Davy stockbrokers revises its growth forecast to 6pc this year
Davy stockbrokers has revised up its growth prospects for the economy this year and next, but warned the possibility of a British exit from the European Union is the top threat.
The Dublin-based firm had predicted growth this year of 4pc and 3.7pc in 2017. But now it expects GDP to increase by 6pc in 2016 and 4pc next year.
Davy economist Conall Mac Coille said the decision to upgrade was taken due to the exceptionally strong momentum in the economy that has been maintained into early this year.
"However, the possibility of Brexit, coupled with political uncertainty in Ireland, poses a threat to our forecasts," Mr Mac Coille said.
He added that the revised forecasts reflect the 7.8pc growth last year.
"This momentum means that even if GDP flat-lined through 2016, the economy would still expand by 3.3pc in the calendar year," Mr Mac Coille added.
"However, retail sales data, PMI surveys and unemployment benefit claimants have all continued to point to rapid growth in Q1 2016."
Davy said the Irish economy was still in "catch-up mode", with consumers and domestic companies only recently joining the recovery.
Retail sales are still below their peak. The domestic recovery, Mr Mac Coille said, is being sustained this year by tax cuts and falling oil prices, helping boost the spending power of households.
But a so-called Brexit is the big threat.
"Should the UK vote in favour of Brexit on June 23, the two-year exit period under Article 50 of the Lisbon Treaty will ensure no immediate change to trade arrangements," Mr Mac Coille said. "However, uncertainty could cause companies to put off investment plans.
"Exporters could also be faced with a sharp sterling depreciation, close to parity with the euro."
He warned the agri-food sector could be particularly hit, as the UK accounts for about 50pc of agricultural exports.
Meanwhile, the International Monetary Fund has warned that global financial risks have heightened because of higher economic risks, falling commodity prices and concern about the slowdown in China's economy.