April 16, 2019 / 2:11 PM / 9 months ago

Ireland trims GDP forecasts on domestic, external challenges

DUBLIN (Reuters) - Ireland trimmed its gross domestic product (GDP) forecasts for 2019 and 2020 on Tuesday, citing a more challenging external environment and moderation of some domestic indicators in recent months.

FILE PHOTO: Construction cranes are seen in the Irish Financial Services Centre in Dublin, Ireland April 24, 2017. REUTERS/Clodagh Kilcoyne

The finance ministry still sees Europe’s fastest growing economy expanding strongly with GDP rising 3.9 percent this year and 3.3 percent next - versus prior forecasts of 4.2 percent and 3.6 percent respectively - contributing to a higher budget surplus in both years.

But it acknowledged that the Irish economy was in an unusual position at present, “juxta-positioned between possible domestic overheating and capacity constraints on the one hand, and a slowdown in key export markets on the other.”

“Moreover, the UK’s forthcoming exit from the European Union casts a shadow over future prospects,” the ministry said, adding that the recent six-month delay to Brexit meant an orderly exit remains the central scenario underpinning its forecasts.

“Charting a course through the next couple of years will be challenging for the Government but, importantly, it is a challenge being met from a position of strength.”

The finance ministry estimated in January that if its near neighbour had left the EU in a disorderly manner on its original exit date of March 29, GDP growth could have slowed to 2.7 percent this year and around 1 percent next year.

Due to its close trading links, Ireland’s export-focused economy is considered the most vulnerable among remaining EU members to Brexit, although it has yet to have a big impact on the 28-nation bloc’s best performing economy since 2014.

However the softening of external demand for almost a year, particularly from Britain and the EU, alongside a faltering of consumer confidence at home and potential that Brexit may prompt some firms to postpone their investment decisions led to the slight downgrade in GDP growth, the finance ministry said.

While other indicators remain strong, the balance of risks are firmly tilted to the downside, it added.

“The UK’s exit from the European Union will impose significant costs on the Irish economy, involving lost output and employment,” it said on the key risk the economy faces.

“The question of how costly depends crucially on the exact form that exit takes.”

Reporting by Padraic Halpin and Graham Fahy; Editing by Peter Graff

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