The Republic’s economy could grow by 4.4 per cent this year, boosting wages and jobs, according to the Central Bank’s latest quarterly bulletin, which it publishes on Friday.
However, the financial watchdog’s predictions come with a warning: they are based on an assumption that the UK will leave the European Union on March 29th with a deal and an agreed transition period.
A disorderly or "no-deal" Brexit could reduce growth by four percentage points over the succeeding 12 months and by six percentage points through ten years, the Central Bank suggests. This translates as just 1.5 per cent growth for 2019.
Assumptions
John Flynn, the bank's head of economic analysis, stresses that this a scenario based on a number of assumptions, including a 10 per cent fall in sterling, rather than an actual forecast.
“Our expectation is for a deal and the central forecasts are based on that,” he says. The analyst adds that Brexit is “unprecedented” making it difficult to predict no-deal’s likely outcome.
Nevertheless, the bulletin is stark about its probable implications. “The impact of a no-deal Brexit would permeate all areas of economic activity,” it says.
This would be immediate, prompting Irish businesses to delay or cancel investment and consumers to rein in spending. Initially, at least, new arrangements could disrupt ports and airports.
Consumers could feel this in higher prices for imported food such as cereals, tea and coffee, confectionary and seafood, on which the State may have to levy tariffs of 10 to 15 per cent. Disrupted trade could even lead to some shortages in our supermarkets.
Weaker sterling and tariffs on Irish exports to the UK would hit farmers, small businesses and manufacturers, as the goods they sell to our neighbouring jurisdiction rise in price and demand in that market slumps amid the fallout from its disorderly EU exit.
As this would pull the UK out of the customs union, which is virtually free of all trade barriers, it creates a whole new scenario for businesses.
WTO tariffs
The bulletin notes that calculations of the average World Trade Organisation tariff on UK-Republic trade could be 11.7 per cent and warns that food, a key export, could be particularly exposed.
In fact, the Central Bank quotes State agrifood development agency Teagasc as saying that the tariff on fresh boneless beef, which accounts for two-thirds of the value of imports of the meat to the UK, could be 69 per cent.
Despite these ominous predictions, the Central Bank believes that the economy is at heart robust enough to continue growing this year and in 2020. Mark Cassidy, its director of economics, says employment would keep growing overall.
The bank’s bulletin echoes this, saying the disruption and decline mean a significantly more adverse outlook for the economy this year and next.
“In the long run, it is likely that the Irish economy would adjust to the new arrangements but the short-run challenges would be immense,” it says.
