My Department continuously identifies and monitors possible risks to, and weaknesses in, the Irish economy, most of which are currently external in nature.
In the Budget 2020 Economic and Fiscal Outlook, four key external risks were identified. Firstly, there is a possibility that the slowdown in global growth will become more prolonged, despite the initial expectation of the slowdown being temporary. Secondly, continued and increasing geopolitical uncertainty has the potential to disrupt growth in key regions and generate headwinds for output and employment in Ireland.
Thirdly, an increase in protectionism, including increased tariffs on EU-US trade, could have a detrimental impact on living standards. Given Ireland’s position as a small open economy with a high degree of integration in global value chains, any further disruption to trade or a slowdown in global growth would have a disproportionate impact on the Irish economy.
The fourth external risk identified is the potential for the outcome of Brexit to be more severe than initially estimated, notwithstanding the assumption of a no-deal Brexit in the baseline forecasts. On the other hand, there is the increasing possibility of the UK leaving the EU with a withdrawal agreement which represents an upside risk.
A useful tool used by my Department to monitor global developments is the economic policy uncertainty index. The global index and the Ireland-specific index are currently at all-time highs, reflecting the challenges currently faced by the global and Irish economies.
As these external challenges are largely beyond our control, the best way we can mitigate against them is through prudent budgetary policy, careful management of the public finances and by focusing on competitiveness-oriented policies. That is what this Government has done and will continue to do.