Thursday 20 September 2018

Brexit to drive up costs here over the long term

Photo: Getty Images
Photo: Getty Images
Colm Kelpie

Colm Kelpie

Brexit is likely to change the structure of the Irish economy and potentially lead to a long-term increase in costs for businesses and consumers, the Department of Finance has warned.

It said the United Kingdom's departure from the European Union - due a year from now - would likely "structurally" change the nature of the economy, rather than simply have a cyclical impact.

While a lot of Brexit analysis has focused on the damage to exporters, the report highlights disruption of supplies into Ireland.

Businesses and consumers could be hit with higher prices, supply chains could be disrupted and competition could be eroded because of the scale of the imports coming into Ireland from the UK, the Department warned.

SMEs could be disproportionately affected by any shock to supply chains because they make up the majority of importers in certain sectors, it added.

"The results further highlight the disproportionate exposure of both Irish business and consumers to Brexit," the Department said in new research examining the import exposures to the UK of Ireland and other EU Member States.

Finance Minister Paschal Donohoe
Finance Minister Paschal Donohoe

"The high import exposures show that it is not just Irish exporters that are exposed to Brexit but also firms integrated into supply chains, and disturbances to retail and distribution supply chains could have a direct impact on Irish consumers through reduced competition and higher prices.

"These issues indicate that Brexit is likely to cause a structural, rather than cyclical, change in the Irish economy. As such, a comprehensive trade agreement between the UK and EU that is as close as possible to the status quo is imperative for Ireland to prevent a rise in the cost of imports for firms across all sectors and minimise the impact on the Irish economy."

The report notes that overall Ireland has a trade surplus with the UK, and within the overall balance, runs a goods deficit and a significant services surplus.

We import more in goods from the UK than we export, although that share has been declining. In 2016, goods imports from the UK totalled 23pc, compared with 13pc for exports.

This import exposure is spread across a wide range of sectors, the report said, compared to the export exposure which is more concentrated in certain sectors.

The report also said that Ireland's sectoral imports are substantially, "by a significant distance", the most exposed of the remaining EU-27, across almost all sectors.

"Once again, food and live animals is the most exposed sector, however the analysis also points to the issues facing sectors such as retail, manufacturing and pharma-chem due to supply chain linkages," it said.

On the services side, Ireland is less exposed to the UK with regard to imports than exports.

Finance Minister Paschal Donohoe said the results of the research highlight the need for the country to continue to take steps to prepare the economy for Brexit.

"We have been consistent in our position that it is in Ireland's interest that, post-Brexit, there is the closest possible relationship between the EU and the UK, including on trade," Mr Donohoe said.

"This is in line with the March European Council Guidelines in December, which reaffirmed the EU's desire to establish a close partnership with the UK."

Indo Business

Business Newsletter

Read the leading stories from the world of Business.

Also in Business