Outlook for Ireland is 'relatively favourable but UK faces hit' - bank
Published 07/10/2016 | 02:30
The Central Bank's top economist has warned the UK economy will take a hit from the Brexit vote, despite it so far proving resilient.
Gabriel Fagan said no "serious" economist expected the effects to have been felt immediately. "I think it's far too early to say 'don't worry about Brexit, things are fine'," Mr Fagan said.
"We have every reason to expect adverse effects on the UK economy that are in the pipeline."
And that means the uncertainty around the forecast for Ireland are heightened, he said.
The International Monetary Fund this week became the latest forecaster to upgrade its outlook for the UK this year on the back of positive economic data. Recent reports suggest the economy is holding firm, with a report earlier this week showing British manufacturing had its best month in more than two years in September.
"I don't think any serious economist would have thought that the big effects of Brexit would have been seen in the months immediately after the referendum," Mr Fagan said. "There has been a very substantial policy response in the UK, which has mitigated expectations."
In its latest quarterly assessment of the domestic and international economies, the Central Bank downgraded its growth forecast for the Irish economy this year on the back of weaker exports and a slowdown internationally. It said the economy would grow by 4.5pc - 0.4 percentage points lower than it had projected in July.
Its 2017 forecast, which had been downgraded in the wake of the referendum, holds firm at 3.6pc.
Mr Fagan said the forecast for the economy is "relatively favourable", despite the Brexit vote.
"We're seeing a situation where employment over the two years 2016, 2017, is expected to increase by 82,000 jobs and growth in the Irish economy is likely to be more than twice the level that is expected for the euro area," he said.
But he warned the forecasts were subject to a heightened level of uncertainty because of the referendum result. "The economy, despite the improvements that we have seen over recent years, remains vulnerable," he added.
"The level of debt is high, both public and private. We have an economy which is heavily integrated into the global economy, which is then subject to shocks."
Mr Fagan questioned the need for next week's planned €1bn expansionary budget when the economy was growing so strongly, but said the planned figure was within the European fiscal rules.
Davy, meanwhile, said Finance Minister Michael Noonan is likely to take a cautious approach to next week's Budget.
Economist Conall Mac Coille believes September's purchasing managers' indices, which showed a weakening in growth, will influence Mr Noonan's outlook.