Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

The UK referendum on EU membership presents an important challenge for the economy.

My Department has been to the fore in producing and funding relevant analysis on Brexit. Previous outputs include a scoping study produced by the ESRI last year under the joint research programme, initial short-term estimates published in the summer economic statement, an analysis of the possible sectoral and regional impacts of Brexit arising from Ireland's trade relationship with the UK, published with budget 2017, and a joint research paper with the ESRI modelling the medium to long term macroeconomic impact of Brexit.

The medium to long-term analysis shows the impact on Ireland will be significant. Looking at the effect ten years after a UK exit, in a WTO outcome the level of Irish GDP could be almost 4% below what it otherwise would have been in a no-Brexit scenario, with most of the negative GDP impact coming in the first five years. The level of employment, relative to a no-Brexit world, is also expected to be 2% lower in the same scenario and unemployment 2 percentage points higher. I would stress that these model results are based on a no policy change assumption.

The sectoral analysis - published by my Department on budget day - shows that those most exposed to the UK are generally comprised of indigenous enterprises that are small in scale, are concentrated in food and manufacturing industries, have relatively low profit levels and have a disproportionate concentration of employment in regional and rural labour markets. Budget 2017 laid out an extensive range of policies targeted at these exposed sectors, including the retention of the 9% VAT rate and the extension of the foreign earnings deduction and the special assignee relief programme until end 2020. 

The sharp appreciation of the euro-sterling bilateral rate is perhaps the most significant short-term economic impact arising from Brexit. Indeed, the current bilateral rate and its recent evolution will pose significant challenges, particularly for parts of the exporting sector and areas sensitive to cross-Border trade. For instance, merchandise exports to the UK have fallen by almost 4% since the referendum. Consumer prices are also beginning to reflect exchange rate developments falling by almost 1% since June.

The Government has put in place a number of arrangements to ensure a whole-of-government response to Brexit, including a new Cabinet committee, which is overseeing the overall Government response to Brexit.

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