Ireland revises growth forecasts upward, sees mounting threats from abroad

By Padraic Halpin DUBLIN (Reuters) - Ireland increased its growth forecasts for the next three years on Tuesday, predicting the economy will expand by 4.9 percent this year but warning that heightened international uncertainty could generate significant headwinds. The growth projections would likely see Ireland outperform the rest of the euro zone for a third straight year after its economy grew by 7.8 percent in 2015, just two years after it completed an international bailout. However Ireland's Finance Ministry said external risks had intensified since its last update in October, when it predicted growth of 4.3 percent for this year, and it said the balance of risk to its baseline forecast remain tilted to the downside. "While the central scenario for economic activity in Ireland over the next eighteen months or so is a reasonably benign one, internationally the level of uncertainty is higher than at any stage since the height of the financial crisis," the finance ministry said in its bi-annual update. "A more disruptive international economic environment could generate significant headwinds for the economy, highlighting the importance of prudent fiscal management and competitiveness-oriented policies." The risks include Britain's referendum on whether to remain in the European Union. Citing a government-commissioned report from last year, the finance ministry said the Irish economy is potentially more exposed than most should Britain vote to leave. A Brexit-related depreciation of sterling vis-a-vis the euro has already been affecting Irish exporters, and the document said a five percentage point depreciation in sterling would reduce GDP by 0.8 percent a year for the next six years. Highlighting the sensitivity of Ireland's open economy to such external threats, a one percent decrease in world economic output would also cut Irish output by the same amount. For now, the economy is set to expand by 3.9 percent in 2017 and 2018, and growth is expected to remain above or just below 3 percent for the following three years. If growth targets are met, the country's gross debt will fall to 88.2 percent of GDP by the end of 2016 and below 70 percent by 2021 from a peak of 125 percent during 2013. The document also confirmed that Ireland's budget will be deemed to be balanced on structural terms - excluding the effects of the economic cycle - if it comes within half a percent of zero, a marker forecast for 2018. Acting Finance Minister Michael Noonan has said this would free up 1.5 billion euros for the next government to allocate towards additional spending or further reductions in taxation. (Reporting by Padraic Halpin, editing by G Crosse)