A no-deal Brexit would deliver a near 4% hit to the economy over the next decade, the Economic and Social Research Institute (ESRI) has said.
The economic think-tank said if the UK were to leave the EU with no deal agreed thus falling back onto World Trade Organisation (WTO) rules, resulting in higher tariffs on goods between it and its trading partners, Ireland’s GDP would fall by around 3.8% by 2027.
If the UK left with the same trading rights as European Economic Area countries such as Norway, which would still allow it access to the single market, the deal would see the economy shrink around 2.3% over the next nine years, the ESRI says.
As things stand, the institute has kept its forecast of 8.2% GDP growth for this year; heavily skewed by multinational activity. In its final quarterly economic commentary of the year, it has forecast 4.2% growth for next year, but that is ignoring Brexit as a contributory factor.
However, incorporating Brexit scenarios into its forecasts for 2019, the ESRI said a no-deal Brexit would still leave Ireland in growth mode next year, but the economy would only expand around 2.8%.
“The economy faces an unprecedented degree of uncertainty in 2019; the outcome of the Brexit process, combined with the possibility of increased international trade tensions, could have significant implications for the economy’s performance in the new year.
“A Brexit scenario where WTO tariffs would apply, could almost halve the growth outlook in 2019,” said ESRI research professor Kieran McQuinn.
Elsewhere, the think-tank said “very strong domestic pressures” remain in the housing market, namely, prices and rents, but stuck to its previous forecast of 18,500 houses being built this year and around 24,500 completions in 2019.
“We’re getting closer to what is needed but there is still a backlog, which means continuing excess demand in the housing market,” said ESRI economist Conor O’Toole.
He said around 25,000 house builds per year for a number of years will be needed to alleviate supply pressures.
The ESRI called Budget 2019 more expansionary than it should have been, but not imprudent nevertheless.
However, it has forecast a 4% rise in tax receipts next year which isn’t as strong as the Government’s outlook. The institute is also at odds with the Government’s outlook for a balanced budget next year, saying it expects a further “mild” deficit rather than a surplus.
It said that it remains concerned over the windfall element of corporation tax receipts.
In a separate research paper, the ESRI has said that average disposable incomes will be damaged by tax and benefit changes implemented in the Budget and has warned the Government about relying too much on corporation tax to boost the exchequer’s coffers, saying other “more stable sources” of revenue may be needed from future budgets.
The Government took in €2.7bn from corporation tax receipts last month which is €470m more than expected due to booming multinational profit taxes.
In the first 11 months corporation tax receipts were up by €1.5bn on a year-on-year basis.