Irish growth forecasts cut again due to global uncertainty

The Department of Finance has downgraded it growth projections for the Irish economy again to accommodate the risk associated with Brexit and a more uncertain global outlook.

The Irish economy is now predicted to grow 4.2 per cent in gross domestic product (GDP) terms for this year, down from the 4.9 per cent forecast in the department's Summer Economic Statement.

The department also downgraded its GDP growth forecast for next year from 3.9 per cent to 3.5 per cent.

The weaker outlook reflects the uncertainty surrounding Brexit, slower US growth and recent exchange rate movements.

Sterling slid to a three-year low against the euro this week increasing difficulties for Irish exporters after British prime minister Theresa May signalled Brexit talks would begin in March.

Minister for Finance Michael Noonan had previously signalled that Brexit was likely to cause a 0.5 per cent drag on Irish GDP.

The new forecasts were delivered by department officials, who were appearing before an Oireachtas committee on budgetary oversight ahead of next week's budget.

The Department of Finance’s chief economist John McCarthy said the forecasts were contingent upon continued growth in Ireland’s main external markets. However, he said the current outlook was “characterised by considerable uncertainty with the impact of Brexit still unfolding”.

Stagnation

There was also a prolongation of relatively subdued growth in many other advance economies, he said. “This had led many to question whether the world economy has entered a permanently lower growth phase, so-called secular stagnation.”

In his address he noted that Ireland’s 26 per cent growth for 2015 was driven by manufacturing carried out abroad for Irish-registered multinationals.

Conversely, he said a moderation in contract manufacturing has led to a steep fall-off in exports this year.

Up until 2014 the phenomenon did not impact GDP here because while the outsourced production was classified as Irish there was an equivalent outgoing royalty payment from the firm here recorded on the import side.

However, in 2015 several big firms transferred their intellectual property assets here on foot of a global clampdown on multinational tax avoidance, which meant the exports were no longer being offset by imports.

Mr McCarthy said that just five companies account for 30 per cent of all Irish exports, acknowledging such a high concentration of exports posed a serious risk to the economy. “What we can do to mitigate this concentration risk is to remain competitive and ensure workers have the appropriate skills.”

While Ireland’s economic growth was flattered last year by manufacturing carried out abroad for Irish-registered multinationals, the opposite is likely to happen this year.