Growth could fall 0.5% over Brexit vote, says Noonan

Britain's vote to leave the EU could lead to economic growth in Ireland next year being 0.5 per cent less than previously forecast, according to the Minster for Finance, Michael Noonan. However he has said that the Government's room for manoevure in the October Budget is unlikely to change.

The Minister was speaking at the closing session of the National Economic Dialogue yesterday, on a day when markets recovered some of their major losses after the Brexit vote and Irish bond interest rates approcahed record lows.

The Government had forecast GDP growth of 3.9 per cent next year, after 5 per cent this year. Its Summer Economic Statement, published last week before the Brexit vote, had estimated that this would give room for manoevure to increase spending and cuts taxes - or fiscal space - of around €1 billion in the Budget.

Minister Noonan said that the initial expectation was for growth next year to be around 3.4 per cent, rather than 3.9 per cent, in line with earlier department estimates of the impact of Brexit. However he said that this should not affect the €1 billion fiscal space estimate. Beyond 2017 he said it was too early to speculate on the potential impact. The Department will produce updated forecasts for the October Budget, he said.

Fitch , the ratings agency, yesterday warned of a potential longer-term impact of Brexit to Government budget policy here. Yesterday investors took an optimistic view and strong buying of Irish government bonds meant long-term interest rates approached record lows. Ten year Irish bond interest rates fell to 0.64 per cent, on strong buying interest which benefited most European govenrment bond marketsand also equities.

The Iseq joined other European indices in a rally following days of steep falls in the wake of the Brexit vote. The Dublin market finished the day up more than 2.8 per cent, with heavy trading volumes.

One Dublin trader said the rally “ran out of steam” towards the end of the day. “But there was a definite feeling that some stocks had been oversold since Brexit,” he said.

Bank of Ireland was among the biggest gainers, finishing up 10.6 per cent. Building materials giant CRH rose by almost 5 per cent, while Datalex, which sells software to airlines, rose by 9 per cent. Ryanair finished the day 3.1 per cent ahead, although its performance slightly lagged the bounce back of Easyjet and IAG in London. C&C, the cidermaker that is heavily dependent on the UK market, was among the stocks which did not benefit from the rally. It closed down 2 per cent

A calmer tone prevailed in global markets following the Brexit-driven turbulence of the previous two sessions, with sterling recouping some of its losses and global equities staging a tentative rebound.

With the pound viewed by many as still acting as the primary vehicle for Brexit concerns, a 0.9 per cent rally for the UK currency against the dollar to $1.3329 - and a 1.6 per cent gain versus the yen to ¥136.91 - helped pave the way for risk appetite to return, for now at least.

But analysts cautioned that the lingering uncertainty regarding the UK meant the improved mood may not last long.

Indeed, sterling/dollar was well off the day’s best level of $1.3418, and still within sight of Monday’s 31-year low of $1.3122.

Similarly, the FTSE 100 equity index closed 2.6 per cent higher, having been up 3.1 per cent at one stage. Tuesday’s recovery left the UK benchmark down 3.1 per cent from Thursday’s close. The pan-European Stoxx 600 index rallied 2.6 per cent, but was still down 8.6 per cent from where it closed on Thursday.

There was some relief for battered European financial stocks as “bargain-hunting” helped the sector rebound nearly 2.8 per cent, analysts said.

( additional reporting Financial Times)