Dáil Éireann Debate, Tuesday - 18 December 2018
149. Deputy Lisa Chambers asked the Minister for Finance if his Department has conducted new analyses in recent months of the impact on a hard and no-deal Brexit on the economy, growth and employment; if so, the findings of the most recent analysis; and if he will make a statement on the matter. [53075/18]
View answerThe Government has always been clear that Brexit, in whatever form it takes, will have a negative economic impact on Ireland. Indeed, the Department of Finance has been to the forefront in assessing the impact of Brexit on our economy – commissioning joint research with the ESRI on the issue, including before the actual referendum. What is clear from this research, and other studies, is that the harder the Brexit the more negative the impact for Ireland.
My Department’s forecasts underlying Budget 2019, published in October, incorporate, as a central scenario, that the UK will make an ‘orderly’ exit from the EU. This central scenario involves a transition period being agreed that extends or replicates existing frameworks until end-2020, i.e. the UK is assumed to remain in the single market and customs union during this period. From 2021 onwards, the baseline forecasts assume that the EU and UK will conclude a free trade agreement.
My Department has also recognised the risk of a disorderly Brexit and has, therefore, set out an assessment of the potential economic impact of Brexit of the central (‘orderly’ exit) scenario and an alternative (‘disorderly’) exit scenario.
i. Central scenario = Orderly exit: transition period followed by a Free Trade Area (FTA);
ii. Disorderly exit = Exit of the UK without a transition period or trade agreement -WTO arrangements apply with immediate effect.
The results of this analysis are outlined in the Budget 2019 Economic and Fiscal Outlook. The analysis shows that over the medium-term (i.e. after five years), under the central scenario, which is incorporated in the forecasts, the level of Irish output would be close to 2 per cent below what would be the case under a no Brexit situation. Under the ‘disorderly’ exit scenario, the level of Irish output would be around 3¼ per cent lower than under the no Brexit situation.
This analysis explicitly recognises that these estimates may not capture the full impact and that they are more a minimum than a maximum. It also highlights that in the event of a disorderly Brexit, there would be further negative material impacts on Ireland, particularly in the early years, arising from issues such as regulatory divergence along with significant market volatility, further sterling depreciation, and disruption to trade with the UK. Further, these impacts would be have a disproportionate impact on Ireland relative to the rest of the EU.
Analysis carried out jointly by my Department and the ESRI has shown that, over the long-term (i.e. after ten years) in a no-deal Brexit scenario, 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 note that a number of assessments of the economic impact of Brexit on the UK were published last month. Overall, these assessments find that Brexit will have a more negative economic impact on the UK than previously assumed. It is not unreasonable to expect a commensurate impact on Ireland. In this context, my Department is currently updating its analysis of the impact of Brexit on Ireland.
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.
