Thursday, 16 July 2020

Ceisteanna (73)

Bernard Durkan

Ceist:

73. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which he continues to review the impact of Brexit on various aspects of the economy here; and if he will make a statement on the matter. [16446/20]

Amharc ar fhreagra

Freagraí scríofa (Ceist ar Finance)

My Department continually monitors developments relating to the macroeconomic impact of Brexit.

The Stability Programme Update (SPU) 2020, published in April, set out the economic projections for 2020 and 2021 taking account of COVID-19 and an agreed Brexit. In this scenario, GDP is projected to fall sharply, by 10.5 per cent, this year, followed by an increase of 6 per cent next year.

The recovery is likely to be partial and to bypass many sectors. This assessment was 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.

In terms of the macroeconomic impact of a no deal exit, Budget 2020 was based a no deal Brexit – resulting in a reduction of 2- 2½ per cent in the growth rate. This was due to a disruption to trade where it was assumed World Trade Organization (WTO) terms would apply, with a consequent decline in business confidence leading to lower investment and a decline in consumer confidence resulting in higher precautionary savings.

The economic situation is fundamentally different now when compared to that point in time. Unemployment is currently at historically high levels, and budgetary policy is more constrained. The impact of a disorderly exit on the economy will therefore potentially be more severe than assumed last year.

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.

It has always been clear that Brexit will have a negative impact on the economy and domestic living standards, irrespective of the format that it takes. Brexit will mean change. Ireland continues to support the closest possible future relationship between the EU and the UK, but it is prudent to plan to ensure that we are prepared for 1 January 2021.

All developments with respect to the future relationship between the EU and the UK will continue to be monitored, and my Department will update the macroeconomic and fiscal projections to take account of any developments in the preparations for Budget 2021.