Ireland cuts GDP outlook, says Brexit means risks are to downside

* 2016 GDP forecast cut to 4.2 percent, 2017 to 3.5 percent

* "Considerable uncertainty" to outlook as Brexit unfolds

* Consumer spending still set for "very robust" growth (Adds details, quotes)

By Padraic Halpin

DUBLIN, Oct (HKSE: 3366-OL.HK - news) 4 (Reuters) - Ireland (Other OTC: IRLD - news) cut its forecasts for economic growth in 2016 and 2017 on Tuesday and said the risks to the outlook were tilted "firmly to the downside" on concerns about the fall-out from Britain's vote to leave the European Union (KSE: 000910.KS - news) .

The finance ministry cut its 2016 gross domestic product forecast to 4.2 percent from 4.9 percent and its 2017 forecast to 3.5 percent from 3.9 percent.

At that pace, Ireland will probably remain the EU's best-performing economy. But the country's focus on exports and its trade ties to Britain make it especially vulnerable to the effects of Brexit. Days after Britain voted to quit the EU, the government said its forecast was likely to drop by 0.5 percent.

The finance ministry said lower investment and uncertainty associated with Brexit, along with the impact on exporters of the sharp weakening of the pound against the euro, were the main reasons for the cut.

"We have reduced next year's forecast to take into account the uncertainty associated with Brexit," John McCarthy, the finance ministry's chief economist, told a parliamentary committee before next week's budget for 2017.

"These forecasts are contingent upon continued growth in external markets and particularly our key markets of the UK, US and euro area. In this context, the current outlook is characterised by considerable uncertainty with the impact of Brexit still unfolding."

McCarthy said the forecasts assumed British GDP would grow around 1 percent next year - down from 1.9 percent in his department's last update, in April - euro zone growth of 1.5 percent and U.S. of 2.25 percent.

Some domestic risks exist, related to the exchange rate's effect on competitiveness and wages potentially moving out of sync with productivity. But consumer spending is still predicted to grow a "very robust" 3.2 percent this year and 2.8 percent next year, McCarthy said.

He added that high-frequency data have held up since the Brexit referendum, a point highlighted by figures on Tuesday that showed the unemployment rate fell to 7.9 percent in September from 8.2 percent in August.

Employment has rebounded strongly since the jobless rate hit a high of 15.1 percent when Ireland was in a bailout in 2012. The finance ministry sees jobs growth of 2.1 percent next year as a broadening recovery increases the size of the labour force. (Editing by Larry King)