
IMF Warns Exceptional Irish Recovery Faces Significant Brexit Risks, According to Reuters
DUBLIN (Reuters) – The International Monetary Fund reported on Thursday that while Ireland’s economic recovery has been remarkable, it remains incomplete and increasingly vulnerable to significant downside risks following Britain’s decision to exit the European Union.
Since exiting an IMF aid program in 2013, Ireland’s economy has rebounded swiftly, but it is now seen as the most susceptible to Brexit among EU nations.
Irish exporters to the UK are already experiencing challenges due to downward adjustments in economic forecasts.
The IMF has revised its predictions for Ireland’s gross domestic product (GDP), estimating 4.9 percent growth for 2016, a slight reduction from its previous forecast of 5 percent made in April, and projecting a decline to 3.2 percent in 2017 from an earlier forecast of 3.6 percent.
These forecasts align closely with updated estimates from the nation’s central bank and government, although the IMF adopts a slightly more cautious view for the forthcoming year.
The organization anticipates that prolonged uncertainty regarding the UK’s future relationship with the EU, a more substantial slowdown than expected within the UK and other parts of Europe, and increased volatility in financial markets could significantly impact Ireland.
In its report following discussions with Irish officials, the IMF advised that if the impacts are greater than expected, the authorities should be prepared to implement remedial measures, such as countercyclical fiscal policies as necessary.
These discussions took place prior to significant revisions to data revealing that Irish GDP surged by 26 percent last year due to a reclassification of activities conducted by multinational companies.
The IMF affirmed that the economic developments underlying its report were still relevant but recommended that the authorities create additional metrics to better capture the true state of economic activity, noting that gains have not been uniformly distributed and are often not felt by all segments of the population.
Additionally, the Fund conducted a comprehensive assessment of Ireland’s financial sector, which, while significantly strengthened since the financial crisis and undergoing major transformations, continues to face challenges from Brexit-related uncertainties.
According to the central bank, Irish banks have approximately 21 percent of their total assets exposed to the UK, and the IMF predicts that uncertainty stemming from Brexit is likely to have negative consequences for the Irish financial system, at least in the short term.
The IMF stated that adverse effects are expected mainly through the operations of banks in the UK and a slowdown impacting Irish businesses, jobs, and investment, rather than from immediate market volatility and funding risks.
While the potential impact could be substantial, the IMF believes it is still manageable.