Brexit uncertainty is already weighing on spending and investment plans, and banks are less willing to advance loans to SMEs, according to the Economic and Social Research Institute. In its latest quarterly report, the think tank said that economy is still growing at a healthy pace but that Brexit uncertanity is already playing a big role by capping the spending plans of both Irish consumers and businesses.
Reflecting this uncertainty, GDP will grow 3.8% this year, down from 4.2% in an earlier projection, and expand 3.2% in 2020. In a Brexit publication earlier this week, the ESRI and the Department of Finance predicted that over 10 years that the economy would expand no matter what form Brexit will take but said GDP would grow at a slower pace than would otherwise be the case if the UK had voted to stay in the EU.
In its latest report, the ESRI said there was already much evidence to suggest that since the UK referendum in the summer of 2016 that the pace of growth of consumption and in particular in retail sales has slowed amid the uncertainty that Brexit has entailed.
The ESRI said there was evidence to suggest that banks since the referendum had started to reject more loan applications from SMEs, meaning that small businesses face tighter credit conditions than should be the case.
Brexit was weighing on the economy but its effect was “camouflaged” by the significant growth of the overall economy, ESRI research professor Kieran McQuinn told reporters.
Investment growth including housebuilding has remained strong but concerns over global trade wars which affect the many multinationals based in Ireland will lead to a slowdown in the growth of exports.
Despite the uncertainty, the number of people at work will grow through 2020, and unemployment will continue to edge lower to an average of 5.2% this year and 4.8% in 2020.
And wages across the economy will grow strongly too, with average growth of 3.2% this year and 3.4% in 2020, even as inflation remains subdued.
Reiterating its concerns about the Government being potentially tempted to tap “windfall” tax receipts, it estimated that the exchequer collected €5.5bn more than anticipated in corporate tax receipts over the last five years. Mr McQuinn said the economy didn’t require any further stimulus at this time and the Government should preferably fund any cuts in personal taxes by raising taxes elsewhere and commit to funding capital projects.
The think tank is confident that the building industry will in the next few years come closer to meeting demand. It projects around 23,500 new homes will be built this year, up from 18,000 units in 2018, and rise to 29,000 completions in 2020.
That is still short of the over 30,000 annual new homes that most experts believe will be required but the ESRI said that it will take time for pent-up demand to be sated. It also predicts that house prices will increasingly come closer to reflect the underlying growth of the economy, rather than playing catch-up with the market rebound following the property and banking crash.