Why Brexit has brought careless talk
The amateur soothsayers have been having an unmerited field day commenting on the consequences of the Brexit referendum. Carefree, careless, amateur commentary has unjustifiably and frequently said that the economy has done so much better than was feared.
The impact of the referendum was never going to be immediate. Reputable economic analysts would all have said that the UK economy would be hit by cumulative changes which would only become clear when the decisions on Brexit or Remain were implemented.
To date, many Brexit decisions are still awaited, some with serious apprehension. The most immediate impact of Brexit has been a serious depreciation in the exchange rate for sterling. The fall in both the dollar and euro exchange rates have been serious and started an adjustment in the terms of trade which will affect the cost of living (especially if oil prices continue to rise), as well as giving a profitable trading margin to exports sold in non-sterling currencies.
There are two linked immediate dangers from some of the ill-informed quick comments on the Brexit decision. First, there has been a cheerful unjustified deriding of the professionalism of well-disciplined economists. Second, the importance of time related evidence in understanding the working of modern economies has been underestimated.
The professional estimates of the impact of a possible Brexit or Remain should only be judged after changes have been decided and/or implemented.
The Economic Policy Centre at Ulster University (EPC) has been tackling the serious questions of how the Brexit process will affect Northern Ireland.
Neil Gibson, the director of the centre, is a skilled statistician and his commentary minimises the use of subjective political comments.
The EPC outlook falls into two parts which should be assessed separately. First, an immediate short-term forecast from 2016 to 2020 for the local economy using standard economic variables comparable with the sources used by the Treasury from the Office of Budget Responsibility (the OBR). Second, and separate, a longer-term sectoral employment forecast for the next 10 years, 2016 to 2026.
Readers of the EPC document, who have an insight into the local economy, can use their knowledge and judgement against the components making for the growth (or decrease) of the local GDP. Unhappily, the EPC conclusion is that in each year to 2020, Northern Ireland will grow more slowly than the UK. Particularly for the years 2017 and 2018 the predicted expansion of GDP, although avoiding recession, is below the experience of the UK and, critically for living standards and employment, falls to just 1% pa.
The EPC holds to the opinion that by 2019 and 2020 the UK economy will bounce back modestly from the major slowdown of the immediate Brexit period. This judgment combines the optimism that the Brexit negotiations will be finalised before 2019 and that the final agreement (whatever it may contain) will put the economy back to a more normal expansion path. This degree of optimism may be under strain as events unfold.
The stark short-term conclusion is that Brexit is already hitting the UK economy and, even more so, the NI economy. Although the EPC avoids the headline, their evidence points to an increase in unemployment.
The 10 year perspective on employment changes takes an each way bet. Pessimistically, employment here may fall by 4,500 by 2026 but optimistically, employment might increase by 87,000: such is the degree of uncertainty. The central more likely projection is that employment may increase by 32,500.
The uncertainty, looking ahead to 2026, centres on the unknowns of Brexit implementation: ".. indigenous business investment may be delayed. … the impact on FDI .. could see a permanent reduction for the two or three years when uncertainty is at its height…"
Good economic forecasting is both necessary and now more difficult. More than ever, NI needs a professional and independent source of expertise.