Ireland's central bank raised its forecast on Friday for economic growth this year to 5.1 percent from 4.8 percent three months ago but warned risks were tilted to the downside, particularly from the upcoming "Brexit" referendum in Britain. The upgrade suggests Ireland's economy is set to outperform the rest of the European Union for a third straight year, after growing 7.8 percent last year amid a recovery that the central bank said had broadened over the last 12 to 18 months.
The bank sees the economy growing by 4.2 percent in 2017, down from a prior forecast of 4.4 percent but still above a government forecast in October. It is due to update those figures later this month. "While the outlook for 2016 and 2017 is for a moderation in the pace of growth from last year's exceptionally strong rate, the broadening of the recovery, beyond the initial net export-driven rebound, enhances its sustainability," the bank said in its quarterly update.
A recovery in employment and incomes will continue to drive growth, the bank said, citing the momentum in the second half of 2015 that showed domestic demand is the main means of expansion. However, it said a number of uncertain external factors meant the risks to the projections were tilted to the downside. Among those are Britain's June vote on whether to remain an EU member, concern over emerging markets and broader geo-political factors.
Britain is a key trading partner for Ireland, so it has more to lose if its neighbour votes to leave the union. The central bank warned last year that a withdrawal would hurt the country's exports, employment, economic growth and financial services "As the forecasts in this bulletin are predicated on current institutional arrangements, the forthcoming Brexit referendum creates uncertainty and is a downside risk factor," it said.