100,000 fewer jobs after no-deal Brexit, Central Bank warns

Boris Johnson Credit: Rui Vieira/PA

The Central Bank of Ireland has forecast major job losses and a reduction in economic growth in the event of a no-deal Brexit.

Its latest report predicts there will be around 34,000 fewer jobs by the end of next year and more than 100,000 fewer jobs over the medium term compared to their forecast if a deal on Brexit can be reached.

The Central Bank of Ireland issued its report after Boris Johnson clashed with Taoiseach Leo Varadkar over the backstop in their first phone call since the Tory MP became Prime Minister.

The third quarterly report examines recent trends in the domestic economy and provides the Central Bank’s forecasts for the Irish economy and its views on domestic economic policy issues.

The report found that the economic growth is expected to be 4.9% this year, moderating to 4.1% in 2020.

The unemployment rate is projected to decline from 4.7% this year to 4.5% in 2020.

Compensation per employee is forecast to increase by 3.6% in 2019 and 4.1% in 2020, while inflation is predicted to pick up moderately.

In the event of a no-deal Brexit from the end of October, the Central Bank estimates suggest that economic growth would be reduced to 0.7% next year, with around 34,000 fewer jobs by the end of 2020 compared to the central forecast.

The Central Bank’s central forecast is that growth in 2019 and 2020 is expected to come primarily from the continued expansion in underlying domestic demand, reflected in solid growth in consumer spending and underlying investment.

The central forecasts are based on a deal on Brexit being reached and a transition period coming into effect until the end of 2020.

Given the unprecedented nature of Brexit, and the uncertainties in the international trading environment, there is considerable uncertainty around potential outcomes.

In the event that a disorderly, no-deal Brexit can be avoided, underlying economic activity is expected to perform strongly in 2019 and 2020.

Mark Cassidy, the Central Bank’s director of economics and statistics, said: “In the event that the disruption from a no-deal Brexit is avoided, there is a risk of overheating occurring in the Irish economy given that output is now at or close to full capacity.

“In the event that a no-deal Brexit were to occur there would be a significant weakening of activity across many parts of the economy.

“Our current projection is that in the event of a no-deal Brexit, the economy would expand by 0.7% in 2020, as opposed to 4.1% if a deal can be agreed.

The Bank warned that in the event of a disorderly Brexit, ‘there would be a material deterioration in the public finances and the fiscal environment would be significantly more challenging’ Credit: Niall Carson/PA

“The uncertainties around Brexit and managing the risk of overheating increase both the challenge and importance of charting the appropriate fiscal policy path.

“If a disorderly Brexit can be avoided, the underlying outlook and, in particular, the risk of overheating, emphasises the importance of a more ambitious improvement in the fiscal position.

“With output at or close to potential, a tighter fiscal policy would help to manage demand pressures and reduce the risk of overheating and a return to boom-bust type conditions.

“On the other hand, if a disorderly Brexit were to occur, there would be a material deterioration in the public finances and the fiscal environment would be significantly more challenging.

“In this case, there may be the need to provide targeted support to the parts of the economy that are most affected.

“However, it is important that any fiscal response is consistent with long-run debt sustainability and does not undo the hard work in re-establishing Ireland’s fiscal credibility and risk the emergence of unsustainable debt dynamics.”