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Image: Brian O'Leary via RollingNews.ie

Here's how various post-Brexit scenarios could impact the Irish economy

A new ESRI and Department of Finance report has examined what could happen in various scenarios.
Mar 26th 2019, 12:05 AM 29,592 32

THERE WILL BE a negative impact on Ireland’s economy in the long-term as a result of Brexit, a new report by the ESRI and Department of Finance has estimated. 

Yesterday, the European Commission said it has completed preparations for a no-deal Brexit, noting “it is increasingly likely that the United Kingdom will leave the European Union without a deal on 12 April”. 

The European Council last week agreed to delay Brexit until 22 May if British MPs back May’s deal this week.

If the UK parliament doesn’t vote in favour of the Withdrawal Agreement – a deal it has already overwhelmingly rejected twice – the new deadline would be 12 April and Britain will be expected to indicate a way forward before that date.

The report released today has focused on three main scenarios post-Brexit – a deal, a no deal and a disorderly no deal, while acknowledging that other outcomes are possible.

The report has estimated that GDP in Ireland 10 years after Brexit will be around 2.6% lower in a deal scenario, 4.8% lower in a no-deal scenario and 5% lower in a disorderly no-deal scenario respectively, compared to a situation where the UK stays in the EU. 

This implies a slower pace of growth with negative consequences throughout the economy. 

The report noted:

Although these are substantial relative reductions in the level of output over the long-run, it is important to state that the Irish economy will continue to grow in each scenario but that the growth rate will be lower in the context of Brexit.

There is more uncertainty about the short-run impact of Brexit, however, as it depends on how smoothly any transition to a new trading arrangement will be, according to the report. 

Results indicated that by 2020, the level of real output in the Irish economy would be 0.6%, 1.2% and 2.4% lower in the deal, no-deal and disorderly no-deal scenarios, respectively, compared to if the UK remains in the EU. 

“The impact of each Brexit scenario is considerable and will have negative effects throughout the economy on the household sector, the labour market, firms and the public finances,” lead author of the report Adele Bergin said. 

“However, the negative impact on Irish output in the long-run in the deal scenario is approximately half that of the no-deal scenario.” 

Theresa May Brexit statement British Prime Minister Theresa May making a statement on Brexit to the House of Commons yesterday Source: House of Commons via PA Images

In the deal scenario for purpose of the report, the UK makes an orderly agreed exit from the EU. This involves a transition period to the end of 2020, and a free trade agreement between the UK and the EU-27 being in place thereafter.

In the no-deal scenario, the UK exits the EU without a deal but there is an orderly period of adjustment for trade. Ultimately, WTO tariff arrangements will apply to goods trade, there will be non-tariff measures, and services trade will also be negatively impacted.

In the disorderly no-deal scenario, the UK exits the EU without a deal and there is an additional disruption to trade in the short-run, above that considered in the no-deal scenario.

Employment impact

The results of the report have indicated that employment in Ireland, in the long-run, would be 1.8% lower in a deal scenario, 3.2% lower in a no-deal scenario and 3.4% lower in a disorderly scenario, compared to a situation where the UK stays in the EU. 

The study estimated the impact of Brexit on the Irish economy by focusing on the impact of trade, incorporating the impact of tariff and non-tariff measures, and the potentially positive impact of foreign direct investment (FDI) diversion in Ireland. 

The study assessed the impact of lower UK-EU trade on Ireland’s main trading partners and found that it would severely reduce the demand for Irish exports. 

This report comes after the Central Bank in January published its economic forecast for how Ireland would fare in the event of a no-deal Brexit.

Among the most extreme effects of a no-deal Brexit as predicted by Ireland’s financial regulator are an “immediate disruption” in financial markets, higher costs and “further falls” in the value of sterling.

The Central Bank said that given that Brexit is “a situation that is without historical precedent”, there is considerable uncertainty around potential Brexit outcomes. 

This echoes the sentiment within the ESRI report, which noted that “the UK is deeply integrated with the European Union and its decision to exit from this trading block has no parallels in modern history”. 

The report added:

From a macroeconomic modelling perspective this adds to the challenge (or at least the uncertainty, particularly in the short run) of estimating the macroeconomic implications of any future UK arrangement with the EU Member States including Ireland, as there is no past experience or empirical evidence which can be directly relied upon.

Today’s report was conducted under the joint Department of Finance, Revenue Commissioners and ESRI research programme on the macroeconomy, taxation and banking. 

Irish-UK border in Northern Ireland An articulated lorry crossing the Irish border near Newry Source: Mariusz Smiejek via PA Images

Concluding the report, the authors noted: “There are both upside and downside risks to these estimates. On the upside, to the extent that businesses have been preparing for Brexit and finding ways of reducing trade exposures, this will help offset some of the negative impact.

“On the downside, the impact of Brexit could be more severe, especially in the short-run, if there is a continued period of uncertainty which could impact investment decisions or if there are even larger disruptions to trade.”

May’s deal

As noted above, the European Council last week agreed to delay Brexit until 22 May if British MPs back May’s deal this week.

If the UK parliament doesn’t vote in favour of the Withdrawal Agreement – a deal it has already overwhelmingly rejected twice – the new deadline would be 12 April and Britain will be expected to indicate a way forward before that date.

The UK would then face the choice of participating in the European Parliament elections at the end of May or exiting the European Union without a deal.

Britain was due to officially leave the EU this week, on 29 March. May had wanted to delay Brexit until 30 June but welcomed the extension, insisting Brexit will still happen.

Some Brexiteers have suggested the delay is part of a wider attempt to stop Britain from leaving the EU.

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Hayley Halpin

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