Economy faces double shock of Covid-19 and hard Brexit, study warns
ESRI research suggests no-deal Brexit would broaden range of sectors experiencing hit
The research by the Economic and Social Research Institute (ESRI) and the Department of Finance found there was limited overlap between the sectors at risk from a hard Brexit and those most impacted by the pandemic. Illustration: Getty Images
The shock to the Irish economy from a no-deal Brexit could be exacerbated by the Covid-19 crisis, a new study has indicated.
The research by the Economic and Social Research Institute (ESRI) and the Department of Finance found there was limited overlap between the sectors at risk from a hard Brexit and those most impacted by the pandemic.
A no-deal Brexit would therefore broaden the range of sectors experiencing a negative hit and magnify the shock to the economy as a whole, it said.
The study comes amid a near-breakdown in Brexit talks, with Brussels accusing London of turning its back on the withdrawal agreement, signed in January, and a resurgence in coronavirus cases.
This has heightened the prospect of Ireland experiencing a double economic shock next year.
The ESRI’s study examined the sectoral overlap of Covid-19 and Brexit shocks, ranking each sector of the Irish economy in terms of its exposure to each shock using three categories: severely affected sectors, moderately affected sectors and unaffected sectors.
The sectors worst affected by Covid-19 were the wholesale and retail trade, accommodation and food services, which includes the hospitality sector, and construction and industry. Using estimates based on modelling trade barriers in goods and services, the study found that these sectors were “fairly limited” in terms of their exposure to Brexit.
The sectors that would be affected by Brexit included agriculture, food and traditional manufacturing as these are all highly reliant on the UK as an export destination, the study said.
Financial services are also potentially highly exposed to changes in market access between the UK and EU.
No sector was found to have a foot in both camps – to be in a category severely exposed to both the Brexit and Covid-19 shocks. However, some sectors did fall into the category of being severely exposed to one shock and moderately exposed to the other, a combination that does leave them at some risk if the two shocks are combined.
The ESRI also noted that the ranking of risk exposure was at a sector level and that impacts on individual firms may differ from this.
The report said the risks of a hard Brexit without a free trade agreement by the end of the year now “appears a real possibility”.
While the potential economic impacts of Brexit have been substantially overshadowed by the Covid-19 crisis, layering a hard Brexit on an economy dealing with Covid-19 could make the previously estimated effects of Brexit worse, it concluded.
“A no-deal Brexit would broaden the range of sectors experiencing a negative economic hit,” the ESRI’s Martina Lawless said.
“In particular, some sectors that have been less strongly impacted by the Covid-19 pandemic would be highly exposed to Brexit – most notably agriculture and food,” she said.
“The slightly more positive read on the results is that the sectors that have been badly hit by Covid, such as hospitality, would be less likely to be further hit by a no-deal Brexit outcome,” she added.
“Combining the two negative shocks gives a more widespread effect on activity, which is a concern for the overall economy. However, for most specific sectors, they would be dealing with one or the other shock rather than both combined,” Ms Lawless said.