Britain’s withdrawal from the EU will have negative consequences for the Irish economy, the Central Bank said in its latest macro-financial review.
The impact is likely to be felt in trade, foreign direct investment and the labour market. In the short-term, estimates by the bank suggested that GDP growth will be 0.2 and 0.6 percentage points lower in 2016 and 2017, respectively, as a consequence of the Brexit vote.
Adverse exchange rate movements, coupled with a weaker outlook for foreign demand, could reduce Irish export growth, the bank said.
Heightened uncertainty and financial market volatility could also reduce investor and consumer spending. A significant amount of downside risk remains, reflecting the possibilities of potentially large spillovers to trading partners and more acute confidence effects, it added.
The long-term impact of Brexit will depend on the nature of the withdrawal agreement and any specific changes to the free movement of goods, services, capital and labour. In the most unfavourable scenario, with higher tariff and non-tariff barriers, Irish GDP could after 10 years be close to 3 per cent less than it would have been had Britain voted to Remain, the Central Bank said.
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“In this context, as per the last quarterly review of the economy, Irish GDP is projected to grow by 4.5 per cent in 2016 and by 3.6 per cent in 2017. Domestic demand is expected to be the main driver of growth over the forecast horizon, reflecting, in part, a positive outlook for the labour market and expected investment in infrastructure,” Sharon Donnery, the deputy governor of the Central Bank said at a press briefing in Dublin yesterday.
“The balance of risks to the Irish economy, however, is tilted to the downside owing to Brexit and uncertainty surrounding international trade, high public and private debt, and the susceptibility of the economy to external shocks.”