What is the potential financial impact of Brexit on the Irish Economy?

Given the close economic and cultural ties shared by the UK and Ireland it is no surprise that Brexit could mean big changes for the Irish economy, and that the fallout for Irish businesses could be dramatic. A recent report published jointly by the ESRI and Department of Finance provides a sobering read.

The report warns that Brexit will inevitably undermine Irish growth and threaten jobs and is ultimately bad news for industry.

The “harder” the Brexit, the worse this will be for the Republic, and it is vital that the nations needs in terms of industry, Northern Ireland and trade be represented at the EU negotiating table.

With the political climate in the aftermath of the UK election turbulent and uncertain going into talks, this is more relevant than ever. The Conservative party may have to soften their “hard” stance due to the involvement of the DUP, who will seek concessions in terms of trade and the border in Northern Ireland.

A less cohesive front could result in more protracted negotiations, and it may be years before we learn what the full impact of Britain’s departure may be.

Here are some of the main Brexit effects to be aware of:

1. Trade

As a small island nation Ireland has a limited domestic market and is largely dependent on exports. According to the British Irish Chamber of Commerce approximately 1.3 billion worth of goods are exchanged between the two countries weekly. This is particularly true in relation to the food and drink sector, which is also a big Irish employer.

As Britain leaves the EU, negotiations in terms of customs will be of significant importance to Ireland’s economic future. Without a trade deal that takes into account the special economic relationship between the two countries, it is likely that damaging tariffs will be imposed on Irish exports. Such tariffs will render Irish products more expensive and ultimately less desirable to the consumer.

Disruptions to the market may also occur due to regulatory changes such as certification requirements and border checks. British exports to Ireland, on which we rely heavily, will also become much more expensive. This may lead to supply chain problems.

2. Financial Services Industry

More optimistic commentators have predicted that Brexit will mean significant growth for Ireland’s financial services sector, as UK- based businesses consider relocating. There are some signs that this may be true with JP Morgan recently having purchased office space capable of holding up to 1,000 staff, and Bank of America and Barclays having chosen Dublin as their post- Brexit base. Ireland will face stiff competition from other European cities however, particularly Brussels and Paris, so it remains to be seen whether Brexit really will provide the opportunities predicted. Many other financial institutions have already overlooked Ireland in favour of relocation options on the continent.

 3. Corporate Taxes

The UK has supported Ireland in its bid to retain its low corporate tax rate. However, if Britain move to further lower their own corporate tax rates in order to soften the fallout from Brexit, they may become Ireland’s greatest competitor. Ireland will have to find new European allies and prepare to defend itself from the EU opposition (particularly France) in order to continue to provide such low rates.

4. Energy

The Republic imports a staggering 60% of its energy from the UK and is dependent on the UK gas supply. Brexit may result in disastrous supply disruption and higher energy process if Ireland is unable to successfully negotiate its way through EU talks. 

The impact of Brexit will be more severe for Ireland than any other EU nation. The discussions that lie ahead will be vital for Irish interests and it is important that Irish businesses prepare for some difficult times. After completing the Enterprise Ireland Brexit SME Scorecard, companies will be aware of what actions need to be taken and where their exposures are. Price competitiveness is already an issue for Irish business with exchange rate fluctuations and general uncertainty. Streamlining of costs and supply chain processes will be key to sustaining profitability.

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