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Heightened levels of risk due to Brexit, warns Central Bank

Apr 05, 2019

The Central Bank of Ireland has published its second Quarterly Bulletin of 2019. The Bulletin examines recent trends in the domestic economy and provides the Central Bank’s forecasts for the Irish economy and its views on domestic economic policy issues.

The Bulletin reports:

  • Economic growth expected to be 4.2% this year, moderating to 3.6% in 2020.
  • Declines in the unemployment rate to 5.4% and 5% are projected for 2019 and 2020.
  • Compensation per employee is forecast to increase by 3.6% in 2019 and 3.7% in 2020.
  • Inflation is projected to pick up moderately. Current assumptions point to a forecast of 0.7% and
  • 1.1% for HICP inflation in 2019 and 2020.

The Central Bank’s central forecast is that underlying economic activity is projected to continue to grow at a relatively solid pace in coming years, though some moderation in growth is in prospect in 2019 and 2020. The pace of global and euro area economic activity has weakened since last Autumn and prospects for growth in Ireland’s main trading partners have been lowered further in recent months, with risks to the international economic outlook seen as tilted to the downside.

The central forecasts are based on a deal on Brexit being reached and a transition period coming into effect until end 2020. Given the unprecedented nature of Brexit, there is considerable uncertainty around potential outcomes. The Central Bank has previously published an analysis of the possible effects of an orderly WTO scenario, a Free Trade Area-like agreement and, most recently, a disorderly, no deal Brexit. 

Mark Cassidy, Director of Economics and Statistics, said, “The outlook for the economy remains broadly positive, though, following the strong performance of recent years, we expect growth to moderate in 2019 and 2020. This moderation reflects both the impact of a weaker international economic environment and reduced potential for growth in the domestic economy. We now expect growth of 4.2% this year and 3.6% next year.

“We have previously warned about the immediate and significant effects of a no-deal Brexit scenario on the Irish economy. Our analysis suggests that a disorderly, no deal Brexit could reduce the growth rate of the Irish economy by around four percentage points in the first year and by a further two percentage points in the second year. This would imply that while there would still be positive growth this year and next, it would be materially lower than in the central forecasts – with growth expected between 1.0 and 1.5 per cent in 2019 and 2020 under a no-deal Brexit scenario – though given the unprecedented nature of a disorderly Brexit, a good deal of uncertainty attaches to these estimates.   

“While Brexit continues to dominate the public agenda, there are other immediate risks to the economy. The international economic outlook has weakened since the publication of the last Bulletin. Ireland’s position as a small, highly open economy and the important role of multinational firms within the economy means the evolution of global economic and trading conditions and movements in major exchange rates will have an important bearing on Irish economic performance.”

Source: Central Bank