Brexit, international tax changes and rising property prices threaten to derail the Irish economy, the EU has warned.
In its latest post-bailout programme report, the European Commission and European Central Bank say the Irish economy is expected to continue to thrive with underlying domestic activity growing at a solid pace.
The report says that while headline GDP figures remain volatile due to activities from multinational companies based in the Republic, underlying activity is strong, with “robust employment growth, private consumption and strong investment in construction”.
“Risks to the macro-economic outlook are tilted to the downside. External risks relate mostly to the outcome of the negotiations between the UK and the EU and potential changes to the international taxation environment. A large degree of unpredictability remains related to the activities of multinationals with risks being on either side,” the report authors say.
“Internal risks could also arise in the event of continued strong increases in property prices over the medium term. The tightening of the labour market could contribute to the economy overheating in the future.”
Public finances
The report states that public finances have continued to improve, although it notes “a high degree of volatility in corporation tax revenue and heightened economic uncertainty over the medium term”, which it suggests implies a need to broaden the tax base and build buffers.
The latest report also notes an improvement in Irish banks and in particular in the reduction of non-performing loans.
“While public confidence in the banks has been dented by the mismanagement of a number of tracker mortgages, there is no evidence that this has impacted the behaviour of retail customers.”
It adds: “While a recovery in credit demand is observed for certain categories of loans, private debt repayments are still dominant, which makes future profitability less certain.”
The report authors also voice concerns about rising property prices amid a need for a rise in housing output.
Repaying debt
The eighth post-programme surveillance review mission took place in late November and early December, when officials from the commission and ECB visited Dublin.
The study says the State’s ability to repay debt has been strengthened due to the the early and full repayment of IMF loans and bilateral loans from Sweden and Denmark. This has reduced the country’s interest repayment burden and extended its debt maturity profile.
“Ireland’s macro-economic imbalances continue to unwind amid strong economic growth and following policy actions,” the report authors conclude.
The next post-programme surveillance review mission is expected to take place later this spring.
