No-deal Brexit would reduce Irish economic growth, warns Central Bank

A disorderly Brexit would have immediate economic implications affecting most areas of activity, the Central Bank of Ireland has warned.

But it added that economic growth is still expected to remain positive in the event of the UK crashing out of the European Union.

In its second quarterly bulletin, the Central Bank warned of the heightened levels of risk and uncertainty over Brexit.

The bulletin examines recent trends in the domestic economy and provides the Central Bank’s forecasts for the Irish economy and its views on domestic economic policy issues.

The report shows that the strong economic performance in the past year is expected to moderate slightly this year.

It adds that if a Brexit agreement is reached, the outlook for growth in the Irish economy remains positive, but warned of some uncertainty over a “less favourable” international economic environment

The bulletin also said economic growth is expected to be 4.2% this year, falling to 3.6% in 2020.

The unemployment rate will drop to 5.4% and 5% for 2019 and 2020 respectively.

The Central Bank forecasts that underlying economic activity will continue to grow at a relatively solid pace in coming years.

The rate of global and euro area economic activity has weakened since last autumn and prospects for growth in Ireland’s main trading partners have been lowered further in recent months, with risks to the international economic outlook.

The central forecasts are based on a Brexit deal being reached and a transition period coming into effect until the end of 2020.

Given the unprecedented nature of Brexit, there is considerable uncertainty around outcomes.

The Central Bank has previously published analysis of the possible effects of an orderly exit under World Trade Organisation rules, a free trade area-like agreement and a no-deal Brexit.

Mark Cassidy, the Bank’s director of economics and statistics, said: “The outlook for the economy remains broadly positive, though, following the strong performance of recent years, we expect growth to moderate in 2019 and 2020.

“This moderation reflects both the impact of a weaker international economic environment and reduced potential for growth in the domestic economy. We now expect growth of 4.2% this year and 3.6% next year.

“We have previously warned about the immediate and significant effects of a no-deal Brexit scenario on the Irish economy.

“Our analysis suggests that a disorderly, no-deal Brexit could reduce the growth rate of the Irish economy by around four percentage points in the first year and by a further two percentage points in the second year.

“This would imply that while there would still be positive growth this year and next, it would be materially lower than in the central forecasts, though, given the unprecedented nature of a disorderly Brexit, a good deal of uncertainty attaches to these estimates.

“While Brexit continues to dominate the public agenda, there are other immediate risks to the economy.

“The international economic outlook has weakened since the publication of the last bulletin.

“Ireland’s position as a small, highly open economy and the important role of multinational firms within the economy means the evolution of global economic and trading conditions and movements in major exchange rates will have an important bearing on Irish economic performance.”