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Dublin: 9 °C Monday 1 June, 2020

No-deal Brexit could push Ireland into recession, ESRI warns

The ESRI has recommended a supplementary Budget in the new year if there’s a hard Brexit.

File photo. Government Buildings.
File photo. Government Buildings.
Image: Shutterstock/Timothy Dry

THE GOVERNMENT SHOULD consider drawing up a supplementary Budget in the New Year to help cope with the effects if there’s a no-deal Brexit, the Economic and Social Research Institute (ESRI) has said.

Minister for Finance Paschal Donohoe has already indicated the Budget will reflect a scenario where there is a hard Brexit. However, this warning from the ESRI indicates that a further revision of this Budget may be needed due to the damaging effects of a no-deal.

In its quarterly economic commentary, the ESRI said that “it is not inconceivable that the Irish economy could contract in 2020″ in the event of a no-deal Brexit next month.

For Ireland to go back into recession, its GDP would have to shrink for at least two quarters in succession. At the present moment, however, the economy is performing strongly.

The ESRI said in its commentary that the headline GDP rate forecast for this year is now 4.9%. In an estimate based on Brexit being kicked down the road again into the coming year, the ESRI said the economy is expected to grow by a further 3.1%. 

It does warn that these figures could be skewed somewhat, with what it calls “certain internal transactions” of a few multi-national firms causing a divergence between the headline growth and the underlying output in the economy over the next year. 

As well as Brexit, another risk that the ESRI highlighted is “growing evidence of a slowdown amongst some of Ireland’s most important trading partners”. 

Coupled with the potential for a no-deal Brexit, it said: “These concerns make the choice of the appropriate policy mix for Budget 2020 particularly complex.

It may be the case that a supplementary Budget is required early in the New Year if external conditions change substantially.

The ESRI also advises against relaxing Central Bank rules when it comes to mortgage lending.

It warns that it could create another “house price-mortgage credit spiral” if lending was made more readily available, driving house prices up and increasing debt. 

The ESRI added that its forecast on housing completions for this year has fallen from 23,500 to 21,000.

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Sean Murray

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