October 6, 2016 / 10:17 AM / a year ago

Irish central bank cuts 2016 growth forecast, sees adverse risks

DUBLIN (Reuters) - Ireland’s central bank said on Thursday it had cut its economic growth forecast for the second quarter in a row, citing weakness in exports and domestic demand.

It said risks were clearly tilted to the downside due to the uncertain impact of Britain’s exit from the European Union.

The Irish economy will grow by 4.5 percent in 2016, down from a forecast three months ago of 4.9 percent, the bank said in its quarterly report. Ireland’s finance ministry on Tuesday cut its 2016 forecast to 4.2 percent.

At that pace, Ireland will still probably be the EU’s best-performing economy. But the country’s focus on exports and its trade ties to Britain make it especially vulnerable to the effects of Brexit.

The Central Bank said it had refrained from cutting its forecast of 3.6 percent GDP growth in 2017 as the impact of Brexit remained so unclear. The finance ministry is forecasting growth of 3.5 percent.

“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,” Central Bank Chief Economist Gabriel Fagan said in a statement.

But “the potential for adverse macroeconomic, financial and currency market effects to quickly re-emerge remains,” he added. “In such circumstances, risks to the latest forecasts remain clearly tilted to the downside.”

The central bank said the cut to the 2016 growth forecast largely reflected a reduced contribution from exports, with growth of 5.6 percent seen rather than 6.4 percent, with some moderation also seen in domestic demand growth.

“A wide range of domestic spending and activity indicators suggest that Irish economic activity continues to expand at a healthy pace, though growth momentum may have slowed slightly over the first half of the year,” Fagan said.

Reporting by Conor Humphries

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