No-deal Brexit would cause severe damage to Irish economy, warns bank

A no-deal Brexit would cause a severe economic and financial blow to the Irish economy, the Central Bank of Ireland has warned.

But it added that the country’s ability to withstand a no-deal scenario is “much better” than it would have been a few years ago.

Central Bank chief Philip Lane said work to improve resilience in the economy over the past decade means the shock of Brexit should not be “amplified by fragility” in the financial system.

The Central Bank said it has been focusing on Brexit risks since before the UK referendum in June 2016.

Appearing before the Committee on Finance, Public Expenditure and Reform, Mr Lane outlined the effects of Brexit, saying it will be uneven for the wider economy.

“Indigenous sectors, such as agrifood, (are) facing heightened risks of disruption to exports and supply chains,” he added.

In the event of the UK leaving the EU with a deal, the Central Bank has predicted that domestic demand will expand by 4.3% in 2019 and 3.9% in 2020.

Unemployment is projected to average 4.9% this year and 4.7% next year.

“The improvement in the labour market means that we expect wages to increase by 3.4% this year and 3.6% next year,” Mr Lane added.

He added that the Central Bank has stepped up its work on mitigating the “cliff-edge” risks of a hard Brexit.

Philip Lane
Philip Lane

He added: “From a financial regulation perspective, our work has sought to ensure that the financial system is sufficiently resilient for a hard Brexit not to cause significant financial stability risks.

“Risks to consumers are mitigated to the greatest extent possible and we are delivering a proportionate, robust, efficient and effective authorisation process in line with European regulatory norms, for those firms seeking authorisation in Ireland as a result of Brexit.

“The Central Bank and the Department of Finance have worked to ensure that the financial system is prepared for all Brexit scenarios.”

He warned that Brexit is a permanent disruption to the Irish economy and poses challenges to industries, firms and regions across the country.

“We are all waiting to see what happens in Westminster,” he added.

Referring to the Economic and Social Research Institute (ESRI) report which warned that a disorderly Brexit could cost 80,000 Irish jobs, Sinn Fein’s Pearse Doherty said the Central Bank’s assessment of a no-deal Brexit is more stark than the forecast.

Pearse Doherty
Pearse Doherty

“Given the ESRI report, are you still satisfied that your assessment of the impact of a no-deal Brexit is that severe and have you been able to extrapolate that reduction in output in terms of the impact of the wider economy?” Mr Doherty asked.

Mr Lane explained that a no-deal scenario would have an immediate impact because of the disruption to the market and the loss of confidence.

“When that shock fades away, the long-term reality is we will be less productive, the UK will be less productive, and that’s why, 10 years from now, there will be 5% lower GDP.

“Not every firm will survive, but there will be adaptations over time.”