Davy eyes Irish 2017 growth downgrade post-Brexit

Davy signalled it is likely to cut its 2017 Irish growth forecasts, following on from a slew of downgrades by brokerages since the UK decided to quit the EU.

The securities firm, which currently estimates gross domestic product will expand 4 per cent this year, said it is monitoring short-term economic indicators for any negative impact from the Brexit vote.

While Ireland's composite purchasing managers index fell to 56.5 in July from 59.2 in June, other data "have remained robust", said Conall Mac Coille, an economist with Davy. "However, the next revision to forecast for Irish GDP to grow by 4 per cent in 2017 is likely to be down."

Minister for Finance Michael Noonan has indicated that growth next year could slow to 3.4 per cent following the UK referendum, while Deutsche Bank, for example, has cut its forecast to 2.9 per cent.

True health

Economists have been struggling to assess the true health of the Irish economy since the Central Statistics Office last month revised 2015 GDP growth up to 26 per cent, which Mr Mac Coille said "has undermined confidence in official statistics".

He estimates underlying growth last year was 6 per cent and remained close to 5 per cent in the first half, despite official figures signalling a 2.1 per cent contraction in the first quarter.

The jump in Irish growth last year was largely down to the transfer of patents and intellectual property from offshore tax locations back to multinational drug companies operating in Ireland.

The initiative by the Organisation for Economic Co-operation and Development (OECD) to combat tax avoidance – known as base erosion and profit shifting, or Beps – has contributed to intellectual property being shifted from tax havens to “onshore locations” such as Ireland in recent times, Mr Mac Coille said.

“Hence, we will now provide regular forecasts not only for GDP but also for indigenous sector output and core domestic demand,” he said.