Dr. Kieran McQuinn:

The Senator is right and we should say clearly that, without getting too technical, what happens is the detailed modelling in looking at Brexit tends to be more long-term work. It looks out over a ten to 15-year horizon to capture the full implications of Brexit. That work is robust and is done to high standards. The subsequent work Dr. Lawless has been associated with revolves around that.

Tracing through the more short-term implications is particularly hazardous and difficult. Our colleagues who work in the Central Bank and the Department of Finance and others who do short-term forecasts would all say that. It is particularly hazardous to do that work because we are essentially trying to trace through the long-term trade implications through the short-term. By definition, we are potentially not taking into account distortions that are hard to envisage, namely, the unknown unknowns such as, for example, financial sector meltdown, congestion at the ports and large-scale disruption of that sort. In that situation, the implications will be much more significant.

In our last commentary, we did a forecast for 2020 to the effect that the economy would grow in the region of 3.5%, and if a no-deal Brexit came to pass somehow in 2020, that growth rate could be down to less than 1%. Given there are large confidence intervals around those forecasts, it is not inconceivable the economy could contract next year if there is a no-deal Brexit. It is fair to say that modelling and charting through the short-term implications of Brexit is particularly hazardous and those models come with large confidence intervals. If anything, we tend to be a little bit on the optimistic side in our forecasts on the short-term implications, but if we were to factor in the unknown unknowns, there could be a significant downside effect.

The second question was on the adjustment path. Again, it is the issue of trying to deal with the long-term whereas it is more focused on the trade implications and then looking at the short-term. If there is a no-deal Brexit, the implications of that would be at their most adverse in the short term, and as we move out over the adjustment period, the impact would be less and less each year.

We assume a linear progression such that the effects would become less and less in the future. It all revolves around trying to map and take from the longer run back to the shorter run the issue of the magnitude of the impact. It is quite difficult to capture the short-term impacts in a really precise manner.