On the back of another strong year for the economy in 2018, momentum continued in the first half of this year with GDP up 6 ½ percent in year-on-year terms. Modified domestic demand, which adjusts for distortions in the Irish economy, was up 2.3 per cent over the first half of the year, a solid performance, though a moderation on 2018. The best barometer of our current economic performance is the labour market, where strong growth in employment over the last number of years has continued into this year. Total employment increased by 63,100 (+2.8 per cent) in the first half of 2019, while the unemployment rate for October, fell below 5 per cent for the first time since 2007.
As a small open economy Ireland is particularly exposed to external risks which are firmly tilted to the downside at present. First and foremost is the ongoing uncertainty surrounding the UK’s decision to exit the EU. Secondly, any further disruption to trade or a more pronounced slowdown in global growth would have a disproportionate impact on the Irish economy.
Regarding Brexit, the Budget 2020 central scenario projections assumed that the UK would leave the EU without ratification of the Withdrawal Agreement, i.e. a disorderly exit. Under this scenario, GDP growth of just 0.7 per cent would be in prospect next year, reflecting both the impact of Brexit and the continued weakness in the global outlook. However, given recent events in the UK and the ‘flextension’ granted by the EU, a disorderly Brexit in 2020 is less likely - although still possible — than it was only a few weeks ago. Nevertheless, any form of Brexit will have a negative impact on the Irish economy.
The best way we can mitigate against these risks is through prudent budgetary policy, careful management of the public finances and by focusing on competitiveness-oriented policies.