Irish central bank cuts GDP forecasts; Brexit may mean worse ahead

DUBLIN, July 27 (Reuters) - Ireland (Other OTC: IRLD - news) 's central bank cut its forecast for economic growth for this year and next, citing uncertainty caused by Britain's vote to quit the European Union and warning of worse consequences ahead if Britain leaves on bad terms.

The bank sees gross domestic product growing by 4.9 percent in 2016, down from a forecast of 5.1 percent three months ago, and by 3.6 percent in 2017, down from 4.2 percent, as Brexit curtails investment, export and employment growth. The forecasts closely match the government's projections.

"These estimates are tentative and reflect the unprecedented nature of recent developments and the uncertainty surrounding the nature of the post-Brexit regime," the central bank said.

"Both in the short term and in the longer term, the economic impact of Brexit on Ireland is set to be negative and material."

Ireland's nearest neighbour is a major trade partner and the central bank said the nature and scale of the eventual economic impact will reflect the extent to which the exit arrangements bring about any change to the free movement of goods.

In the most pessimistic forecast, increased tariff and non-tariff barriers significantly reduce trade flows between Ireland and the United Kingdom. In that case, the bank predicted, Irish GDP could be 3.2 percent lower after 10 years.

That scenario would be likely to arise if Britain and the EU fail to reach bilateral trade agreements and Britain pursues a separate World Trade Organisation arrangement. Irish wages would fall 4.4. percent, employment 1.8 percent and exports 5.5 percent, the central bank said.

In the bank's most optimistic forecast, Britain and the EU reach a Norwegian-type agreement, though Irish Finance Minister Michael Noonan, it considers that outcome very unlikely given London's "revealed preferences".

The central bank also said assessing the performance and prospects for the Irish economy has been made harder by dramatic revisions to data earlier this month that showed Irish GDP ballooned by 26 percent last year.

The disproportionate jump in GDP - primarily due to a reclassification of multinational companies activity - raised the need to develop a more meaningful, commonly agreed measure of the actual level of Irish economic activity.

"A wide range of more reliable spending and activity indicators suggest that economic activity continues to expand at a reasonably healthy pace. However, risks to the projections are clearly weighted to the downside," it said. (Reporting by Padraic Halpin, editing by Larry King)