Monday 16 September 2019

Ireland's economic outlook 'clouded in uncertainty', EU warns

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Donal O'Donovan

Donal O'Donovan

THE economic outlook for Ireland “remains clouded by uncertainty” particularly related to Brexit and global tax changes but at the same time is in danger of overheating, the European Commission has warned.

The Commission has cut its growth forecast for the euro zone economy next year, saying that uncertainty over US trade policy posed a major risk to the bloc.

But amid global trade uncertainty Ireland’s heavy exposure to multinationals and what the Commission says are their “difficult-to-predict activities” could “drive headline growth in either direction,” the report says.

While a hard Brexit could hammer Ireland, in the absence of such a major external shock risks of overheating could increase including a tight labour market and diminishing spare capacity.

In its quarterly economic forecasts, the Commission also cut its estimate for inflation, predicting that it would be further off the European Central Bank’s target of close to but less than 2pc.

That will add to pressure on the ECB to keep interest rates at all time lows, and potentially to even cut them further.

Economic growth in the euro zone is now expected to have slowed this year to 1.2pc from 1.9pc last year. Irish growth is still expected to be far ahead of that, though the risk of a messy Brexit in October could derail the current trend.

Risks to growth have increased, the Commission said, blaming “elevated uncertainty” around Donald Trump’s US trade policy.

The weaker economic outlook contributed to a downward revision of inflation expectations, the Commission thinks to 1.3pc for this year, well below the ECB target.

The slowdown in the euro zone mostly reflects was mostly caused by slower growth in Germany, the euro zone’s largest economy, and Italy, its third largest.

Online Editors

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