Brexit will hurt bad but let’s not overstate the costs

The report from the consultancy group Copenhagen Economics on Brexit commissioned by the Government was the latest in a series: The Institute of International and European Affairs, the Economic and Social Research Institute, the European Commission, and in other reports, Government agencies themselves--have shown the effects that Brexit will have on Ireland.

Brexit will hurt bad but let’s not overstate the costs

The details differ in each case but the message remains the same. Even the softest of Brexit deals will have a negative effect on Ireland. In no way can it be seen as a friendly act.

A sense of perspective is needed, however. There’s been some hysterical commentary about Brexit and its impact on Ireland. Some commentators have suggested it could be even worse than the economic crisis that started 10 years ago. The effects are being presented as Ireland losing billions and being worse off. This is almost certainly bunkum.

First, let’s see what happened back then and then compare with the most apocalyptic Brexit scenarios. That is a reasonable benchmark because the unreasonable, unreasoned, and unhinged UK government is careering Britain to a diamond-hard Brexit. There remains some hope that the imbroglio that is the North can act as a break but that implies an outbreak of common sense and longterm perspective from the DUP.

Let’s revisit the acute phase of the crisis between 2006 and 2013. Most of the main aggregate economic indicators peaked in 2006 or 2007 and most had bottomed out by 2011. Personal consumption of goods and services fell by 13%; net spending by Government on current goods and services fell by 15%; spending on capital formation, which includes but is not totally about house-building, fell by a staggering 70%; GDP fell by 16%, GNP by 15% and gross national income (GNI) by 20%.

These are real, actual, cash losses. Using the GNI measure, the economy was €30bn smaller in 2011 than it had been just four years earlier.

Jobs were lost. Employment peaked at over 2.23 million people in the final quarter of 2007. By the third quarter of 2012 it had bottomed out at 1.875 million, nearly 18%, or 361,000 fewer people in employment than just a few years earlier. Half of the drop was attributable to a collapse in construction jobs but all sectors were hit. Government revenue also took a battering even with the widening of tax bands and bases. Exchequer receipts fell 40% or more from a high of €16.5bn in the final quarter of 2007 to €9.7bn in late 2009.

The collapse of the economy in 2007-9 was stupendous. And it was real. By contrast, no Brexit study suggests the economy will contract. Instead what is forecast is that the economy will not be as large than it would otherwise have been over a 10 to 15 year period.

Five sectors – agrifood, pharma, electrical machinery, wholesale and retail, and air transport- account for over 90% of the effect of Brexit on the economy. The two biggest contributors are agrifood and pharma with pharma being the largest. A key distinction here is that pharma is a much less labour-intensive than agrifood. Thus the labour market effects of Brexit will be concentrated–on the agrifood industry. Paradoxically this makes managing Brexit even harder.

When the whole country is going to hell in a handbasket the State can make broad changes. Although the agrifood sector has reduced its dependence on the UK, the reality is that this has not happened across the economy. Brexit represents a shock to the core of the Irish agrifood system and it needs to be taken as an opportunity. There are good Government plans in place, in contrast to the UK, but these can only go so far. At the end, the participants in the industry need to drive their products to other, more lucrative but more difficult markets. Brexit will hurt.

It is pointless, and needless but it seems the UK is intent on it. We are blessed with a functioning, competent political and governance system that will mitigate as much as possible the effects of a British domestic act of sociopolitical pique.

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