Dáil Éireann Debate, Thursday - 14 January 2021
68. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which he remains satisfied regarding Ireland’s economic performance notwithstanding the impact of Brexit and or Covid-19; and if he will make a statement on the matter. [2158/21]
View answerAs the interplay between the Covid-19 and Brexit shocks has implications for the economic outlook, my Department, along with the ESRI, conducted an analysis of the sectorial overlap between the two shocks. The analysis found that the sectors most exposed to both the Covid-19 and ‘disorderly’ Brexit shocks appear to be distinct and relatively unconnected. While the analysis was based on the assumption of a ‘disorderly’ Brexit, this general conclusion is still applicable today.
Although the Trade and Cooperation Agreement between the EU and the UK provides for zero-tariffs and zero-quotas for qualifying goods, it will nevertheless introduce trade frictions in the form of non-tariff barriers. It is also a considerable ‘step-down’ in terms of services trade relative to the previous EU-UK relationship, which is significant as Ireland exports considerably more services than goods to the UK. Therefore, while the newly formed agreement protects Irish firms from the more significant impact of a ‘disorderly’ Brexit scenario, they will still be impacted by the change in trading arrangements. Thus, it represents a smaller Brexit shock for a broadly similar sectorial mix of Irish firms as under a no-deal scenario.
Using this analysis, my Department’s Budget 2021 forecasts accounted for the dual impact of the Covid-19 pandemic and a ‘no-deal’ Brexit on the Irish economy. Crucially, it was assumed that a Covid-19 vaccine would not be widely available before 2022 and that bilateral trade with the UK would take place on WTO terms from January. Under these assumptions, GDP growth of around 1 ¾ per cent was projected for this year. However, the earlier than anticipated rollout of Covid-19 vaccines means there may now be some upside to the outlook, though the recent re-introduction of Level 5 restrictions will have an offsetting negative effect. The recent Trade and Cooperation Agreement between the EU and the UK also represents an upside risk to the economic outlook this year.
Overall, there remains considerable uncertainty surrounding the economic outlook as it will depend on many factors, including the speed at which Covid-19 vaccines can be rolled out, the time it takes to suppress the current wave of the virus, and the impact of the UK’s exit from the EU on the economy. My Department will continue to analyse economic and epidemiological developments, and will publish updated forecasts as part of the Stability Programme Update in the spring.
