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Export & International

Ireland Brexit - this is not Mission Impossible

By CreditMan Monday, January 25, 2016

Commenting on the Irish Prime Minister’s visit to the UK, Ana Boata, European Economist, Euler Hermes, the world’s largest trade credit insurer, said:

“Ireland strongly depends on the UK when it comes to trade and investment. Currently, 32% of total Irish goods are imported from the UK, which makes of Great Britain Ireland’s most important EU trade partner. Irish imports from the UK are concentrated on oil and higher value added products (electronics, chemicals, machinery and equipment) and could prove extremely difficult to substitute or to produce domestically if import prices increased and new tariffs were to be introduced in the UK.

“The United Kingdom’s exit from the EU would have both positive and negative effects for Ireland. In the short term, there will be painful economic dislocation as the two close trading partners adjust to the UK’s non-EU status and Ireland finds new markets. The longer term gain could include Dublin attracting significant investment flows from London, notably in the financial, chemicals and pharmaceutical sectors.”

“Increased uncertainty and delayed investments in the lead up the UK vote may lead to slower investment growth and higher export and import prices, which may generate higher inflation and slower down GDP growth. In the event of Brexit, Ireland would suffer higher energy prices and possible supply disruption as most energy imports come from the UK – Scotland supplies Ireland with 95% of its gas. The industrial and chemicals sectors are likely be impacted the most, as will the agrifood sector as much of Ireland’s food exports go to the UK. Longer term Ireland may become the US gateway to Europe to become Ireland instead of the UK, and Ireland will then attract additional investments.”

“A negative impact is likely to affect both imports and exports following a downsized UK financial market. However, substitution will be possible if Ireland manages to attract American investors. This is not mission impossible. Dublin’s financial sector, Ireland’s geographical location and the business-friendly tax system should all help. Further investment could be attracted in the high-tech and digital sector: the EU headquarters of U.S. giants Google, Facebook and Microsoft are already located in Dublin, while Apple is based in Cork.

“Irish GDP could fall by -2% in the first year after a Brexit and to gradually recover afterwards, provided Ireland replaces the loss in export market shares with the UK and attracts additional Foreign Direct Investment, including movement of London-based European banks to Dublin.”

Source - Euler Hermes