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Potential remains for further hit to economy from Brexit, warns Central Bank

Published 06/10/2016

The regulator's economists said gross domestic product should grow by 4.5% this year
The regulator's economists said gross domestic product should grow by 4.5% this year

The Central Bank has warned about a further hit to the Irish economy from Brexit.

While the watchdog said it was revising its forecasts for this year, it kept next year's figures as they were but cautioned that the outlook for the economy is further complicated by the potential impact of the UK's withdrawal from the European Union.

"Given the close relationship between the Irish and UK economies, a slowdown in UK growth and a weakening of sterling against the euro would adversely affect those sectors with a high dependency on exports to the UK," it said.

The regulator's economists said gross domestic product should grow by 4.5% this year, a cut of 0.4% on its previous numbers.

But it also said there is no meaningful, commonly agreed measure of economic activity in Ireland - a response to the colossal numbers published earlier this year that the economy had grown by 26.3%.

Chief economist Gabriel Fagan added: "The initial fears in relation to the impact of Brexit on the UK economy have given way to a less pessimistic assessment in recent months, against the background of some more positive UK economic data and an accommodative policy environment.

"While this leads to the judgment that it is not appropriate, at this point, to make a further negative Brexit adjustment to the forecasts, the potential for adverse macroeconomic, financial and currency market effects to quickly re-emerge remains."

The Central Bank said growth in Ireland will be mainly driven by domestic demand.

It urged a cautious approach in next week's budget and said: " Ireland is especially exposed due to the legacy of high public and private sector debt levels, the sensitivity of small, highly open economies to international shocks and Brexit-related vulnerabilities."

Tax figures released this week showed 644 million euro more corporation tax has been collected this year than anticipated.

But the Central Bank said: "It would be prudent to assume that some fraction of the recent surge in corporation tax revenues might be temporary in nature."

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