MNI: Central Bank of Ireland Raises 2017, 2018 GDP Forecasts

--Strength Driven By Domestic Demand, Tempered By External Risks, Brexit

By Kieran Williams

     LONDON (MNI) - The Central Bank of Ireland have raised their forecasts for

GDP in both 2017 and 2018, showing the economy remains on a favourable growth

path, the latest Quarterly Bulletin shows.

     According to the Q4 2017 Quarterly Bulletin, published Thursday, the Irish

central bank say the pace of growth in the Irish economy continues to be robust,

raising their GDP forecasts for 2017 and 2018 by 0.4ppts and 0.3ppts

respectively to 4.9% and 3.9%. The upward revisions reflect "both weaker than

expected import growth and an upward revision to forecast investment in

intangible assets this year "according to the report. The Bank add that the

economy is projected to remain on a favourable growth path.

     The report notes that growth is driven by domestic demand which is

supported by gains in employment, incomes and consumer spending. Risks stem

mainly from external uncertainty including Brexit and global trading conditions.

     Domestic demand growth forecasts are downgraded slightly to 4.2% in 2017

and 3.9% in 2018, but this is reflective of weaker growth in the national

accounts measure of consumption in the first half of the year mainly due to the

feed through effects of weaker sterling.

     Focussing on Brexit the Bulletin notes that the main effect has been felt

through weaker sterling, most notably on inflation which is reflective of the

high proportion of goods which come from the UK. 

     The net effect has been downward pressure on goods price inflation which

has offset higher prices for services. The Bank predicts a pickup in harmonised

Consumer Prices in 2018 to 0.7% from the 0.3% estimated in 2017. The Bank

adduces subdued inflation expectations as necessitating the continuation of

supportive monetary policy.

     "Far from dampening consumer sentiment, Brexit is keeping the costs of many

imported goods down. Although this is good news for many Irish consumers, we

must not underestimate the threat that Brexit poses to our longer-term

prosperity given our exposure to the UK economy," said Central Bank of Ireland

Chief Economist Gabriel Fagan.

     Export growth for 2017 is expected to decline slightly to 4.9% mainly due

to subdued contract manufacturing activity. However, looking ahead the Bank note

that external demand indicators are positive and Fagan notes "the outlook for

demand from Ireland's main trading partners is up modestly since the previous

Bulletin. However, the recent appreciation of the euro against the dollar and

sterling is likely to dampen exports somewhat."

     On Public Finances the report notes that the government is on track to

deliver an improvement in the general government balance in 2017 from the

0.6%/GDP deficit last year as general government revenue climbs above its

pre-crisis peak.

     The Bulletin notes that the National Treasury Management Agency has sold

E10.5bln of debt this year and is comfortably on track to achieve its range of

E9-E13bln over 2017. The report also notes that Irish sovereign debt CDS has

narrowed to 37bps from 79bps reflecting more favourable financing conditions for

the government. The Bulleting also notes that financing costs would be further

improved by the proposals to seek early repayment of IMF loans with other

counterparties such as Sweden and Denmark.

--MNI London Bureau; +44 203 865 3809; email: kieran.williams@marketnews.com

[TOPICS: M$B$$$,M$E$$$,M$X$$$,MC$$$$,MI$$$$,M$$BE$,M$$EC$]