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Economic Implications of Brexit

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  • 24-06-2016 12:41pm
    #1
    andrew
    Moderators, Science, Health & Environment Moderators, Society & Culture Moderators Posts: 3,372 Mod ✭✭✭✭


    My understanding of the impact of Brexit on Ireland are as follows:

    There are approximately 3 scenarios for a British exit:
    1. UK ends up in the EEA/EFTA (like Norway)
    2. UK ends up with Bilateral Trade agreements (like Switzerland)
    3. UK trades according to the most Favoured Nation principle (like everyone else)

    The exact impact depends on which one of these scenarios obtains; with the first having almost no impact, and the third the highest impact.

    In terms of the sectors which might be affected, there are 3 areas which are important to consider: trade, FDI, and employment.

    In terms of trade, for exports 18% of goods and 14% of services exports go to the UK. Regarding goods exports, the most significant sectors are Agriculture/Animals (30%) Chemicals (29%), and Machinery (14.1%). Regarding services, the most significant sectors are Computer Services (30%), Transport (15%), Finance (14%), and Insurance (14%). These are the sectors which would be hit worst by a worst case scenario.

    For imports, about 1/3 of our imports come from the UK; a worst case scenario would mean higher prices due to tariffs, if these are not offset by appreciation of the Euro.

    In terms of employment, firms which export goods to UK have c.a. 2-3% of total employment, and these are mostly in the agriculture and apparel manufacturing industries. For firms which export services, employment in technology firms is high, but their exposure to the UK is relatively low. The most significant area in terms of reduced employment would probably be Transport/Hospitality; this area makes up 12% of total employment and is relatively exposed to the UK. Finally, the impact on employment on the
    Finance/Insurance sector could be positive, if firms set up the EU bases here.

    Another important factor to consider for employment is the fact that the UK has traditionally acted as a safety valve for when unemployment in Ireland is high; travel restrictions would obviously affect the effectiveness of this valve, though the UK has been diminishing as a destination for some time.

    In terms of FDI, Ireland might do well out of Brexit if it catches some portion of the FDI which would have gone to the UK. Presently, c.a. 3% of FDI which flows into the EU from outside comes to Ireland. This would be limited by the extent to which the UK could induce FDI inflows via taxes etc.

    In terms of the quantitative impact, my understanding is that the main channels are reduced demand from the UK due trade barriers, and reduced demand from the UK in general, if their economy contracts due to Brexit. Most numbers are shots in the dark, but estimates I've seen see Irish GDP being between 0% and 3% lower in 5 years, wages being between 0% and 3% lower (again, when compared to a baseline, not when compared to today), and the unemployment rate being marginally higher, by between 0% and 1% when compared with some baseline. However, you could almost certainly find estimates which are wildly different; these are just off the top of my head from reading around in general.

    Thoughts, anyone?


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    #2
    eirman
    Registered Users Posts: 1,000 ✭✭✭eirman


    At this point in time I reckon that there is a 10-15% chance the UK won't leave the EU.
    (Perhaps the outcome of a UK election within 9 months) - Here's hoping!
    the fact that the UK has traditionally acted as a safety valve for when unemployment in Ireland is high
    You all know that UK citizens born in NI and many others are entitled to Irish Passports.
    However, did you know that ....

    Many Irish Citizens are entitled to a UK Passport.
    This is based on parents OR grandparents having being born within the British Empire.
    The whole of Ireland was in the British Empire up to about 1921.


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    #3
    andrew
    Moderators, Science, Health & Environment Moderators, Society & Culture Moderators Posts: 3,372 Mod ✭✭✭✭andrew


    eirman wrote: »
    At this point in time I reckon that there is a 10-15% chance the UK won't leave the EU.
    (Perhaps the outcome of a UK election within 9 months) - Here's hoping!


    You all know that UK citizens born in NI and many others are entitled to Irish Passports.
    However, did you know that ....

    Many Irish Citizens are entitled to a UK Passport.
    This is based on parents OR grandparents having being born within the British Empire.
    The whole of Ireland was in the British Empire up to about 1921.

    To nitpick, it looks like they're entitled to an ancestry visa, rather than a passport or citizenship (I think?). Interesting anyway, I didn't know that!

    I reckon (hope) they'll end up in the EEA, while using public spending and minimum wage increases to placate the people who voted leave and who are worried about immigration's effect on jobs (and aren't racist).


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