Economic growth set to continue in 2020 but at a reduced rate
While the Irish economy is expected to grow by 3.8 per cent in 2019, this is at a reduced rate compared with the expected growth outlook in the previous Commentary. The lower expected pace of growth reflects the slowdown observed in the global and European economies since the end of last year. In 2020 we expect the Irish economy to grow by 3.2 per cent.
The unemployment rate in 2019 is expected to average 5.2 per cent, falling to 4.8 per cent in 2020. Consumption and underlying investment are expected to be important drivers of growth over the period. These forecasts for 2019 and 2020 are subject to the technical assumption that the UK’s continued membership in the EU will effectively remain in place after March 2019, as would be the case under a transition period during any withdrawal agreement.
Given the persistent uncertainties with respect to the form of the UK’s withdrawal from the EU, the Quarterly Economic Commentary examines the impacts of various Brexit scenarios on the short-term outlook. Under the most severe scenario of a Disorderly No-Deal detailed in the Special Article of this edition, domestic real GDP is estimated to rise by just 1.2 per cent in 2019 and 2.4 per cent in 2020.
Although the General Government Balance registered a minor surplus in 2018, this was due, in the main, to the substantial increase in corporation tax returns for the year. While a surplus is a positive development, the sensitivity of key fiscal metrics to the activities of a small number of firms is an ongoing concern. The exceptionally high levels of corporation taxes witnessed in recent years give rise to the possible presence of significant amounts of windfall tax receipts amongst the exchequer returns. A greater reliance on volatile tax receipts poses challenges for fiscal stability over the medium-term.
Authors Conor O'Toole and Kieran McQuinn presented key points from the Quarterly Economic Commentary, Spring 2019.