.

UK economic indicators have turned out to be stronger than the “bleak” forecasts some had made in the weeks following the June 23 vote, but longer-term damage for its economy cannot be ruled out, said its chief economist Gabriel Fagan.

For Ireland, “a wide range of domestic spending and activity indicators suggest that Irish economic activity continues to expand at a healthy pace, though growth momentum may have slowed slightly over the first half of the year,” Mr Fagan said.

Nonetheless, the worst fears about the UK economy have not come to pass because the Bank of England cut interest rates and pumped money into the UK financial system through its quantitative easing programme.

And with British demand holding up, the effects on the Irish economy through decreased demand for Irish exports may have been less than feared.

The slump in sterling to 88p has made it more difficult for Irish firms to sell goods and services into Britain.

Central Bank officials said that though exchange rate volatility is more important for indigenous Irish firms, that the Irish economy is much more flexible than it was in the past.

It would nonetheless look again at its forecasts if sterling were to resume its slide.

Survey evidence, including the Investec Ireland purchasing managers’ survey published earlier this week, has suggested that expansion of Irish manufacturing had slowed sharply in September.

The Central Bank wants to construct measures that set appropriate long-term debt targets for the economy which are free of distortions caused from the activity of the multinationals.

Separately, the CSO yesterday published new details surrounding revisions earlier this year to GDP numbers that had purportedly showed the Irish economy surged by over 26% last year.

The huge distortions were caused by Eurostat rules that ensure national accounts measure the effects of multinationals shifting intellectual property assets into Ireland.

“Ridiculous as it may sound, the manufacture of Apple iPhones and iPods in China could be now counted in Irish goods exports — according to the new statistical rules,” Davy Stockbrokers chief economist Conall Mac Coille said.

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