DUBLIN (Reuters) - Ireland’s central bank on Thursday raised its forecast for economic growth as domestic activity strengthened and international demand improved, but it said the economy was vulnerable to post-Brexit trade restrictions and changes in European Union tax rules.
Ireland’s economy has been the best performing in Europe since 2014 and the central bank sees that momentum continuing, with gross domestic product set to grow by 4.8 percent this year - up from an earlier forecast of 4.4 percent - and by 4.2 percent in 2019.
That puts the bank’s forecasts further ahead of the finance ministry, whose figures form the basis of the government’s budget policies. The ministry predicted in October GDP would grow 3.5 percent in 2018 and 3.2 percent in 2019.
“Our forecasts for further growth in earnings this year and next, combined with expectations of modest inflation, means rising wages should translate into higher real incomes and greater purchasing power for households,” Mark Cassidy, director of economics and statistics at the bank, said in a statement.
Risks to growth in the Irish economy, where U.S. technology and pharmaceutical firms are major employers, include uncertainty around the implications of U.S. tax reform and possible EU changes to the taxation of digital services.
The risk of protectionist international trading measures is also a danger, it said.
The report also warned there could be a costly diversion of resources to logistics and trade-processing systems if the regime governing UK-EU trade shifts substantially.
The volatility of Irish GDP has called into question its relevance in accurately measuring activity, but the bank cited strong employment as a sign that the real economy was performing well.
Unemployment is set to fall to under 5 percent in 2019 from 6.1 percent in March, down from 16 percent in 2012, when Ireland was midway through a three-year international bailout.
Reporting by Conor Humphries, editing by Larry King