The European Commission has downgraded slightly its economic forecast for Ireland for next year to 3.6 per cent, citing heightened risks since the British referendum on EU membership.
In its autumn economic forecast published on Wednesday the commission says it expects the Irish economy to grow 3.6 per cent next year, compared to a growth rate of 3.7 per cent forecast in May.
Ireland, along with Malta, still remained the fastest growing economy in the EU, with growth of 4.1 per cent registered for this year.
However, the commission dramatically cut its economic growth forecasts for Britain next year due to the impact of Brexit. “Growth is projected to almost halve in 2017, to 1 per cent from 1.9 per cent in 2016, reflecting the impact of heightened uncertainty following the referendum and its impact on business confidence and broader economic conditions,” the commission said.
Domestic demand
It said that Ireland’s economic activity is expected to remain strong, driven by domestic demand and job creation , but it warned that “risks have heightened considerably” since the British referendum in June. In particular, weak sterling is affecting mostly indigenous firms, but it notes that this is having a “limited impact on multinationals” as exports are denominated in other currencies.
The commission says “further falls in sterling of hits to consumer or business confidence could weigh on economic activity”.
It notes that “short-run job losses in the sectors most exposed to the sterling depreciation are expected to be more than compensated by employment growth in services and construction”.
Taxation
On taxation, it notes that public finances are more sensitive to shifts in corporate tax strategies, though it adds that there is a growing interest by some multinationals in basing manufacturing in Ireland which could offset this risk.
Overall, the European Commission is forecasting growth of 1.5 per cent for the euro area next year, lower than the 1.7 per cent expected in May.
While Brexit did not feature prominently in its overall assessment it states that the EU economy will no longer be able to benefit from external factors, such as falling oil prices and currency depreciation, in the years ahead.
"European growth will hold up in 2017 against a more challenging backdrop than in the spring," said EU economics commissioner Pierre Moscovici.
“The pace of job creation, boosted by recent reforms in many countries, decreasing public deficits in the euro area, a pick-up in investment and more dynamic EU-intra trade are particularly encouraging.
“In these volatile and uncertain times no effort must be spared to safeguard and strengthen this recovery, and ensure that all sections of society feel its benefits.”
