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Firms face anxious wait as Britain waves goodbye

Ssaturday Insight


Flying the flag: A Brexit supporter celebrates in London

Flying the flag: A Brexit supporter celebrates in London


Flying the flag: A Brexit supporter celebrates in London

Britain left the EU on the stroke of midnight in a move that heralds another year of uncertainty for the Irish economy. The potential remains for a huge shock that may cost billions of euro in lost output and thousands of job losses here.

Far from being settled by the political declaration in the withdrawal agreement, all is now left to play for in the Brexit trade talks.

No one really has a clue as to how our relationship will work out with a country that takes €1bn a month of Irish goods exports and more than double that in services.

A 'clean' Brexit has already been muddied by a 'half-in, half-out' arrangement for Northern Ireland, which will remain part of the UK but operate under EU rules.

UK prime minister Boris Johnson has said that any trade agreement needs to be struck in 2020 and that he will not ask for an extension of talks, something that seasoned negotiators say is an impossibly tight timeline for a comprehensive deal.

Most commentators and economists are betting on another fudge, based on Mr Johnson's acceptance of more stringent Brexit terms than those agreed by his predecessor.

"In the extreme, the UK may face yet another cliff-edge exit at the end of this year, when the transition period within the EU withdrawal agreement is due to expire," said Neil Shearing, group chief economist at Capital Economics.

"A more likely outcome, given the history of Brexit to date, is more fudge - with perhaps a 'phase one' deal covering the basic elements of goods trade between the UK and EU agreed by the end of this year and the more thorny issues around services trade, market access and financial services kicked down the road."

For firms here, the path leading to that "fudge" will be punctuated with the kind of unpredictability and risk that characterised 2019. According to a study of more than 7,000 companies from 71 countries that included 53 Irish firms, managers here spent more time discussing Brexit than anywhere else, Britain included.

"We estimate that due to Brexit risk, the average Irish firm decreased its investment rate by 3.9pc and reduced its employment growth rate by 4.2pc relative to the mean in every year since the Brexit referendum," the study published by the National Bureau of Economic Research (NBER) said.

Irish Continental Group, which runs Irish Ferries, has already seen the impact of Brexit deadlines coming and going.

In its November trading update, the company said that it had experienced "some volatility in carryings as key Brexit dates were approached and subsequently postponed".

Had the UK dropped out without a deal at the end of December, Ireland would have been relegated from the top of the EU growth leagues to close to the bottom. In October, the Central Bank of Ireland warned that growth in 2020 would plunge to close to zero from an expected 4.3pc, in the event of a cliff-edge Brexit.

Unemployment would have started to rise as consumption, investment, exports and imports all shrank, the Central Bank's economists wrote.

Under a no-deal scenario, the Bank forecast that unemployment would have risen to 6.9pc in 2021, more than two percentage points higher than it would have been with a deal.

A study commissioned by the Government has warned that the economy could be up to €18bn smaller by 2030 than it would have been had the UK stayed inside the bloc.

Even if UK regulations remain closely tied to Europe, the hit would be €7bn, according to the report's author, Copenhagen Economics.

Agriculture and food firms exporting to the UK could face hefty tariffs, along with new regulations, that might cost up to 12,400 jobs, the consultancy warned.

While the biggest damage will be in these two sectors, and in localities along the Border with Northern Ireland, among workers who tend to be older and less well-educated, the impact will spread. Copenhagen Economics projected that real wages would be 8.7pc below the 2030 non-Brexit baseline for low-skilled staff.

There is also a risk that the woes of the farming sector will transmit to the rest of the economy.

"Brexit uncertainty continues and we view a hard Brexit as negative for Ireland's farm and agroindustry particularly, and rural Ireland generally," FBD Holdings, an insurance company, warned. "Our business is planning for some limited operational impacts that may arise to support the continuing needs of our customers."

While a deal on the withdrawal agreement late last year helped to give a bump to consumer sentiment and retail sales here, that could evaporate quickly amid what are expected to be fraught talks over trade.

"Ireland continues to have the strongest negative sentiment scores, even compared with the UK," the NBER study said.


Brexit timeline:  What happens now?

January 31 – Brexit Day. Britain formally left the EU at midnight, Brussels time.

February 1 – Although the UK has formally left the EU after 47 years of membership, it remains bound by the bloc’s rules for the remainder of 2020.

March 1 – The EU aims to have in place its formal negotiating mandate that will give the European Commission the authorisation it needs to begin talks on the future relationship with Britain.

June – Summit between the two sides to review progress.

June 31 – Final date on which London can request an extension to the transition period that expires at the end of 2020.

November – A trade deal must be presented to the EU parliament so it can ratify any trade treaty.

December 31 – Transition period ends. Without a deal, trade between the UK and the EU will be conducted on World Trade Organisation terms, which would mean large tariffs and a big economic hit here.

Irish Independent