The State’s strong economic growth is set to slow over the next 18 months as Britain enters a recession that will hit the Republic’s exports industry, according to a new report.
In the short-term, according to Goodbody's Health Check – Brexit Chill, the uncertainty caused by the Brexit vote will be enough to push the UK economy into recession in the second half of 2016, with a full-year decline expected in 2017.
"An imminent UK recession, triggered by Brexit-related uncertainty, is likely to take the gloss off a robust Irish economic performance," said Goodbody chief economist Dermot O'Leary. "The current outlook for the Irish economy is unusually clouded."
Knock-on implications
In terms of the effect a British recession would have globally, the report noted that international links “have increased substantially” over recent decades. Thus, there will “undoubtedly be knock-on implications” for the rest of the world.
"Ireland will not go unscathed in the short-term as a result of a UK recession," it said. "The most immediate impact will be felt through exports, with investment spending also likely to be negatively impacted.
“This will have negative repercussions for the labour market and we have adjusted our employment forecasts downwards as a result of this anticipated effect.
“In relation to trade, sterling weakness will impact negatively on exports to the UK over the coming 18 months. The UK currently accounts for 17 per cent of Irish exports. Within this, the agri-food sector will be most affected.”
Core domestic demand
The report said Goodbody was reducing its forecasts for core domestic demand for 2016 from 5 per cent to 4.2 per cent, and for 2017 from 4.4 per cent to 3.7 per cent. Core domestic demand measures consumer spending, Government spending and investment excluding aircraft and research and development.
The downgrades reflect “a more cautious view” on net exports and business investment in particular, while consumer spending growth “may moderate” on the back of the increased uncertainty.
Goodbody said the British recession would not be similar to that of the late 2000s as issues related to the banking sector are not expected to be repeated. “The early 1990s is a more appropriate benchmark,” it said.
“In this period, real GDP declined by a cumulative 2 per cent over a two-year period, with investment spending falling by over 20 per cent and consumer spending falling by a relatively modest 1 per cent.”
