The Government has welcomed the agreement reached between the EU and UK negotiators on a draft Withdrawal Agreement. Our priority now is to work towards the finalisation of that draft Withdrawal Agreement and the political declaration on the EU-UK future relationship. However any Brexit scenario will mean considerable change and impact for Ireland.
The Government’s contingency planning for Brexit was initiated well in advance of the UK referendum in June 2016 and my Department has been to the fore in producing and funding a number of economic assessments on Brexit, both before and since the UK’s referendum decision in June 2016, all of which are available on the Department’s website.
The regular updates of my Department’s macroeconomic forecasts, as part of the Budget process, analyse the impact of Brexit on the Irish economy. My Department’s forecasts in Budget 2019, published last month, assume, as a central scenario, that the UK will make an ‘orderly’ exit from the EU. This involves a transition period being agreed between 2019 and 2020, and a free trade agreement thereafter. This feeds through to our fiscal projections.
The impact of Brexit on Irish output is outlined in Box 5 in the Budget 2019 Economic and Fiscal Outlook. In this box my Department sets out the potential economic impact of a central (‘orderly’ exit) scenario and an alternative (‘disorderly’) exit scenario. This shows that under the central scenario, after five years, the level of Irish output would be close to 2 per cent below what would be the case under a no Brexit baseline. There is of course still a great deal of uncertainty regarding the post-exit arrangement. Under the ‘disorderly’ exit scenario, the level of Irish output would be around 3¼ per cent lower than under the no Brexit baseline.
With regard to the long term impact, joint research by my Department and the ESRI published in 2016 shows that the potential impact of a hard Brexit is significant. After ten years the level of output would be almost 4 per cent below what it otherwise would have been in a no-Brexit scenario. The level of employment in Ireland would be 2 per cent lower, with the unemployment rate nearly 2 percentage points higher.
I should also point out that the Department of Finance has been to the fore in producing and funding a number of Brexit-related studies, both before and since the UK's referendum decision, covering overall macroeconomic and sectoral impacts.
It is important to stress that the economic models may not capture the full impact, given the difficulty in modelling financial market effects, non-tariff barriers and other factors. Therefore, these quantitative effects should be seen as a minimum as opposed to a maximum impact.
While it is still Government’s view that a ‘no deal’ outcome remains unlikely, we are planning for all scenarios. It is imperative to boost the resilience of the Irish economy in order to minimise, in so far as is possible, any future disruption. Since the UK referendum in 2016, all of our national Budgets have been framed to prepare for the challenge of Brexit. The economic and fiscal policies, which we have pursued, mean that the economy is now in a better position to weather the impacts of Brexit.