OECD warns Ireland is vulnerable to housing bubble, overheated economy and Brexit
The OECD has warned that Ireland’s economy is at risk of overheating while at the same time it is exposed to serious financial risks from Brexit.
The Paris-based organisation’s annual assessment of developed economies – based on information supplied by member countries’ own Treasuries and statistics agencies – said Irish should remain robust but ease gradually. It noted Ireland’s housing market is “buoyant” and construction investment rising strongly, both from a low base.
It urged the Irish government to remain committed to reducing the country’s national debt and move towards a budget surplus. That surplus would provide a buffer to “shock” events like Brexit, it said. It said Ireland should proceed with its €116 billion ten year national development plan but this should be consistent with reducing debt.
“Only those projects that are cost-effective should be implemented,” it said. “Firms are projected to expand at a slower pace due to high labour costs and high external uncertainty, including the final outcome of the Brexit negotiations. With the effects of the pound sterling depreciation dissipating and wage pressures feeding through, inflation is projected to rise strongly,” the OECD said.
“Risks to the outlook are elevated, the most immediate one being Brexit. Property prices may increase more strongly, which would boost further construction activity in the near term but may induce another property bubble associated with a strong surge in credit growth. Persistently high private indebtedness also poses a downside risk, as it leaves the economy sensitive to rising interest rates,” it said.