Economy could be 4.25% smaller in hard Brexit scenario – Department of Finance
Posted by Emvertex
The size of the Irish economy could be 4.25% smaller than current projections over the medium term if there is a hard Brexit, according to an assessment by the Department of Finance.
The department forecasts show that unemployment could rise by up to 2 percentage points in such a scenario.
A small surplus projected for next year would also turn to a deficit if there’s a disorderly Brexit, the analysis finds.
“The assessment by my Department shows that a disorderly exit would be particularly severe,” Minister for Finance, Paschal Donohoe said. “The level of economic activity will be around 4.25 percentage points lower than our existing trajectory over the medium-term. This aggregate figure hides an even larger hit to economic activity in labour-intensive sectors such as agri-food and indigenous small and medium-sized enterprises.”
The department says the risk of a disorderly Brexit has increased in recent weeks, although it claims an orderly exit remains the most likely outcome.
It says the most adverse impacts would be most likely felt in agri-food and manufacturing sectors.
The forecasts show that if a hard Brexit takes place, Irish GDP could be 6% lower than it would have been relative to a ‘no-Brexit’ scenario.
The Exchequer would also see a broadly balanced budget this year turn to a deficit of 0.2%, and from a surplus of 0.3% to a deficit of 0.5% next year.
Minister Donohoe said the forecasts were based on the best models and information available.
But he said it was a particularly challenging process given that the UK exit from the EU is an unprecedented event.
“Given Ireland’s unique macroeconomic and sectoral exposures to the UK these impacts would be disproportionate relative to the rest of the EU,” he said.
“It is important to recognise that such estimates may not capture the full impact, and the figures may be conservative. Nevertheless, quantifying the impact is important to help Government understand the possible macroeconomic implications and to design the appropriate policy response.”