IMF: No-deal Brexit is main risk to Ireland

17 Jun 19

A ‘no-deal’ Brexit poses the main risk to Ireland’s economy, which is “uniquely vulnerable” to events in the United Kingdom, the IMF has warned.

Policymakers in the country may have to launch a fiscal stimulus, depending on the severity of any downturn that may be caused by Britain’s withdrawal from the European Union.

Irish authorities should continue preparing for Brexit while strengthening fiscal buffers and addressing bottlenecks to growth, the Fund has recommended.

“The outlook is broadly positive, provided Brexit proceeds in an orderly manner,” IMF economists said after taking stock of Ireland’s economy as part of its ‘Article IV’ process.

“Ireland is uniquely vulnerable to a no-deal Brexit,” they continued, noting that “if this risk were to materialise, the government should let automatic fiscal stabilisers operate freely and provide targeted support to hard-hit sectors.”

Fund economists added: “A fiscal stimulus may be called for, depending on the severity of the downturn in the broader economy.”

In a report following talks with Irish officials, the IMF pointed to the health of the economy as multinational sector-led net exports boosted real GDP growth in 2018 to 6.8% and job creation pushed unemployment below 6%.

Public finances continue to improve in Ireland, supported by strong output growth and abundant corporate income tax proceeds, with public debt falling by 4 percentage points to below 65% of GDP and a current account surplus of 9.1%.

Growth is projected to slow to about 4% this year and to gradually converge to about 3% over the medium term, further reducing unemployment to about 5%.

However, while the outlook remains favourable, the IMF warns of challenges from domestic capacity constraints and external risks – notably a no-deal Brexit, global protectionism, and changes that could influence Ireland’s competitive position on corporation tax.

They encouraged policymakers to accelerate fiscal consolidation and save additional corporate tax revenue, broaden the tax base to reduce dependency on uncertain revenues, and reform personal income tax to make it more efficient.

Housing shortages have become a major public concern in Ireland and housing prices continued to grow, but at a slower pace amid signs that the supply has begun to respond to rising demand.

The IMF welcomed “progress” in the provision of social housing and urged authorities to continue their efforts to boost housing supply, in part by further rationalising building regulations.

  • Gavin O'Toole, expert on Latin America
    Gavin O'Toole

    A freelance journalist. He has written six books about Latin America and taught the politics of the region at Queen Mary, University of London.

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