‘Strong growth’ for Irish economy expected despite Brexit clouds

The cloud of uncertainty over Ireland caused by Brexit will likely take years to lift amid concerns over the looming EU-UK talks but the economy will nonetheless perform relatively strongly in the coming years, according to a major report from Investec Ireland.

The bank increased its GDP growth forecast to 4.6% this year, up from growth of 3.4% in its previous forecast, meaning it believes despite the Brexit clouds the economy will continue to outpace other countries in the EU.

Acknowledging the huge distortions caused by multinational tax accounting in estimating Irish economic numbers, Investec projects the economy will also grow rapidly in 2018, by 4%, because underlying growth remains robust.

In the short term, the drop in the value of sterling against the euro following the UK’s Brexit vote has hit indigenous Irish exporters and increased competition for other firms, damaging investment and retail sales.

And in the longer term, Brexit means sterling will likely be permanently weaker. That means the Irish economy will grow at a slower rate than it could otherwise have achieved, as firms are forced to reorganise and shake up their supply chains.

“The reality is that we don’t know what the ultimate impact will be as much hinges on the nature of trading arrangements struck between the UK and EU”, the Investec economists said.

The economy here could gain as multinationals relocate their main offices from the UK to allow them continuing unfettered access to the single market.

Ireland’s ability to continue to embrace skilled migrants should also help.

The bank however, warns the lack of housing supply could devalue any Brexit dividend.

With the number of planning permissions for houses last year rising to a six-year high of 16,375, it notes that planning permits are running at well under half of the annual average since 1975.

“Our previous narrative of a multi-speed recovery has persisted, with office and residential activity both expanding while civil engineering lags far behind. Given the recent fiscal loosening, we expect the laggard in the recovery to play an element of catch-up in the coming months,” the bank said.

Citing IDA figures, Investec said that almost half of the jobs created by multinationals last year were based in the Dublin region.

It says that opinion polls suggest that there will be no early election.

“Our sense now is that the Government may limp on into 2018” as there is “little by way of an incentive for the opposition to force fresh elections”.

From Irish Examiner (1/4/2017)