Brexit risks to North will make Ministers and officials lose sleep

Cliff Taylor: Economic hit will be harder, uncertainties great and politics possibly toxic

Peace walls in Belfast: in September, if we appear to be heading towards a no-deal Brexit, the Border issue will move centre stage. Photograph: Enda O’Dowd

Peace walls in Belfast: in September, if we appear to be heading towards a no-deal Brexit, the Border issue will move centre stage. Photograph: Enda O’Dowd

 

How do we get a grip on what a no-deal Brexit might feel like for us? It wouldn’t be a rerun of the period after 2008, when GDP crashed by close to 10 per cent over two years and the banks and then the State had to be bailed out.

Nor would the economic after-effects be as deep and far-reaching. But of course saying something won’t be as bad as the biggest crash any of us have ever seen isn’t the best of reassurance.

It’s like saying that the next storm won’t be as bad as the last one that knocked your house over and left a trail of destruction.

So how do we get a grip on what it might feel like? The essence of the no-deal Brexit economic impact is that it will hit quickly. The initial forecasts of how Brexit would affect our economy were based on the – then reasonable – assumption that there would be a withdrawal deal.

This would have pushed any significant impact out for a couple of years and after that there were a range of scenarios, depending on what kind of a trade deal was done between the European Union and the UK.

The direct impact will hit sectors which are affected most by the changes to trade – the food industry, particularly beef, and parts of the engineering and heavy goods sectors

A no-deal exit brings all the risks and costs forward and, by tearing up trading and commercial links based on a host of EU rules and custom and practice, throws in a bag of unknowns and uncertainty. Because the change happens quickly, the costs accrue much more rapidly too.

So rather than, say, one percentage point off the economic growth rate each year for five years, forecasters feel 2.5 to four points could be knocked off in the first year to 18 months. If this is right, rather than GDP growth of 3.5 to 4 per cent next year, we might not see much growth at all and – on the more pessimistic forecasts – a recession could not be ruled out.

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Different sectors

Forecasting this is all the more tricky as the impact of a no-deal will hit some sectors of the economy and some parts of the country hard, but in terms of a direct impact , others will be spared.

If you work in an international bank in the IFSC, for example, Brexit might bring new opportunities as other parts of your company’s business relocate from London.

If you work in a beef processing plant, on the other hand, which relies on the UK market, then your job could come under immediate threat.

So the direct impact will hit sectors which are affected most by the changes to trade after Brexit – the food industry, particularly beef, and parts of the engineering and heavy goods sectors. Beef, a sector already in trouble, is the clearest example, with producers likely to face punishing tariffs in the UK market.

The risk is that this could all takes years to work out, as the EU rules mean, to paraphrase the radio ad, 'once you’re gone, you’re gone'

Because the food sectors and SMEs in sectors such as engineering are most exposed, this means the parts of the country in which these kinds of firms are generally located are most at risk – and this means rural Ireland.

This is where the Brexit economy story will play out, requiring government supports and a range of interventions. Cash-flow shortages will be a big issue for many smaller firms. The Government faces a firefight to save jobs. As support will require EU clearance – on the basis of ongoing viability – this is not a straightforward task.

The wider economy will also be hit, but the direct impact will be less severe. Import prices will go up, possibly costing the average family more than €1,000 a year in higher prices, according to an ESRI study. But the real question, and the difficult one to judge, is how far confidence will be hit – and this is what would spread the economic hit from a no-deal Brexit by affecting what consumers spend, what businesses invest and leak into areas like car sales, house prices and so on.

More pessimistic forecasts, such as those from the Central Bank, factor in a hit to confidence, while the less gloomy estimates from the Department of Finance and ESRI focus more on the direct impacts from changes to trade.

How long the worst of the economic impact would last will depend in part on how Brexit plays out politically – and whether both sides sit down to try to hammer out some deal. The risk is that this could all takes years to work out, as the EU rules mean, to paraphrase the radio ad, “once you’re gone, you’re gone”.

Headache

The economic impact is going to be a headache for the Government, though it will hope that after the initial shock and possibly a year or two of significantly slower growth, some kind of normality might return. It will be even more concerned, however, about the political – and economic – impact in the North. Here the economic hit will be harder, the uncertainties great and the politics quite possibly toxic.

In September, if we do appear to be heading to a no-deal, the whole issue of the Border will move centre stage and the Government will have to outline its plans for Border checks in the event of a no-deal. There will be considerable going and going with the European Commission on this in the weeks ahead. And if a no-deal takes place, then the risks – to society and politics – in the North are considerable and the political questions raised are enormous.

The economic challenges for the Government are nasty – but there are obvious courses of action to respond. What to do about the Border and the North, however, throws up a lot of awkward and difficult questions – and few clear or obvious answers.

The Government will worry about the economic impact of a no-deal Brexit, but it is the risks to the North which will keep Ministers and officials awake at night.

Borderlands

A special investigation on Brexit & the Border Read More
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