Central Bank cuts growth forecast as it warns Brexit will hit hard
Published 28/07/2016 | 02:30
The Central Bank has cut its growth forecasts for this year and next on the back of Britain's vote to quit the EU.
The bank's chief economist, Gabriel Fagan said the Irish economy now faced a period of "extremely high uncertainty".
The Central Bank said the short-term impact of the Brexit vote would push down growth here by 0.2pc this year and by a further 0.6pc next year.
In its latest quarterly economic bulletin, the bank is forecasting a rise in GDP of 4.9pc this year and 3.6pc in 2017.
Mr Fagan said the dramatic revision to Ireland's growth, on the back of the activities of the multinational sector, meant that key metrics to gauge the health of Ireland's economy were "less meaningful".
The Central Statistics Office said GDP surged by a massive 26.3pc, but the accounting activities of foreign companies based here, rather than actual domestic economic activity, skewed the data.
"Forecasters always tend to say that it's a very difficult time to forecast, there's so much uncertainty out there.
"On this occasion, it's actually true," Mr Fagan said.
"If you think of what happened in the revision of the GDP numbers last year and the outcome of the Brexit referendum, it means that we're in a period of extremely high uncertainty regarding the prospects for the Irish economy."
The Central Bank's decreased growth forecast following the Brexit vote comes as data released yesterday showed that retail sales in the UK fell at the fastest pace in more than four years this month.
Mr Fagan said the impact on the Irish economy could be worse than the bank's forecast.
Over 10 years, in a worst-case scenario, Ireland's economy could be 3.2pc smaller than it would have been if the UK had voted to remain in the EU.
The Central Bank said that in both the short and medium terms, the economic impact of Brexit on Ireland was set to be "negative and material".
It added: "Qualitatively, both in the short run and the longer term, Brexit is likely to adversely affect the Irish economy."
Mr Fagan said the Central Bank did not anticipate the scale of the revision to Irish GDP last year, which saw growth jump from 7.8pc to a huge 26.3pc.
Experts dismissed the massive revision as "Leprechaun Economics" but we will nevertheless have to pay more to the EU Budget.
It also pushes down Ireland's debt to GDP ratio, even though the level of debt, and the capacity of the economy to service it, remain the same, Mr Fagan said.