Paschal Donohoe says Brexit could hamper Irish growth

The Public Expenditure Minister also rules out public sector pay increases...

Minister for Public Expenditure and Reform Paschal Donohoe has said that the financial hit Ireland takes due to Brexit could be as much as 1% of our GDP in the mid-term.

Speaking with the Irish Examiner last Friday, Donohoe felt that the State's fiscal space will not be affected until after 2017, but would not rule out a recession thereafter.

The Minister told Daniel McConnell:

"My expectation is that our fiscal space this year and next year will remain unchanged.

"Brexit could well have an effect on our resources beyond then but that is very difficult to quantify at this stage.

"This is a major re-ordering of the political environment that we are now in and the economic consequences of that are downside. But they are ones to materialise in the medium term rather than the short term."

When asked whether a recession could be on the horizon, he said:

"I can’t make a forecast on that. Before Brexit, our mid-term economic forecast put growth in the economy at 3% per annum after 2017. We have said the hit could be as much as 1% of GDP.

"So, do I believe we are facing a recession based on the information laid down at the moment? I don’t, but it is conceivable that we are facing a period of economic growth that is lower than we are forecasting at the moment."

Pay increases for public sector workers up to 2018, as set out under the Lansdowne Road agreement, will still go ahead, but Donohoe warned that no additional public sector increases outside of that process will be entertained.

"Lansdowne Road over the period of three years is the equivalent of €840m of pay restoration. It is directed mainly at lower and middle-income earners. We have all of that funded and we are confident we have that funded across the next three years.

"One of the terrible experiences of the past decade was that the unfunded pay increase of tomorrow is the savage wage cut of the day after. Responsible wage growth is the way to go."