Much has been written in recent weeks about the impact on Ireland of the decision by the UK to leave the European Union.
I think it is fair to say that for the most part, it came as a shock that the UK voted as they did. This was likely driven by our wish for all to remain as is and not to have to face the impact of our major trading partner leaving the EU. And while the polls particularly at the conclusion of the campaign, were tight, I for one, fully believed the Remain Campaign would win out.
So now the people have voted what next?
The most immediate impact is likely felt by those nearing retirement. Irish pension funds are worth more than €110 million and a quarter of all the cash has been invested in UK and EU stock markets, which have been extremely volatile in recent weeks. Volatility is always inevitable and share prices will climb again but a sustained slump does have an impact and if you are nearing retirement, having the time to recoup any losses may be an issue. However most people nearing retirement will have a more conservative view of investing and will have their pension funds invested in low risk investments thus should not be hit so hard.
An immediate impact will be felt by Irish businesses and their employees. Which will affect us all.
Since the vote, sterling has fallen rapidly against the euro and it is likely that it will remain very weak for some time to come. That will have the effect of making Irish exports to the UK more expensive and our imports from the UK cheaper. Some businesses will be affected more than others. However the UK market is vital to our farming & agri food exports, thus leaving these businesses particularly vulnerable.
Border towns will also be exposed as it will once again become much cheaper to shop in the North Of Ireland. It will of course remain to be seen what impact on actual border controls it will have. In terms of the impact on businesses, if border controls are imposed, this would act as an extra cost on businesses and could delay the transport of goods to and from the UK. That will cost Irish companies money.
It is expected that Brexit will have an immediate negative consequence for the British economy and this will affect Ireland. The latest analysis of the Government suggests it could knock between €1.1 billion to €2.7 billion off Ireland Gross Domestic Product. The ESRI has estimated it could reduce Ireland’s GDP by between 0.5% and 1.6%.
Already forecasts for the Irish economy for this year and next have been reduced.
It is expected that there will be up to 2 years of negotiations between the EU and the UK regarding its future relationship with Brussels. It is expected that while negotiations on an exit continue there won’t be tariffs; but after the UK leaves a levy on the import and export of goods to the UK could be introduced. This is a very significant danger for Ireland.
The main question will be whether the UK will remain part of the Single Market which is the EU’s free trade area. Minister for Finance Michael Noonan has already said that he would prefer if the UK was to remain in the free trade bloc. However, that decision will be made by the EU. Ireland cannot negotiate its own agreement with the UK.
The EU will not want to make Brexit easy as they will want to make sure it is deemed difficult to leave so that other countries won’t follow suit.
Are there any benefits?
The only benefit for Ireland is that some foreign investment, which would have intended to go to the UK may now come to Ireland. This could take the form of financial services companies relocating to Ireland. It has also been reported that it could also see more investment in Irish commercial property originally intended for the UK. During the referendum campaign NAMA noticed some investment earmarked for the UK being spent on commercial property in Ireland.
In conclusion, there are some benefits of Brexit, however, most commentators that I’ve heard and read, believe the negatives far outweigh the positives.
It is an area we will be looking into more as time & negotiations progress and we will keep this Blog updated in this regard.