Friday 20 July 2018

Davy Stockbrokers upgrades Irish growth forecast to 6pc for year but Brexit is key threat

'This time, the mantra of ‘recovery’ grated on those who had not yet felt the benefits of growth'
'This time, the mantra of ‘recovery’ grated on those who had not yet felt the benefits of growth'
Ailish O'Hora

Ailish O'Hora

DAVY Stockbrokers has revised up its growth forecast for Irish GDP to 6pc for 2016 and 4pc the following year but warned on the threat of Brexit.

Previously the expectation had been for a 4pc expansion in 2016 and  2.7pc in 2017.

Read more: Brexit could cripple Irish trade with UK - Ibec report

"Our upgrades reflect the exceptional 7.8pc GDP growth in 2015," said Conall MacCoille, chief economist at Davy Stockbrokers.

"This momentum means that even if GDP flat-lined through 2016, the economy would still expand by 3.3pc in the calendar year.

"However, retail sales data, PMI surveys and unemployment benefit claimants have all continued to point to rapid growth in the first quarter of 2016."

Read more: What Europe's economy needs is a good shove - not a gentle push

The broker added that it expects consumer spending to growth by 3.7pc in 2016 and investment by 7.5pc while its expectation for the residential property market is still 5pc at end December with bank lending contracting again this year.

Exports are also buffered from signs of weakness in key trading partners like the euro and the UK because of their concentration in defensive sectors like pharmaceutical, it added.

Essentially, though, Ireland's economy is still in catch-up mode with consumers and domestic companies only recently joining in the recovery.

The broker also warned that storm clouds include Brexit, accentuated by Irish political stalemate.

"Should the UK vote in favour of Brexit on June 23rd, the two-year exit period under Article 50 of the Lisbon Treaty will ensure no immediate change to trade arrangements.

"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 added.

"The UK still accounts for 18pc of Irish exports and 30pc of imports. He added that the agri-food sector would be particularly exposed as the UK accounts for 50pc of agricultural exports," he said.

"Political uncertainty should not be sufficient to hurt growth prospects significantly in the short term.

"Any new government will involve the mainstream parties, Fianna Fáil and Fine Gael, rather than radical parties," he added.

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