Downward growth predicted for economy in 2019 and 2020
A disorderly Brexit will turn a planned budget surplus into a deficit, says Finance Minister Paschal Donohoe.
Mr Donohoe, speaking at the Oireachtas Budgetary Oversight Committee confirmed that his department has revised downward growth forecasts for the Irish economy for 2019 and 2020 because of external factors.
The economy continues to perform strongly, but a number of headwinds lying ahead mean we cannot be complacent, he said.
“The cost to the Irish economy of the UK’s departure from the EU and the slowdown in global growth, in particular, pose significant risks,” said Mr Donohoe.
These international factors have caused an impact on consumer confidence which has dented domestic demand. However, Mr Donohoe emphasised that the economy is in rude health and will continue to grow this year if there’s a no-deal Brexit. He confirmed that the pace of growth seen in recent years continued in 2018, with GDP rising by 6.7%.
While Irish GDP can be inflated by the activity of foreign multinationals, modified domestic demand — a better measure of underlying economic activity — increased by 4.5% last year.
“For this year, we are projecting a slight moderation in the pace of growth relative to what we projected at Budget time,” said Mr Donohoe. “This is partially due to a slowdown in key export markets, in particular, the UK and the euro area. The external environment has deteriorated in the past six months, and this was very evident to me in my discussions at the IMF last weekend.
My department has revised its GDP growth forecast for 2019 down from 4.2% to 3.9%. For next year, GDP growth of 3.3% is forecast. Growth in modified domestic demand is expected to be broadly in line with GDP growth. Over the medium term, a growth rate of around 2.5% is projected.
Mr Donohoe said it is clear that the possibility of a disorderly, no-deal exit remains.
“Research undertaken by my Department and the ESRI shows that the impact of a disorderly exit would be to reduce the level of GDP by around 3.25% after five years, and 5% after 10 years relative to a no-Brexit baseline, with adverse implications for the labour market and the public finances,” he said.
“Other risks to the economy include the possibility of the domestic economy overheating and a rolling-back of globalisation.”
Mr Donohoe was questioned by Fianna Fáil’s Michael McGrath and People Before Profit’s Richard Boyd Barrett on the economy and insisted that the Government is not complacent about the various challenges which lie ahead.
“Our vulnerability to such external threats is one of the reasons the rainy day fund is being established this year which will increase the State’s resilience to external economic shocks,” he said, while accepting that the national debt is still too high.
