Agricultural exports to the UK would be devastated by a hard Brexit, with overall UK exports being reduced by a third, the Department of Finance warned on Thursday.
Department officials told the Oireachtas Finance Committee that the scale of the impact of Brexit on Ireland is likely to be more severe given the emerging British attitude.
Department of Finance projections suggest that a hard Brexit, with the UK leaving the EU's customs union as outlined by the British prime minister Theresa May this week, would result in a reduction in national wealth, a 30 per cent decline in exports to the UK, a rise in unemployment and 40,000 fewer people in work after 10 years.
Economic modelling work undertaken by the department and the ESRI suggests that GDP, a measure of the size of the economy, would be 3.5 per cent smaller after five years and 4 per cent smaller after 10 year than it would have been without Brexit.
Exports to the UK will fall 30 per cent, the models suggest, while total exports will be 4 per cent smaller. Officials said the 4 per cent figure was “at the lower end of expectations”.
The fall in exports to the UK will be driven by the imposition of tariffs under
World Trade Organisation
(WTO) rules if Britain is outside the EU’s customs union.
Mrs May indicated this week that the UK would leave the customs union but is likely to seek some sort of arrangement with the EU that reduces or eliminates tariffs. However, the EU reaction all week to this suggestion has been cool at best.
The Department of Finance chief economist, John McCarthy, told the committee that if Britain leaves the customs union and WTO rules are applied, exports of meat to the UK will be subject to a 50 per cent tariff, dairy and eggs a 25 per cent tariff, and processed meat would attract a 35 per cent tariff.
He was citing a study carried out by the ESRI for the department on the consequences of a hard Brexit.
Unemployment would be 1 per cent higher after 10 years than would have been the case without Brexit, while there would be 2 per cent – 40,000 people – fewer people at work, the department’s models predict.
The secretary general of the department, Derek Moran, cautioned that the models should serve as a guide "to where you should be looking" rather than as absolute predictions.
He also said that the models did not include any policy response from the Government which might be implemented to meet the challenges of Brexit.
A spokesman for the Department of Finance said that the economy was still expected to grow over the coming years, but growth would be weaker as a result.
Speaking in Davos, Minister for Finance Michael Noonan played down the threat to the Irish economy posed by Brexit.
He said the department’s projections foresaw “nothing dramatic that would change our trajectory” of continued growth.
Asked if he envisaged customs controls on the Border, Mr Noonan said, “I don’t think so, and it’s far too early to say”.
He added that “a lot of this [customs control] can be done electronically now; it wouldn’t necessarily mean a hard Border”.
Also speaking in Davos, Taoiseach Enda Kenny said Irish officials were working on ways of minimising customs checks which may be necessary if the UK leaves the EU’s customs union.