Europe’s largest investment bank sees Irish economic growth slowing down at a quicker pace than the market expects next year as Brexit proves to be “more threat than opportunity”.
Deutsche Bank forecasts that Ireland's gross domestic product growth will fall to 2.9 per cent next year from 5 per cent this year. The consensus forecasts among analysts is for the economy to expand by 3.5 per cent next year.
"Following the UK vote to leave the EU on 23 June, we slashed our 2017 UK GDP forecast by 1.2 percentage points to 0.9 per cent," said Mark Wall, chief economist at Deutsche Bank. "As the country with the largest export exposure to the UK, Ireland is most exposed to what will be a marked drop in UK domestic demand. The risk is that the impact is greater still."
About 40 per cent of exports from indigenous Irish firms go to the UK, according to Deutsche Bank. It added that the ability of Ireland to poach UK foreign direct investment “is debatable”, given housing constraints in Dublin and school places and the country’s underinvestment in infrastructure during the financial crisis.
GDP revision
Mr Wall referred to last week’s “eye-catching” revision of Irish 2015 GDP growth to 26 per cent as “growth by acquisition”. This includes the impact of tax inversions, where Irish-based multinational companies buy larger companies, typically US firms, to gain a tax benefit; contract manufacturing; and activities of the aircraft leasing sector.
“Ireland is a prime example of how the national accounts statistics of a small, open economy with a large modern sector can lose their meaning,” said Mr Wall.
“It points to significant weaknesses with GDP as a statistic to broadly represent an economy’s actual income on the one hand and as an official denominator within other policy-relevant statistics on the other, like the fiscal deficit and public debt-to-GDP ratios (the latter fell from 94 per cent to 80 per cent).”
The European Commission and the bloc's statistics agency, Eurostat, needs to address the problem, he said.
