Brexit and US tax policy cast shadow over Irish economy, says commission

Uncertainty surrounding the Brexit negotiations and US tax and trade policy remain a shadow cast over Ireland's economic and budgetary prospects, the European Commission said on Wednesday. But the commission, in its autumn reports on member-state budget programmes, says its analysis of Irish prospects broadly matches that of the Government.

Overall euro area growth, the commission says, conforms to its forecasts of 10 days ago, and is on track to grow at its fastest pace in a decade this year, with real GDP growth forecast at 2.2 per cent. In Ireland’s case that was 4.8 per cent.

The reports are part of the commission’s autumn “semester” process, the procedure for the joint monitoring and assessment of member states’ compliance with its economic guidelines and benchmarks. It sets out the EU’s economic and social priorities for the year ahead, gives policy recommendation for the euro area and completes the assessment of euro area member states’ draft budgetary plans.

Ireland’s draft budgetary plans for 2018 are viewed as broadly compliant with commission requirements although “the plans might result in some deviation from ... its medium-term objective or the adjustment path towards it.”

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“The macroeconomic scenario underlying the draft budgetary plan is plausible. It assumes that economic growth will remain robust, mostly in line with the April 2017 stability programme,” the report says.

Risks

Risks to the macroeconomic projections underlying the draft budgetary plan are tilted to the downside, it says.

“The most important sources of uncertainty relate to the outcome of negotiations between the United Kingdom and the EU, as well as potential changes to United States tax and trade policies, to which Ireland is highly exposed as a small and very open economy.”

“Overall, the commission is of the opinion that the draft budgetary plan of Irelan ... is broadly compliant with the provisions of the stability and growth pact. The commission invites the authorities to stand ready to take further measures within the national budgetary process to ensure that the 2018 budget will be compliant.

Although not in the excessive deficit procedure, Ireland will be subject with 11 other states to an in-depth review by the commission to be published in February 2018.

These are the same countries identified as having imbalances in the previous round of the Commission’s macroeconomic imbalances procedure (MIP), ie Bulgaria, Croatia, Cyprus, France, Germany, Ireland, Italy, the Netherlands, Portugal, Slovenia, Spain and Sweden.

France is ticked off for failing to do enough to correct its excessive deficit . It is found to be at “risk of a noncompliance”with the requirements for 2018 and could become subject to the preventive arm of of the excessive deficit procedure “if a timely and sustainable correction” is not made.

Fastest growth

The commissioner for economic and financial affairs Pierre Moscovici, said: "The euro area economy is growing at its fastest pace in 10 years and its average deficit is set to fall below 1 per cent of GDP next year, from over 6 per cent in 2010. Yet several member states continue to shoulder high levels of public debt, which constrain their ability to invest for the future. These countries should use this opportunity to further strengthen their public finances, also in structural terms, while those with fiscal space should use it to support investment for the benefit of their citizens."