EY: Ireland to avoid recession even if no-deal Brexit

Ireland is likely to avoid falling into recession even in the event of a no-deal Brexit, but the UK crashing out of the EU would still nearly halt Irish economic growth, EY has warned.

However, a no-deal exit would be enough to drag the economy in the North into recession, the company said.

In its latest economic outlook, EY has lowered its forecasts for Irish growth — now saying it expects the economy to grow by 3% next year as opposed to its previous outlook for 3.3% growth. This year, it sees Irish GDP growing by 3.7%, down from an earlier 4.1% prediction.

Recently, the Central Bank forecast 4.9% growth this year and just above 4% in 2020. Economic think-tank the ESRI sees the Irish economy growing by 4% this year and by 3.2% next. All of those numbers — including EY’s revisions — are entirely based on an orderly Brexit outcome.

EY said a no-deal, or hard, Brexit would see Irish economic growth slow to just over 3% this year and grind down to as low as 1.3% next year. Its lessening confidence is set against a backdrop of Brexit — and what it calls a “darker Brexit cloud” looming for the all-island economy — and global trade war concerns.

Backing up its fears, over the weekend, British government officials said prime minister Boris Johnson is sticking with his Brexit plan and will not seek a delay to Britain’s departure from the EU at a summit next month.

Elsewhere, on the global trade front, China said its exports unexpectedly fell in August as shipments to the US slowed sharply, pointing to further weakness in the world’s second-largest economy and underlining a pressing need for more stimulus as the China-US trade war escalates.

Beijing is widely expected to announce more support measures in coming weeks to avert the risk of a sharper economic slowdown as the US ratchets up trade pressure, including the first cuts in some key lending rates in four years.

“The external economic climate is as challenging as it has been for a decade,” said EY Ireland chief economist Neil Gibson.

“Despite strong domestic tailwinds, the dual threat of trade wars and Brexit have the potential to derail Ireland’s rapid growth,” he said.

“It is clear that even assuming a Brexit deal, trade wars and an unsteady global backdrop are beginning to take their toll on Ireland’s small, open economy.

“Warning signs are flashing in our economic data, but also in financial markets and many business sentiment surveys,” said EY Ireland’s Brexit spokesperson Simon MacAllister.

“With recent surveys indicating that there are low levels of Brexit preparedness amongst Irish firms, businesses need to be considering now what a further extension of a no-deal could mean for them, and what their key actions will be,” he said.

EY also said that the pace of job growth in Ireland is showing tentative signs of slowing, but wage inflation will continue.

Latest monthly construction sector data from Ulster Bank, meanwhile, shows that building activity growth picked-up for the first time in four months in August.

However, new order growth has slowed to a four-and-a-half year low and confidence amongst construction firms has slumped to a nine-year low.

“The slippage in sentiment largely reflected worries about Brexit impacts, with some firms reporting that Brexit uncertainty is impacting work pipelines due to delayed decision-making among clients,” said Ulster Bank chief economist Simon Barry.

- Additional reporting Reuters