Central Bank sees slight slowdown in domestic economy
Growth forecast lowered slightly, bank still cautious on Brexit
The Central Bank has slightly lowered its growth forecast for the Irish economy for this year, due to smaller contribution from exports and "some moderation" in growth from the domestic economy.
In its latest quarterly bulletin, the bank said it expected gross domestic product (GDP) growth of 4.5 per cent this year, down from 4.9 per cent in its last bulletin in July. The forecast for 2017 was left unchanged at 3.6 per cent.
The bank said consumer spending grew strongly in the first quarter of this year, but declined in seasonally adjusted terms in the second quarter. It has lowered its forecast for consumer spending growth this year marginally to 3.8 per cent.
“A wide range of domestic spending and activity indicators suggest that Irish economic activity continues to expand at a healthy pace, though growth momentum may have slowed slightly over the first half of the year," said chief economist Gabriel Fagan.
On Brexit, the bank said the uncertainty surrounding the trading arrangements which will emerge from negotiations with the EU made it difficult to estimate the impact on the Irish economy. Fagan said initial feaselect * from Content where label like 'Central Bank%'rs about the impact of Brexit on the British economy had given way to a less pessimistic assessment in recent months, due to some more positive British economic data and measures taken by the Bank of England.
He added that while it was not appropriate now to further lower forecasts due to Brexit, there was still the potential for adverse effects to re-emerge quickly. In its last bulletin, the bank said Brexit would have a "negative and material effect" on Ireland.
The bank's bulletin also repeated concerns about measures of economic growth, warning that these uncertainties made it more difficult to forecast tax revenues. It added that it would be "prudent" to assume that some fraction of the recent surge in corporation tax revenues might be temporary.
Referring to what it called "the legacy of high public and private sector debt levels" - as well as the economy's vulnerability to international shocks - the bank urged the establishments of long-term targets for budgetary policy. These would act as an 'anchor' for annual budget decisions.
The Central Bank also raised its forecasts for employment and unemployment this year, due to a sharp pick-up in growth in the labour force. It now expects employment to grow by 2.6 per cent this year, with the unemployment rate averaging 8.3 per cent, up from 7.9 per cent in its previous bulletin.