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So what's the view from Dublin: seismic event is bad news for business

By Richard Curran

Published 28/06/2016

Currency markets is concern for Irish economy
Currency markets is concern for Irish economy

We have had a couple of days to think about the implications of last week's Brexit vote. Unfortunately, the prognosis doesn't look any better for Ireland.

The most rapid measure of the turmoil came in the stock markets on Friday morning.

Share prices tanked immediately. But they may well claw back some of those losses as things settle down in the coming weeks.

Traders need to buy or sell on a story. If the story is viewed as bad, they start dumping shares: Sell now, think about it later.

The bigger concern for the Irish economy is in the currency markets. Sterling fell like a stone on Friday morning because currency values are underpinned by real economy fundamentals of trade, supply and demand. The British pound is likely to stay low for quite some time.

It will stay low during the protracted period of negotiation between London and Brussels about the UK exit. That could go on for two years.

Trade negotiations with other countries (the UK has around 60 different trade deals that may need to be re-negotiated) could take even longer.

Then there is the longer-term picture of where the currency will sit after Brexit has taken hold, given that the Leave camp failed to come up with a credible economic growth story.

The Leave campaign rebuffed the Remain side predictions of an economic apocalypse - but never really said how the UK would grow outside the EU. As long as Sterling stays low, Irish exporters will suffer. They will lose their competitive advantage exporting into the UK while also probably seeing a contraction in the British economy itself.

This is all bad news for Irish firms. The only reprieve would be if sentiment towards the future stability of the eurozone drags the euro down in value with it - although it isn't much of a reprieve if bad news is tempered by even worse news.

Of course, in theory, what we lose in indigenous company exports could be replaced by new foreign direct investment (FDI) into Ireland.

The UK hoovers up around 40% of all inward investment into Europe. We should have a reasonable chance of snagging a slice of that. But even if we do, those FDI investments will be mainly in Dublin or Cork and will never be as embedded in the Irish economy as the profits and employment of indigenous firms dotted around the country.

They are ultimately more transient than indigenous firms and lack impact in many of the regions around the country.

The UK may account for 16% of Irish exports, but it is the destination for more than 40% of indigenous company exports.

The currency will also hit Irish tourism. British visitor numbers to Ireland have grown as a strong sterling made us a cheaper destination.

This has helped small and large tourism businesses in most corners of the country.

That tap could be turned off pretty quickly, with the consequent impact on jobs here.

So yes, in theory, everything is the same today as it was last Thursday.

The UK is still in the EU until it negotiates its way out. That process will only begin in October and will go on for a long time.

But this is such a seismic event, it has already negatively impacted on Irish businesses.

Belfast Telegraph

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