The most substantial risk facing the Irish economy is the outcome of the Brexit negotiations, according to the Economic and Social Research Institute (ESRI).
The research group released its latest Quarterly Economic Commentary for Autumn 2018, and has, however, revised up its forecast for GDP.
Revised GDP
For 2018, the group has increased its estimates for GDP from 4.7% to 8.9%, followed by a growth of 4.5% in 2019.
‘There are two reasons for the revision,’ the report read, ‘firstly domestic consumption and modified investment have grown at a faster pace through the first half of 2018 than was previously expected’.
‘Secondly, considerable volatility in the trade balance, with imports registering negative growth over the same period has also led us to revise our forecasts.’
The research institute added that its 2019 revision works on the assumption that a European Economic Agreement (EEA) will exist between the UK and the EU after March 2019.
It said, ‘If a no-deal Brexit were to materialise in March 2019 the economy could be confronted by a highly adverse economic shock.
Economic Shock
‘Either way, given the strong pace of current economic activity and the possibility of a highly adverse shock, a neutral budget is the optimal policy choice at this point.’
In order to deal with Brexit, the ERSI said that the ‘most prudent policy’ would be to run budgetary surpluses and reduce the level of indebtedness in order to buffer future economic shocks.
It has recommended a ‘holding budget’ for Budget 2019, saying that it should ‘look to neither inflate nor deflate the economy’, but focus on mitigating the effects of Brexit, as well as managing infrastructural deficits in areas such as housing.
The ESRI said that the summit of European Union leaders in October may provide some clarity regarding the nature of Brexit, but added that, at this stage, ‘it is prudent to assume that a no-deal outcome is a real possibility’.
Last week the ESRI released a report that revealed that Irish are looking at a €19 increase in their weekly grocery shop in the event of a no-deal Brexit.
© 2018 Checkout – your source for the latest Irish retail news. Article by Aidan O’Sullivan. Click subscribe to sign up for the Checkout print edition.
