Up to 6% could be knocked off Irish GDP if there is no Brexit trade deal, the Irish Fiscal Advisory Council (IFAC) has warned.
Addressing the Oireachtas Select Committee on Budgetary Oversight, IFAC member Martina Lawless said the council’s analysis, informed by the work of the Department of Finance and the ESRI, found that even if there is a free trade agreement, long-term Irish GDP could decrease by around 3%.
But Ms Lawless said that could double in a no-deal scenario to 6%, which would be the equivalent of around €21bn, based on Ireland’s GDP figure for last year of €356bn.
She said there would be a lot of differences in the effects across the economy, with agri-food and the domestic small and medium sized enterprise sectors likely to feel the brunt.
This is because they both trade more with the UK than large multinationals here and because they export a lot of agricultural and food products that would attract the largest tariffs in a no-deal situation.
She added that even with a free trade agreement that would take away the direct cost of tariffs, there are a lot of other non-tariff barriers that could add costs to doing business, like additional documentation, customs registrations, veterinary checks, etc.
Ms Lawless said there is a risk that the impact of a hard Brexit could be frontloaded into the first few months of next year, as firms adjust to the new realities.
IFAC chairman Sebastian Barnes told the committee that the outlook for the Irish economy looks highly uncertain and the impacts of the Covid-19 crisis might be felt for a long time.
“Sectors like retail, hospitality, transport and the arts are especially vulnerable to the pandemic,” he said.
“Counties more reliant on tourism and hospitality have been worse affected, especially western and border regions. The impact of Brexit, though assumed disorderly for the budget, is still unclear and could be much different than assumed. Ireland is also exposed to international tax changes.”
“Changes could reduce future corporation tax receipts and foreign direct investment.”
He added that the council’s simulations suggest that Ireland’s debt ratios will climb to between 109% and 127% of modified gross national income by the end of next year.
IFAC’s chief economist, Eddie Casey said a deficit for this year of around €18-19bn now looks likely.
This would be lower than originally forecast, due to a shortfall in capital spending as well as the fact that not all the contingency funding put aside for Covid-19 will be spent by the Government.
But he added that there is also a lot of uncertainty and factors like extra health expenses could still increase.