Since the referendum result in 2016, we have been taking steps to build up the resilience of the economy so that we have the capacity to deal with adverse economic shocks. This includes building up our fiscal buffers – by balancing our books, reducing our debt burden, and establishing the Rainy Day Fund.
Overall our economy is in good shape and is expected to grow this year and next. Modified domestic demand, an underlying measure of growth in the economy, grew by 4.5 per cent for 2018 as a whole. One of the best barometers of the health in the economy is the labour market. The strong growth in employment over the last number of years has continued into this year, with total employment increasing by 45,000 (+2.0 per cent) in the year to Q2 2019. As a result, there are now 2.3 million people at work in Ireland.
The Government is continuing to work to prepare our economy for the challenges of Brexit, including through the Ireland Connected Trade and Investment Strategy, the Future Jobs Ireland Strategy and the 10-year National Development Plan.
In addition, recent budgets have introduced specific initiatives, such as loan supports for agri-businesses, aimed at supporting those businesses most affected by Brexit. The Brexit Loan Scheme assists firms to adapt and innovate in response to Brexit, to restructure their cost bases and give them the opportunity to diversify into other markets thereby reducing their exposure to the UK. The Future Growth Loan Scheme provides a longer-term scheme facility of up to €300m to support strategic capital investment for a post-Brexit environment by business at competitive rates.
Further, the Government has decided that Budget 2020 will be prepared on the assumption of a no deal Brexit in October. The approach being adopted for Budget 2020 involves a twin-track approach, namely:
- Funding services and making progress on particular policy areas; and
- Supporting sectors and regions most exposed to Brexit related disruption.
In a ‘no deal’ scenario, the Government will make the resources available to support those in need, and to introduce timely, targeted and temporary supports to the sectors of the economy most exposed to the impact of a no-deal Brexit.
While the precise impact will be difficult to estimate, this could lead to a deficit of the order of 0.5 to 1.5 per cent of GDP for 2020.
And while there is no doubt that this would be a significant fiscal setback, it is also important to place it in the context of our recent strong performance in restoring the public finances – for example moving from a 2% deficit in 2015 to balance last year while meeting the demands of a society recovering from nearly a decade of the crisis.
As well as preparing for Budget 2020, priority areas will include additional infrastructure for ports and airports, and further Government Brexit communications including an intensified engagement programme by Revenue.
The Government has also stepped up engagement with stakeholders across all sectors through targeted events and media campaigns aimed at getting both business and citizens Brexit ready. Our planning at home and at the EU level for all possible outcomes has increased and will continue to intensify.