Economic outlook revised upwards in Central Bank’s third Quarterly Bulletin

• Economy forecast to grow 4.5 per cent this year and 3.6 per cent in 2018 – revised upwards from 3.5 per cent and 3.2 per cent respectively at last forecast
• Employment forecasts revised upwards – with 2.1 million people expected to be in work in 2018, for the first time in 10 years
• Brexit and the sensitivity to other potential international shocks continue to pose risks

The Central Bank of Ireland has today published its third Quarterly Bulletin for 2017. The Bulletin examines recent trends in the domestic economy and provides the Central Bank’s forecasts for the Irish economy and its views on domestic macroeconomic policy issues.

The Bulletin reports:

• Gains in employment and incomes are expected to remain the main driver of growth, whilst forecasts for export growth have also been revised higher
• Positive developments in the labour market have helped incomes to recover, in turn supporting solid growth in consumer spending, though employment growth is expected to moderate next year following a period of exceptionally strong increases
• Inflation remains subdued, reflecting the effect on goods prices of euro appreciation against sterling and weakness in energy prices. Headline inflation is expected to increase by just 0.3 per cent in 2017, a downward revision from 0.7 per cent since the last Bulletin. Excluding energy, it is expected to remain flat in 2017 and climb to 1 per cent in 2018
• While the central forecast is favourable, risks are to the downside and mainly relate to external factors.

Gabriel Fagan, Chief Economist, said: “The Irish economy continues to grow at a strong pace and the prospects for sustained and solid economic growth remain positive. Revised projections for growth this year and in 2018 reflect both stronger momentum in the domestic economy and improved prospects for external demand, especially from our European trading partners.”

The Bulletin continues to highlight a number of risks to the downside. However, in the absence of any new information on these risks, the Central Bank has not made any adjustments to its forecast in this regard, but Brexit and the sensitivity to broader international shocks are highlighted as concerns.

Mr Fagan continued: “As a small and open economy, Ireland continues to face economic risks externally. And despite there being little new information emerging to date, it is clear that the economic impact of Brexit on Ireland is set to be negative and material. At home, we must continue to prudently monitor the risk of overheating.”

Today’s Quarterly Bulletin has also, for the first time, considered the new economic measurement of GNI*, which excludes the effects of globalisation that distort the measurement of the size of the Irish economy. This new measurement results in notably higher general government deficit and debt ratios as well as higher ratios of private sector indebtedness than when using the traditional measurement of GDP. As such, the Central Bank continues to underscore the importance of economic policies that underpin stability and reduce uncertainty.

A short video of the Chief Economist, Gabriel Fagan, discussing the Quarterly Bulletin, is available on the Central Bank’s YouTube channel.