Central Bank Warns Economy At Risk Of 'Overheating'

The Central Bank of Ireland has warned of overheating pressures within the Irish economy as it moves towards full capacity.

The Bank's latest Quarterly Bulletin of 2018 reports the economy is continuing to grow, with underlying domestic demand expected to grow by 4.4% in 2018 and 4.1% next year.

In addition, the unemployment rate is forecast to average 5.4% in 2018 – revised down from 5.6% in the April bulletin – and 4.8% next year. Inflation is also expected to remain moderate at 0.7% this year and 0.8% next year.

Central Bank also said key components of domestic investment, such as building and construction, continue to rebound "though from a relatively low base".

Forecasts for housing supply have also been revised downwards with completion now expected to number 17,500 this year and 22,000 in 2019. However, the forecast for the overall rate of growth in housing supply remains unchanged.

Despite the strong pace of growth, Central Bank has warned the risk of a 'hard' Brexit cannot be ignored.

Mark Cassidy, Director of Economics and Statistics, said: "The continued growth in the economy, which is broadly balanced between domestic and export activity, is to be welcomed. So too is the projected growth in employment, with our economy due to benefit from an additional 100,000 net new jobs by the end of 2019.

"However, there are economic risks facing Ireland from several fronts that cannot be ignored. It is clear that a "hard" or disruptive Brexit remains a material risk, while the threat of potential trade wars and changes to international taxation have not abated.

"Domestically, the strength of economic growth means our economy risks hitting full capacity, which gives rise to the risk of overheating or boom-bust cycles. This underscores the importance of building fiscal buffers during the good times."

(LM)