Country Forecast Ireland August 2018 Updater

Country Forecast Ireland August 2018 Updater

  • August 2018 •
  • Report ID: 1698015 •
  • Format: PDF


  • The minority coalition government, led by Leo Varadkar, is fragile and unlikely to have the capacity to address the mounting economic and political challenges facing the country. The Economist Intelligence Unit's baseline forecast is that the government will not survive until the end of the parliamentary term in 2021. We expect a pre-term general election close to mid-2019.
  • Greater concern about the risk of a disorderly "no deal" Brexit has made it less likely that Ireland's political parties trigger an election before the UK leaves the EU in late March 2019. However, there is still a high risk that the election will come sooner. Fianna Fail could withdraw its support to capitalise on the fallout of a government crisis, or Mr Varadkar could decide to seek a stronger mandate. Despite Fine Gael's lead in opinion polls, we expect a highly fragmented parliament after the next election, which will complicate government formation.
  • The UK's departure from the EU could have negative economic consequences for Ireland and could complicate relations with the EU and Northern Ireland. International scrutiny of Ireland's low-tax regime has increased, but we expect the government to resist pressure to raise its 12.5% corporation tax rate.
  • The policies of the US administration, led by the Republican president, Donald Trump, could have negative effects on Ireland's small, open economy. The Trump administration has imposed trade tariffs on EU goods and has passed a tax reform that aims to encourage US corporates to repatriate more of their profits.
  • We forecast that the budget deficit will widen gradually, from 0.2% of GDP in 2018 to a still moderate 0.9% in 2022, as solid revenue growth partly offsets higher interest and other government spending. We forecast that upward revisions to GDP in 2015 and moderate primary surpluses during the forecast period (2018-22) will lower the public debt/GDP ratio to 57% in 2022.
  • Official GDP figures will remain an unreliable measure of domestic economic activity, owing to the substantial presence of foreign multinational companies with headquarters in Ireland. We expect annual average real GDP growth to slow from 7.2% in 2017 to 4.5% in 2018 and an average of 3.3% in 2019-22. Large upward revisions to the national accounts have resulted in similar-scale revisions to Ireland's external accounts. We expect the current-account surplus to decline from 12.9% of GDP in 2017 to an average of 6.8% per year in 2018-22.


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