The latest edition of EY’s Economic Eye report shows that Ireland is in a stable position to deal with a potential no-deal Brexit outcome.
As Brexit negotiations continue and remain unpredictable, EY has today (4 February) said that the risks to the Republic of Ireland are external, with Northern Ireland facing greater internal risks due to less favourable consumer and government conditions.
Ireland in a position of considerable strength
The latest edition of the Economic Eye report sees Ireland’s growth forecast marginally revised downwards in the face of a weaker global growth outlook. Despite this, the research points to a position of considerable economic strength in the face of political uncertainty.
It predicts GDP growth in Ireland of 8.3pc for the full year 2018, 3.9pc in 2019 and 3.2pc in 2020. The forecast projects that Northern Ireland’s economy will have grown modestly in 2018 at 1.5pc, slightly ahead of the UK (1.4pc).
However, the region is set to experience much slower growth than the Republic of Ireland and the UK in 2019 and 2020, at 0.9pc and 1.2pc respectively.
Forecasting ahead of Brexit is challenging
Prof Neil Gibson, chief economist for EY Ireland, said: “Forecasting on the eve of Brexit is particularly challenging, and although our base case is still for strong growth in the Republic of Ireland and more modest growth in Northern Ireland, the downside risks have increased since our last forecast.”
He added: “However, whilst the possibility of a very challenging 2019 cannot be dismissed, the good news is that the island faces these challenges from a position of relative strength.”
The aftermath of a no-deal Brexit
In addition to its regular forecast, EY also outlined a second scenario for Ireland’s economy based on its latest Brexit forecasting model, which outlines the likely outcome for Ireland if a no-deal scenario becomes a reality.
The results of this forecast show a marked slowdown in GDP growth in the Republic of Ireland, to 2.5pc and 1.4pc in 2019 and 2020 respectively. Across the island, this would result in a reduction of 3pc in GDP in 2020. While this would also result in a fall of employment growth of 1.2pc, it is a slightly less severe downturn than predicted in Department of Finance estimates.
The second scenario suggests that Northern Ireland could endure a recessionary period, as the trade impacts and additional costs to consumers and businesses hit.
Gibson said: “Modelling a no-deal outcome is challenging given the complexity of how the economy will react. Currencies will adjust, and spending by governments, consumers and businesses will be impacted in ways that recent history tells us are hard to predict.
“Given the current strength of the Irish economy, there are sectors that would eagerly absorb any labour that becomes available and there may also be increased movement of economic activity from the UK to Ireland. Our estimates of a no-deal impact are therefore damaging, but Ireland’s economy is at least in good health as it faces into this problem.”
Head of markets for EY Ireland, Michael Hall, said the Government in the Republic of Ireland has the capacity to intervene and support particular sectors in the event of an adverse Brexit. He added: “We are seeing more innovative solutions to the risks ahead, with firms diversifying and looking increasingly closely at what rapidly evolving technology offerings can provide.”