The Stability Programme Update sets out the latest macroeconomic and fiscal outlook, taking into account the impact of COVID-19. The Irish economy is expected to contract by 10.5 per cent this year.
Economic activity will gradually recover in the second half of the year, picking up momentum with growth of 6 per cent next year. In relation to Brexit, this is based on the assumption of a free-trade agreement being concluded between the EU and the UK at the end of the transition period in December this year.
I am satisfied that the existing analysis in the joint research by the Department and the ESRI, published in March last year, broadly captures the range of possible future relationships between the EU and the UK.
The analysis included a free trade agreement (of which there could be many forms), and a trading relationship under World Trade Organisation (WTO) frameworks. The impacts of these were modelled and estimated in the joint research.
Under these scenarios, over the medium-term the level of GDP would be of the order of between 1.9 and 3.3 per cent lower, respectively, compared to a situation where the UK remains in the EU. However, the impacts would expected to be front-loaded.
The negative impacts will be most severely felt in those sectors with strong export ties to the UK market – such as the agri-food, manufacturing and tourism sectors and also SMEs generally – along with their suppliers. The impact will be particularly noticeable outside the main cities.
My Department will continue to monitor developments with respect to the future relationship, and will update the macroeconomic and fiscal projections to take account of any developments alongside Budget 2021.