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No-deal Brexit would knock 4.25 percentage points off Irish GDP

Given Ireland’s unique economic exposure to the UK, the impact would be disproportionate compared to the rest of the EU.

The Irish economy could be around 4% smaller in the event of a no-deal Brexit, the Irish Finance Minister has said.

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Minister for Finance and Public Expenditure & Reform Paschal Donohoe said that although the Irish government are hopeful of a deal, plans must be in place for a “disorderly” Brexit.

All forms of UK exit will have a detrimental impact on the Irish economy, with the most adverse impacts likely to be felt in agri-food and manufacturing sectors, the Department of Finance research has shown.

Given Ireland’s unique economic exposure to the UK, the impact would be disproportionate compared to the rest of the EU.

A preliminary assessment by the department suggests that a no-deal Brexit will reduce the level of the Irish GDP by around 4.25% by 2023, and by around 6% relative to a hypothetical “no Brexit” scenario.

Weaker exports due to trade disruption, sterling depreciation, slowed demand due to higher consumer prices, precautionary saving and uncertainty are the main issues affecting Ireland’s economic activity.

Commenting on the assessment, Minister Donohoe said: “There remains considerable uncertainty surrounding the format the UK’s exit from the EU will take.

“Given the debate that’s under way, and given the issues we’re grappling with, I decided it was appropriate for us to assess our forecasts.

“The level of economic activity will be around 4.25 percentage points lower than our existing trajectory over the medium-term.

“This aggregate figure hides an even larger hit to economic activity in labour-intensive sectors such as agri-food and indigenous small and medium-sized enterprises.

  • Irish economy could be 4.25% smaller than the current projections
  • Employment would increase more slowly and the unemployment rate could rise by 2%
  • Public finances would deteriorate – the modest surplus projected for 2020 would turn to deficit

“In the event of a no-deal Brexit, we will see a slow down in GDP in 2019, to approximately 2.7% this year and in 2020 that growth forecast will stand at around 1%.

“If Brexit had not occurred, our economy could be up to 6% bigger.

“The effect of this is likely to be front-loaded across the second half of 2019 and into 2020, and will have an effect on employment growth, unemployment and the forecasted budgetary position for 2019 and 2020.

“By 2023, we estimate total employment would increase by 178,000 citizens, so we believe we will have more people at work in our economy in future than we currently do, but if a disorderly Brexit were to occur, that figure will be 55,000 people lower.

“Employment growth would still take place in our economy, but we will have 55,000 fewer citizens working than we would’ve had had an orderly Brexit  and transitionary period taken place.”

The minister added large employers do still see positive prospects for jobs and investments in Ireland, however among smaller companies that have to manage their own supply chains into the UK, the level of concern is growing.

“It is important to emphasise that we do have an economy still capable of delivering growth,” he said.

Minister Donohoe added in all scenarios there was no reason to change the spending plans set out in his budget for 2019.

On the backstop, the minister reiterated the Irish government’s stance, saying that he engaged with the Chancellor and Prime Minister in “good faith”, however there has to be a legally operable backstop agreement, and that “all scenarios” require a backstop.

Meanwhile, Taoiseach Leo Varadkar said he would speak to the Prime Minister to see “what the next steps are” after MPs vote on Brexit on Tuesday night. The pair last spoke on Tuesday morning.

He said: “A no-deal Brexit will cause the economy to slow down sharply, but not producing a return to recession.

“We could find ourselves in 10 or 12 weeks’ time needing to find a lot of money to save people’s jobs.”

He told the Irish parliament the country was in a good position to meet the challenge posed by Britain’s withdrawal, and would be able to afford to borrow if necessary.

Press Association

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