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No-deal Brexit forecast worsens for Ireland


A no-deal Brexit could plunge Ireland into recession and necessitate an emergency budget early next year to tackle an economic shock, according to a report by a leading Irish think-tank.

Leo Varadkar, Ireland’s prime minister, already plans a no-deal budget on October 8 but the Economic and Social Research Institute said the Irish premier should be prepared to roll out fresh measures to boost the economy if a disorderly Brexit hits hard.

“It may be the case that a supplementary budget is required early in the new year if external conditions change substantially,” the ESRI said.

The warning ranks among the most severe yet on the consequences of no-deal for Mr Varadkar’s government, which is locked in a bitter Brexit dispute with the UK over the future of the border between the Irish Republic and Northern Ireland.

Boris Johnson, UK prime minister, is struggling to gain support in Dublin or Brussels for his proposals to replace the “backstop” to guarantee open borders after the UK leaves the bloc. Britain is scheduled to exit the EU on October 31.

Michel Barnier, EU Brexit negotiator, said on Thursday that Mr Johnson has yet to provide “legal and operational” proposals to break the deadlock. Simon Coveney, Irish deputy premier, has accused London of presenting “fanciful” ideas to settle the problem.

Although the EU insists its member states are prepared for a no-deal departure by the UK, Ireland is likely to be hit the hardest.

The country has rebounded strongly since the 2008 financial crash that led to an international bailout, with new ESRI forecasts pointing to GDP growth this year close to 5 per cent and growth just above 3 per cent in 2020 if a Brexit deal is agreed.

But the think-tank said the economy could contract next year in the event of a Brexit shock, adding further to warnings that 85,000 jobs could be lost in a no-deal exit. Officials have also warned that the country’s high debts leave it vulnerable.

Kieran McQuinn, research professor with the ESRI, said the economy could shrink by between 0.5 per cent and 1 per cent if a hard Brexit led to severe disruption. “That’s the kind of range you’re talking about. But you’re getting into real tail events, as they call them, in scenarios where you have a complete breakdown in supply chains and disruption on financial markets . . . unknown unknowns.”

The ESRI’s assessment is worse than government forecasts, which point to “flat to 1 per cent” growth next year in a no-deal.

The think-tank’s reports are closely watched in Ireland. Although much of its research is funded by the government, the not-for-profit organisation is independent.

The government has already decided to table a no-deal budget next month, a decision that means it will forego a promised tax cut to set aside as much as €700m for special support to the agricultural and food industries and other sectors exposed to big Brexit losses.

But Mr McQuinn said the October package might have to be quickly revised if a hard Brexit turns out to be worse than forecast. He also warned of a potential rebound from consumers reacting positively to a no-deal, saying government action might also be required in that situation to prevent the already growing economy from overheating.



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