Friday 23 August 2019

EU Commission trims growth forecast amid concerns about risks to Irish economy

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Stock photo

David Chance

The European Commission has trimmed its economic growth forecasts for this year and next due to weaker global demand and warned that Brexit and changes to the international tax regime pose risks to the budget.

The spring forecasts show the Commission expects the economy here to expand by 3.8pc this year, down from expectations of 4.1pc in the winter forecast, and by 3.4pc next year, a cut from an expected 3.7pc.

“Ireland’s  export  growth  rates  are  expected   to  moderate  as  support  from  global  trade  is  waning,” the Commission said in a report published yesterday.

Even so, the economy will still rank in the premier league of the eurozone, beaten only by Malta’s 5.5pc growth rate this year and in a tie with Slovakia. It expects the bloc as a whole to post growth rates of 1.2pc this year and 1.5pc next.

The new forecasts compare with expectations from the Department of Finance for 3.9pc growth this year and 3.3pc in 2020.

“The  uncertainty  surrounding  Ireland’s  economic  outlook   comes   mainly  from external   factors, particularly the terms of the UK’s withdrawal from the   EU,   as   well   as   possible   changes  in  the  international  taxation  and  trade  environment,” the  Commission said.

It also warned that the domestic economy may be overheating as unemployment has fallen.

The Commission expects the budget to be in balance this year, compared with government expectations of another small surplus, and expects there to be a surplus equivalent to 0.3pc of gross domestic product in 2020.

While Minister for Finance Paschal Donohoe has pledged there will be no repeat of a €600mn overspend on health this year, and has scheduled monthly meetings to keep a check on expenditure, the Commission said it expected “a drift in current expenditure in areas such as health”.

“Risks  to  the  fiscal  outlook  remain  skewed  to  the  downside,  mainly  reflecting  uncertainty as regards the economic  outlook  and  the  sustainability  of  the  current   level   of   some   sources   of  government  revenue  (notably corporate tax),” it said.

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