Report shows Brexit effect on Irish economy

Brexit was supposed to have been all sorted out by now, but it's March 29, 2019 and pretty much all scenarios — soft, hard and everything in between — are still in play.

Keeping that in mind, a new study commissioned by the Irish Department of Finance seeks to outline the short-term, mid-term and long-term impact three different Brexit scenarios will have on the Irish economy.

Although the issue of Ireland's multifaceted exposure to Brexit was largely absent during the 2016 referendum campaign in Britain, over the last two years, it has come to dominate much of the discourse around the UK's departure from the bloc.

Much of the focus has been on the highly sensitive and seemingly intractable issue of the border between Ireland and the UK-controlled statelet of Northern Ireland, but Ireland's economic exposure to Brexit is also a matter of major concern to a country that in 2017 exported more to the UK ($18.5 billion, €16.5billion) than it did to any other EU country.

The three scenarios which the study considers are: 1) The UK leaves the EU on the terms of the current Withdrawal Agreement, and goes on to sign an EU-UK free trade agreement, 2) The UK leaves without a deal, but with an orderly period of adjustment for trade and 3) The UK leaves without a deal in a particularly disorderly fashion, with significant short-term disruption to trade.

The options: bad, worse and worse again

In every scenario modeled, from short term (by the end of 2020), to mid-term (after five years) to long-term (after 10 years) the picture is grim.

The study, which was carried out by the Economic and Social Research Institute of Ireland, estimates that in the best-case scenario of the three, Irish GDP will fall by 2.6 percent within 10 years and by 5 percent in the worst case scenario.

"I think the main takeaway from this report is that regardless of what scenario we're describing, there is this relative loss in Ireland's position economically in the long run," Philip Economides, one of the authors of the report, told DW.

"While there will be short term disruptions, and that is getting a lot of the focus at the moment, what we are trying to get across here is that this entails a legacy going into Ireland's future. These are losses not only in terms of jobs, but in terms of overall output, investment and so on."

Looking for the rainbow

The study paid particular focus to the impact the varying forms of Brexit will have on trade, looking at the possible effects of tariffs and non-tariff trade barriers, such as increased regulation and inspection requirements.

It also considered in detail possible positive effects of Brexit for Ireland, for example the diversion of Foreign Direct Investment (FDI) to Ireland in the aftermath of Brexit. However, while some benefits from this are apparent, the report notes they would be outweighed by the fall in demand for Irish exports that would occur after the UK leaves the EU.

Economides told DW that of the 25 percent drop anticipated in FDI inflows to the UK because of Brexit, Ireland is well-placed to capture a significant chunk of that. However, this would only offset the overall negative impact of Brexit on Ireland, rather than overcome it.

"If that FDI impact wasn't there for Ireland, instead of that 5 percent drop in GDP after 10 years, you would be seeing about a 7 percent drop in GDP," he said.

But first, the rain

The study made allowances in scenario 1 for the current paroxysms in Westminster to subside and for the Withdrawal Agreement to pass. Yet even in that almost rosy scenario, Irish GDP would drop by almost 1 percent by 2020, overall employment would fall by 2 percent within a decade and both investment and exports would fall by around 4 percent after 10 and five years respectively.

In the worst-case scenario — a disorderly no-deal exit— Irish GDP would drop by 2.4 percent by the end of 2020, employment would fall by 3.4 percent after a decade and investment would plummet by almost 8 percent over the same period.

The report's overwhelming message is that there is no upside to Brexit for Ireland, but Economides says there are some potential benefits that Ireland could experience that it was not possible to model for in the report. For example, it's possible that because of Brexit, Ireland will strengthen its trade and investment relationships with other EU countries such as Germany and France, leading to bigger trade flows with them in the longer term.

However, he warned that this would benefit large firms rather than smaller firms, which would be encumbered by certain "frictions," such as language barriers.

"These frictions wouldn't be an issue for a larger Irish firm," he said. "They will adapt very well to this, but you could see particularly small firms struggling to continue to remain competitive on the international scene as a result of Brexit."