The Government has always been clear that Brexit, in whatever form it takes, will have a negative economic impact on Ireland and that the implications for our economy will be disproportionate relative to those for the rest of the EU. The harder the Brexit the more negative the impact will be on our economy.
While my Department’s central economic and fiscal planning scenario remains an orderly exit involving the UK leaving with a transition arrangement in place, the risk of a disorderly exit cannot be discounted.
In November 2018, a number of new research reports in the UK were published that showed that the impact in the UK would be larger than previously assumed. An initial ‘holding’ assessment was prepared by the Department of Finance in January, based on an initial application of the latest UK estimated, pending the completion of a more comprehensive model-based assessment with the ESRI. This was made public following consideration by government on 29 January 2019.
The initial assessment showed that in a disorderly exit, while in aggregate terms, the economy is likely to continue expanding, the pace of growth would be lower than is currently expected. The assessment suggests that the size of the economy will be around 4¼ percentage points smaller than our existing trajectory over the medium-term and will be around 6 percentage points smaller compared to a ‘no Brexit’ scenario.
It is important to recognise that such estimates may not capture the full impact, and the figures may be conservative. Indeed, the impact in certain exposed sectors and regions will be worse than the average.
My Department is therefore working with the ESRI on a new more comprehensive model-based assessment of the economic and fiscal impact of Brexit on Ireland. This work takes into account the recently published UK assessments, and substantial new microeconomic research that has been produced since the 2016 assessment. The assessment will include short-run disorderly impacts, tariff and non-tariff barriers to trade, and the positive benefits of Foreign Direct Investment (FDI) that is redirected from the UK to Ireland. The results are expected to be published later this month and will inform my Department’s next set of macroeconomic forecasts in the Stability Programme Update in April.
The UK’s departure from the EU is an event without precedent in modern economic history – estimating the impact of this is challenging. Nevertheless, quantifying the impact is important to help Government to understand the possible macroeconomic implications and to design the appropriate policy response.
The Government has already taken significant action to get Ireland Brexit ready. Since the UK referendum, all of our national Budgets have been framed to prepare for the challenge of Brexit with dedicated measures announced in Budgets 2017, 2018 and 2019. This is supported by long-term planning through the National Development Plan and the National Planning Framework which will provide significant investment in Ireland’s public capital infrastructure.