Uncertain backdrop poses risks to economic growth

Jan 25, 2019

The Central Bank of Ireland has published its first 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 4.4% this year, moderating to 3.6% in 2020.
  • Further declines in the unemployment rate to 4.9% and 4.7% are projected for 2019 and 2020.
  • Compensation per employee is forecast to increase by 3.4% in 2019 and 3.6% in 2020.
  • Inflation is projected to pick up moderately. Current assumptions point to a forecast of 0.8% and 1.3% for HICP inflation in 2019 and 2020.

The central forecasts presented in this Bulletin are based on a transition period coming into effect on 30 March when the United Kingdom is due to leave the European Union. Given the unprecedented nature of Brexit, a situation that is without historical precedent, there is considerable uncertainty around potential Brexit outcomes, but the Central Bank is today publishing analysis of the possible effects of a disorderly ‘no-deal’ Brexit, which is one scenario. The possible outcomes include:

  • Immediate disruption in financial markets, as well as further falls in the value of sterling which would adversely affect the competitiveness of Irish exporters
  • A deterioration in economic conditions and a more adverse outlook which would cause firms to cut back investment and consumers to reduce spending
  • Disruption to supply chains and the transportation of goods into and out of Ireland, disrupting production and leading to higher costs
  • A reduction in Irish exports due to lower demand from the UK, higher tariff and non-tariff barriers (such as checks and paperwork) and exchange rate effects
  • Consequences for the public finances as a result of weaker economic growth
  • A reduction in economic growth (GDP) by up to 4 percentage points in the first full year. This would see GDP growth of around 1.5% in 2019, meaning employment and growth still remain positive overall
  • Over a 10-year period, the level of Irish output could be reduced by around 6 percentage points, though again employment and growth still remain positive overall.
You can read the full report here.

Source: The Central Bank of Ireland