Brexit will have structural impact on Irish economy

Brexit will have structural impact on Irish economy

The Brexit debate has focused largely on the threats to goods exports and particularly to agri-food if we end up trading with the UK on the basis of World Trade Organisation tariffs. But as noted in a recent article, we are also vulnerable on the import side.

A new research paper from the Department of Finance reminds us that while we sent 13% of our exports to the British market in 2016, we got no less than 23% of our imports from the same place. It may seem that we have more power to quickly alter the make-up of imports than exports, but life is not so simple.

Modern business depends upon fast, flexible and highly integrated supply chains, and there are few such chains in Ireland that do not stretch to suppliers in the British industrial heartlands. “Food and Live
Animals is the most exposed sector, however the analysis also points to the issues facing sectors such as retail, manufacturing and pharma-chem due to supply chain linkages. It is also shown that SMEs are likely to be disproportionately affected by a shock to supply chains as they comprise the
majority of importers in certain sectors.”

This is the Brexit double whammy: tariff disruption to our exports and non-tariff barrier disruption to imports of parts or components upon which future exports depend. The severity of this problem, the particular level of Irish exposure, reflects the very high degree of integration between our economies.

“Ireland’s sectoral imports are substantially the most exposed of the remaining EU-27, across almost all sectors. Furthermore, at a sub-sectoral level, thirteen of the top fifteen most exposed sub-sectors across the EU-27 are Irish, and there is considerable overlap between the exposed import and export sub-sectors, particularly for those in the agri-food sector.”

The conclusion of the report’s author is bleak:  this will be no 18-month downturn or two-year recession. “Ireland’s deep linkages with the UK economy on both the exports and imports sides make it clear that
Brexit is likely to cause a structural change in the Irish economy, not simply a cyclical variation in trade. A permanent shift in trade could have implications for the economy’s production function, with potential negative impacts on productivity, labour supply and capital investment.”