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Irish economy could contract next year if no-deal Brexit

Written by Robert McHugh, on 13th Sep 2019. Posted in Economy

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Ireland's gross domestic product rose by 0.7% quarter-on-quarter in the first three months of the year to stand 5.8% higher than a year ago and put the European Union's best-performing economy in a strong position ahead of a potential Brexit shock.

Irish GDP has outperformed everywhere else in the EU each year since 2014 and the economy has so far largely brushed off uncertainties arising from Britain's 2016 vote to leave the EU, which the government warns could lead to a sudden contraction if Ireland's nearest neighbour departs without a deal.

The growing risk prompted Finance Minister Paschal Donohoe to base next month's budget for 2020 on the assumption of a no-deal Brexit, setting aside funds for vulnerable sectors and allowing the state's finances to return to deficit.

"Overall growth in the economy continues to be broad-based, with positive contributions from the domestic and multinational sectors. Early indications suggest solid growth in the third quarter as well," Donohoe said in a statement on Friday.

"Against this, there is a continued softness in the international environment, particularly in the manufacturing sectors. The risk of a no-deal Brexit hangs over the economy, with business and consumer confidence softening as a result."

The Central Statistics Office (CSO) said GDP was growing at a rate of 6.6% halfway through the year after quarterly growth for the first three months of the year was revised up a touch to 2.7% with the annual figure amended to 7.4% from 6.3%.

Donohoe's department forecast in April that GDP would grow by 3.9% this year and that the economy could either flatline next year with a "no deal" Brexit, or grow by 3.3% if there is an orderly withdrawal.

The relevance of using GDP diminished when 2015 growth was adjusted up to 26% after a massive revision to the stock of capital assets related to Ireland's large cluster of multinational companies.

Such distortions have also inflated growth in subsequent years, prompting the CSO to phase in new data that strip out some globalised activities and which Donohoe said showed growth in the domestic economy moderating to more sustainable levels

One such measure, modified total domestic demand rose by 1.9% on the quarter.

Many economists also prefer to use a labour market close to capacity with an unemployment rate of 5.2% to most accurately assess how Ireland's open economy is doing.

"As we look at the first half of the year, we can see that most engines of growth are still incredibly strong. But if we look forward, clearly we can see the clouds gathering and we can see slowing momentum as we look forward," said Irish Business and Employers Confederation policy chief Fergal O'Brien.

"The rearview mirror is still a Brexit-free zone, it's the windscreen I'm worried about." (Reuters)

Source: www.businessworld.ie

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