Ireland faces 85,000 potential job losses and a sharp economic slowdown if the UK crashes out of the EU in October, the country’s finance minister has said, in a stark warning about the effect of a no-deal Brexit.
Paschal Donohoe said 50,000 to 55,000 jobs could be lost within two years of the UK exiting the EU without a deal, with another 30,000 at risk in the medium term if there were no resolution to political chaos in Westminster over Britain’s departure from the bloc.
Ireland’s economy could face “flat to 1 per cent” growth next year in a no-deal scenario, Mr Donohoe said.
“We are genuinely at a fork in the road as a country from an economic point of view as we face a Brexit challenge,” the minister said. He said he might have to increase borrowing until 2023 if the UK leaves the EU without a deal.
Ireland, whose economy is closely tied to that of the UK, is the EU country most exposed to Brexit. Threats to Ireland have risen as Boris Johnson, the favourite to succeed Theresa May in Downing Street, has been insisting it will be possible for the UK to leave the EU without agreement in the autumn.
After a strong rebound from the financial crash of 2008 Ireland is now enjoying virtual full employment — the jobless rate in May was 4.4 per cent. But a loss of jobs on the scale anticipated by Mr Donohoe is equivalent to a fifth of the 410,000 jobs created since 2012, when unemployment reached a post-crash high of just over 16 per cent.
Mr Donohoe said he was willing to run budget deficits for years after a no-deal exit rather than curtailing government programmes to tackle lower tax revenue and higher welfare spending.
Despite the risk of disruption to trade links, the Irish government and EU leaders have insisted there is no scope to rework the withdrawal agreement drawn up with the UK, which has so far been rejected by the Westminster parliament.
The process is unlikely to be settled before Mr Donohoe produces his budget on October 8, leading him to prepare both a no-deal plan and an alternative package to be deployed if a Brexit shock is avoided.
The no-deal plan assumes Mr Donohoe will divert €700m that would otherwise be available for spending increases or tax cuts to increase welfare spending and support industries facing Brexit losses.
Ireland’s agrifood sector is highly exposed to WTO tariffs that could be imposed on food exports to the important UK market.
Mr Donohoe set out a stark no-deal assessment for 2020, saying strong economic growth could be eliminated and that a forecast budget surplus for the year would turn to a deficit.
Despite the prospect of big no-deal job losses in the most exposed industries, Mr Donohoe said Ireland could still have more people working in 2021 than today because of potential for employment growth in other sectors.
The finance ministry believes 3.9 per cent gross domestic product this year will slow to 3.3 per cent in 2020 even if there is no Brexit disruption.
But Mr Donohoe said a no-deal could mean “flat to 1 per cent” growth in 2020, with a budget deficit of between 0.5 per cent and 1.5 per cent of GDP, eliminating the 0.4 per cent budget surplus he expects if Brexit is resolved.
Dermot O’Leary, economist at Goodbody stockbrokers, said Brexit provided “political cover” for the minister to set a “prudent” course for the 2020 budget. “There’s a [€700m] potential budget day giveaway. This gives them an opportunity to keep that completely in reserve,” he said.