Brexit: ‘The unknowns outnumber the knowns’

Ibec has cut its Irish economic forecasts for this year and next in light of the UK's decision in June to quit the European Union.

The business lobby group now expects gross domestic product to expand by 3.9 per cent, according to its quarterly economic outlook, having estimated a figure of 4.7 per cent earlier this year, before the Brexit referendum. It sees growth slowing in 2017 to 3.2 per cent, compared to a prior forecast of 3.9 per cent.

“We expect the momentum in the Irish economy will help us weather the Brexit impact through 2016, but future years are now much more uncertain,” Ibec said. “When it comes to longer-term Brexit impacts, the unknowns outnumber the knowns by some distance.”

Since the Brexit referendum, the euro has surged from 76.6p to 85.8p, making Irish exports to the UK less competitive and imports cheaper.

“Over the coming months it is likely that sterling will continue to weaken and the exchange rate will move towards 90p with the economic situation in the UK expected to deteriorate,” Ibec said. The euro has not traded in foreign exchange markets at 90p in more than five years.

Cross-border shopping

“The UK accounts for almost one-third of Irish exports and up to 56 per cent in the food sector,” said Ibec. “Along with weaker exports and the possibility of cross-border shopping, the weaker sterling may also see some multinational retailers re-examine their sourcing strategies for the Irish market over the coming months.”

Ibec sees consumer spending growth, which began to recover in 2014 after the financial crisis, slowing to 3.5 per next year from 4.9 per cent in 2016. It sees export growth easing to 5.2 per cent from 5.9 per cent over the same period.

Employment growth should slow to 2.1 per cent next year from 2.8 per cent in 2016, bringing the jobless rate to 7.5 per cent in 2017. That would be just below half the 15.1 per cent peak unemployment rate during the financial crisis, in early 2012.