Britain crashing out of the EU in October will lead to a dramatic Irish economic slowdown and force households to cut back on spending, result in 34,000 fewer jobs and lower wages and shortages of consumer goods, as well as a potential full-blown sterling crisis and a big hit to rural Ireland and its agriculture and food processing jobs, the Central Bank has warned.
Its new forecasts come as the election of Boris Johnson as British premier significantly upped the risk the UK will exit the EU at Halloween with no transition deal. It has also led in recent days to a new run on sterling, which immediately piles the pressure on Irish food exporters and small firms.
The Central Bank sees the economy taking a huge hit next year but yet avoiding a recession in the event of a so-called disorderly Brexit.
But a crash-out means Irish GDP growth will slow to a crawl — just 0.7% growth next year, which is down from a huge 8.2% expansion posted in 2018, it said.
And the expansion compares with a still-robust growth rate of over 4% in 2020 if Britain were to agree an orderly agreement for its smooth departure from the EU. A disorderly Brexit in October will send shock waves through the Irish economy and markets, the Central Bank starkly warns in its latest quarterly report.
There would be heightened stress in financial markets and a potentially large depreciation of sterling. The deterioration in economic conditions and a more adverse outlook would cause firms and households to cut spending.
“It is likely that there would be disruption at ports and airports as border infrastructure is unable to cope with the new customs requirements, at least for an initial period,” it said.
Meanwhile, imports could be tied up in increased bureaucracy and paperwork hitting the supply chains of firms and possibly leading to some shortages of consumer goods, at least in the short term.
“Exports would fall due to an immediate and large reduction in demand from the UK and the fall in sterling,” the Central Bank adds.
And there would be 34,000 fewer jobs by the end of 2020 than there would otherwise have been, said Mark Cassidy, the director of economics and statistics at the Central Bank.
The historically “unprecedented” nature of a crash-out Brexit makes the forecasts uncertain but a no-deal will “significantly reduce the output of the Irish economy” and entails “a significant shock”, Mr Cassidy told reporters.
And sterling’s fall in recent days reflects the growing risk of a no-deal, he said.
The forecasts also show that along with the 34,000 fewer jobs, unemployment would be higher, and Government finances in a less healthy place compared with where they would be under an agreed transition deal.
“The fall in output and increase in unemployment in a disorderly Brexit would put pressure on the public finances. Lower output and employment would reduce Government tax revenue from a range of sources while higher unemployment would lead to a rise in expenditure,” said the bank.
Meanwhile, separate surveys suggest that Irish firms are already being hit by Brexit fears. Some 42% of SMEs in the Republic and 48% in the North were hit by Brexit, according to AIB, while Bank of Ireland said the prospects of a hard Brexit have “spooked households and firms”.