As COVID-19 and a no deal Brexit represent key concurrent challenges facing the Irish economy, the interrelationship of the two economic shocks is an important consideration for Ireland’s short-term economic prospects.
Accordingly, my Department has, along with the ESRI, conducted an analysis of the sectoral overlap of the COVID-19 and no deal Brexit shocks. The main finding of the analysis is that the overlap of the sectors exposed to the different shocks is found to be limited. The sectors most exposed to both the COVID-19 and no deal Brexit shocks appear to be distinct and relatively unconnected. Having assessed the impact of no deal Brexit and COVID-19 on 57 sectors of the economy, no sector was found to be severely exposed to both shocks. The research also examines interlinkages between the exposed sectors in terms of domestic supply chains. It found that sectors that are severely affected by COVID-19 typically sell a greater share of their output to sectors that are likely to be relatively unaffected by Brexit and vice versa. This implies relatively limited exposure of producers to their customers experiencing one of the shocks while they experience the other shock. Overall, the analysis suggests that while a combined shock from a no deal Brexit and COVID-19 results in a wider range of sectors exposed to risk, the impacts of each shock to the overall economy are not magnified by spill-overs between the two effects. However, it is important to note that as the analysis was conducted at the sectoral level, the impacts may vary at a firm level with some firms possibly facing a double shock from both COVID-19 and a no deal Brexit. Moreover, it is likely that the capacity of businesses and households to manage a second economic shock will be more limited. My Department will publish updated macroeconomic forecasts as part of Budget 2021 which will take account of the impact of both COVID-19 and a no deal Brexit on the economy.
We face these challenges from a position of strength, including running a budget surplus last year. The Government's responsible economic management has allowed us to direct an unprecedented level of resources to addressing these challenges. Further targeted measures to support businesses and affected sectors prepare and adapt will be considered in the context of Budget 2021 which will be based on the assumption of a disorderly Brexit.