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Ireland Country Risk Report Q1 2017

  • October 2016
  • -
  • Business Monitor International
  • -
  • 31 pages

Core Views

Solid macroeconomic fundamentals mean that the country is well equipped to weather through times of heightened economic uncertainty post-Brexit. Notwithstanding the imminent shortfall in trade and investment volumes which emanate from Brexit, the country will maintain robust economic growth rates in 2016 and 2017. The government's reform and austerity commitment will safeguard long-term fiscal stability. Major Forecast Changes We have revised up our 2016 real GDP growth forecast from 3.9% y-o-y to 4.4%. We have revised down our forecasts for the euro exchange rate, and now project the currency to continue its multi-year depreciation towards parity against the US dollar.

Table Of Contents

Ireland Country Risk Report Q1 2017
Executive Summary.................................................................................................................................. 5
Core Views.......................................................................................................................................................................................5
Major Forecast Changes.................................................................................................................................................................5
Key Risks.........................................................................................................................................................................................5
Chapter 1: Economic Outlook.................................................................................................................. 7
SWOT Analysis........................................................................................................................................................... 7
BMI Economic Risk Index.......................................................................................................................................... 7
Economic Growth Outlook........................................................................................................................................ 8
Economy Can Weather Brexit Headwinds....................................................................................................................................8
Unfavourable global macroeconomic conditions post-Brexit will see Ireland's real GDP growth decelerate over the next two years.
Nevertheless, a relatively bullish outlook for the domestic economy will keep headline GDP growing at a healthy clip.
Monetary Policy........................................................................................................................................................ 10
ECB Policy: Looser For Longer...................................................................................................................................................10
The economic slowdown - caused in part by the UK's vote to leave the European Union in June - has increased the chances that
monetary policy tightening in the eurozone will be pushed back even further. Even more importantly, however, the potential for systemic
crises and the long-term debt outlook increasingly suggest that the path of least resistance for the ECB will be to keep short-term rates
as low as possible for as long as possible, while extending quantitative easing.
TABLE: ECB REFINANCING RATE FORECASTS (%)...........................................................................................................................................10
Currency Forecast.................................................................................................................................................... 13
EUR: Heading To Parity As Fiscal Woes Take Their Toll..........................................................................................................13
We have revised down our forecast for the euro, now seeing the currency weakening gradually over the coming years. The euro is
caught between the risk of rising inflation expectations on the one hand and a rising risk premium over the future of the eurozone on the
other.
TABLE: BMI EUROZONE CURRENCY FORECASTS............................................................................................................................................13
TABLE: DOWNWARD REVISIONS.........................................................................................................................................................................13
Chapter 2: 10-Year Forecast................................................................................................................... 17
The Irish Economy To 2025..................................................................................................................................... 17
Long-Term Outperformance Over EU..........................................................................................................................................17
Ireland's economy will remain one of the EU's best performers over the next decade, even if current rates of extremely fast economic
expansion are unlikely to last.
TABLE: LONG-TERM MACROECONOMIC FORECASTS.....................................................................................................................................17
Chapter 3: Political Outlook................................................................................................................... 21
SWOT Analysis......................................................................................................................................................... 21
BMI Political Risk Index........................................................................................................................................... 21
Domestic Politics .................................................................................................................................................... 22
Fine Gael-Independent Coalition To Stay In Power Until Reassessment................................................................................22
The confidence and supply agreement between Ireland's ruling minority Fine Gael-Independent coalition and Fianna Fáil means that the
sustainability of the government will be fragile. Nevertheless, we believe that the current government will serve its term at least until its
official performance assessment in September 2018.
TABLE: POLITICAL OVERVIEW............................................................................................................................................................................. 22
Long-Term Political Outlook................................................................................................................................... 23
Political Challenges Beyond The Recession..............................................................................................................................23
Although political risk in Ireland is generally quite low, the country's economic downturn put several structural issues into the spotlight.
Challenges over the next decade will include demographic changes, regaining living standards, migration and the country's relationship
with Northern Ireland.
Chapter 4: BMI Global Macro Outlook................................................................................................... 27
Global Macro Outlook.............................................................................................................................................. 27
Broad Recovery But Three Notes Of Caution.............................................................................................................................27
TABLE: GLOBAL FORECASTS, 2015-2020........................................................................................................................................................... 27
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %.................................................................................................................................... 28
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %................................................................................................................................... 29
TABLE: MACROECONOMIC DATA and FORECASTS..............................................................................................................................................31

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