Was Brexit risk to Irish economy exaggerated?
Government forecasts suggest hit to finances may have been relatively modest
UK prime minister Boris Johnson speaks during an event to launch the 2019 Conservative Party general election manifesto on Sunday in Telford, central England. Photograph: AFP via Getty Images
Maybe the threat to the Irish economy from a no-deal, disorderly Brexit was entirely overblown?
The Government seems to think so if its forecasts are anything to go by. Its forecasts for personal consumption and employment – the two metrics you’d expect to be badly hit in the event of an adverse shock – suggest the Brexit hit, if it had materialised, would have been modest at best.
In its latest fiscal assessment report, the Irish Fiscal Advisory Council (Ifac) juxtaposes the Government’s Brexit forecasts with what actually happened during major downturns here and elsewhere.
In Portugal, consumer spending dropped 10 per cent in 2009 while employment contracted by 12.4 per cent as the financial crisis gripped the economy there. In Ireland, the same event caused a 6.1 per cent drop in consumer spending and a near 15 per cent drop in employment. These were downturns by any yardstick.
But the Government reckoned a disorderly UK exit from the EU would only have seen a slowdown in consumer spending and employment here, not a reversal. It predicted the growth in consumer spending would have slowed to 1.4 per cent with employment growth slowing to 0.8 per cent. This does not meet the criteria for a downturn, Ifac said in its report.
“Even though the Government used a hard Brexit as the central scenario [in framing the budget], in terms of shocks to economies it could be perceived as being relatively benign as what was forecast was more a slowdown than a downturn,” Ifac chairman Seamus Coffey said.
So were the fears around a hard Brexit misplaced? Is the Irish economy better insulated than we think? Or does the Government know something we don’t?
Perhaps the most likely explanation is that the Government factored in merely a softening of these variables because modelling the likely short-term impact of Brexit was just too complex.