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MNI (London)
--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:
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MNI London Bureau | +44 203-865-3812 |