Despite slowing from the sky-high growth rates of recent years,real GDP growth in Ireland will continue to comfortably outpaceeurozone averages in the coming years. However, the operations ofmultinational corporations lured by Ireland's favourable tax regimehave artificially boosted historic GDP data in recent years, and thismay remain a source of volatility in growth rates.
A series called gross national income (GNI) corrects for the operationsof multinationals with the objective of providing a more accuratepicture of domestic economic capacity, and portrays an economyone third smaller than GDP figures suggest. This highlights Ireland'sreliance on inward investment from multinationals and the way it hasexaggerated domestic productive capacity and flattered the fiscalaccounts.
Any clampdown on Irish tax practices from abroad, or change in thetax structures of competing countries which lure away Irish multinationals,could thus erode Ireland's capacity to pay down debt orlead to a sudden rise in the public debt ratio.
Brexit remains a significant threat to Ireland's growth potential,although how severe this is will depend on the eventual outcomeof the negotiations by 2019. While we continue to expect the UKwill leave the single market, the economic fallout during the twoyearBrexit negotiation process between now and March 2019 willbe relatively limited as standing agreements between the UK andthe EU will remain in place during this time. Meanwhile, Ireland insome ways if it able to lure a larger amount of foreign firms seekingcontinued access to the EU single market.
In light of the current Brexit negotiations, Ireland's centre-right FineGael government will focus on preserving both trade access to theUK and preventing a hard border between the Republic of Irelandand Northern Ireland. In terms of the latter, we believe that deepeconomic integration and historic ties between the two countriesleaves limited scope for a change in the status quo along the borderregion post-Brexit.