Ireland could ill afford to be without a government when Britain votes on whether to stay part of the EU, Merrion Stockbrokers has warned.
In its latest quarterly outlook, the brokerage assesses the post-election impasse, noting the State can withstand “a brief spell of political stalemate”.
“However, if come the UK referendum on June 23rd, and no Irish government were in place, things could take a severe turn for the worse if there was no official policy response to a Brexit,” Merrion’s chief economist Alan McQuaid said.
In its report, Merrion warns that a vote to leave would have “serious negative implications” for Ireland’s external trade, reducing gross domestic product(GDP) growth in the process.
Brexit could reduce bilateral trade flows between Ireland and the UK by 20 per cent or more, it said, while any barriers to trade would increase prices of UK imports to Ireland, pushing up inflation in the process.
Despite the uncertainty, Ireland's recovery remains strong with all the signs that the "Celtic Tiger" has been re-born, Merrion said.
It forecast GDP growth of 5 per cent for 2016, which is roughly in line with other forecasters.
Merrion also remains positive on Ireland’s employment growth, noting there was a net jobs increase of just over 50,000 in 2015, with a further 50,000 rise on the cards for this year.
The unemployment rate remains the key indicator as far as the economy is concerned and significant progress has been made in terms of bringing it down, it said.
It predicted the State’s headline rate would fall to 8.3 per cent this year. The report forecasts a modest increase in consumer prices this year of 0.2 per cent “ unless oil prices suddenly ratchet higher.”
However, the cost of services like insurance and education look set to continue to rise sharply, it said.
Globally, Merrion said the world economy is still struggling to generate stronger growth with aggregate demand yet to pick-up despite “very supportive monetary policy conditions across the globe”.