As UK-EU negotiations continue to yield little in the way of clarity, economic experts cannot agree on whether Ireland’s open, regional economic model could harm or shield it from the effects of Brexit. Sean Pollock tells the story.
A walk through Dublin City centre highlights the rapid economic recovery experienced in Ireland. Cranes now dominate the skyline, building crucial business facilities that will allow the economy to flourish. Employment has recovered since the downturn that began in 2008. Migrants move to Ireland, buoyed by its successful exporting sectors, taking advantage of the open, vibrant labour market. How might Brexit affect this rosy picture?
Frank Barry, an economist at Trinity College Dublin, presented findings at Dublin’s Economic and Social Research Institute (ESRI) on 22 February showing that Ireland has a more open, regional economic model that has helped drive its economic recovery. Yet because of this openness, he warns, the impact of Brexit on Ireland’s agriculture sector could send the economy into crisis.
Speaking exclusively after the ESRI event, Barry said: “When Ireland booms, we suck in labour from abroad. When Ireland goes into recession, labour leaves and Irish people emigrate. This means that when Ireland is hit by an economic shock, it hurts more than it would for a standard national economy with a fixed labour supply.
“So a hard Brexit that decimates the agriculture sector could hurt the economy for years to come. This could be as deep as the shock experienced during the last global financial crisis.”
IT DOESN’T GROW OVERNIGHT
Last year, the International Chamber for Commerce named Ireland the fifth most open economy in the world, measuring barriers to the cross-border flow of goods, services, capital and labour.
Although this means Ireland is good at exporting, securing investment, and attracting labour, it also means that it is susceptible to foreign economic shocks. The Central Bank found that Ireland’s economy is vulnerable to interest rate fluctuations in the US and Sterling depreciation in the UK, due to the level of exports to these two countries.
Events in the UK are a concern for Paul Lewis, director of IBEC’s Food and Drink Ireland. He says: “If you look back at the agriculture sector in 2008 through to 2009 you see the impact that a depreciation in Sterling can have as exports dropped… with a new depreciation the economic impact will be significant.”
Ireland’s economy is dictated by the export base, which flourished whilst others struggled. This also means that when Ireland’s exporters are going through a downturn, Irish labour leaves at a faster rate than in a standard national economy. As a result, unemployment rises and the economy suffers.
Ireland’s exporting sectors are made up of the largely foreign-owned pharmaceutical and computer services sectors, whilst the indigenous-owned agriculture sector is also a major exporter. These sectors were resilient during the global economic downturn, as demand remained high in the US and UK, which recovered from the downturn faster than the Eurozone.
Irish trade to the US and UK in 2007 made up 36.5 percent of its total exports. This remained stable throughout the economic downturn; in 2014, trade to the US and UK made up 37.3 percent of Ireland’s total exports.
Addressing the invitees at the ESRI, Frank Barry said: “Ireland specialised at these goods and services, meaning Ireland was bolstered during the crisis. The reason this hasn’t been seen in Spain and Greece is that you can’t just transplant it, it doesn’t grow overnight, which is one of the ways that Ireland is different to other national economies.”
Ireland’s economy is dictated by the export base, which flourished whilst others struggled. Irish exporters benefit from global trade links and the open labour market, where they can attract the labour needed to grow. This also means that when Ireland’s exporters are going through a downturn, Irish labour leaves at a faster rate than in a standard national economy. As a result, unemployment rises and the economy suffers.
Ireland’s exporting sectors are made up of the largely foreign-owned pharmaceutical and computer services sectors, whilst the indigenous-owned agriculture sector is also a major exporter. These sectors were resilient during the global economic downturn, as demand remained high in the US and UK.
Between 2010-2014, the worst years of Ireland’s economic crash, net-migration was outward at 107,800. Since the economic recovery, between 2015 and 2017, net-migration was inward at 41,900.
According to Frank Barry: “If a national economy gets a capital inflow, ultimately that growth ends as the economy reaches full employment. In Ireland, the growth goes on for longer as we can suck in labour from abroad.
“However, a downturn in Ireland can last longer, as in a national economy a fixed stock of labour puts downward pressure on wages and the economy adjusts. In Ireland you get less downward pressure on wages, so jobs go and labour migrates. There is no feature that can naturally end that outward migration, so downward trends are more dramatic in regional economies.”
OPENNESS TO GLOBAL TRADE SHOULD PROTECT IRELAND
Frank Barry takes the view that Ireland’s economic growth can continue so long as the exporting sectors continue to flourish. Yet this has been thrown into question as a result of Brexit, which could impact the agriculture sector’s ability to export to its most important market; the UK.
Paul Lewis says that trade to the UK will undoubtedly be impacted by Brexit, but he also highlights the opportunity this could represent to businesses.
“If we are facing a hard Brexit, we could see tariffs as high as 50 percent applied to some agricultural goods entering the UK. If you take some of the economic models, this could absolutely decimate agricultural exports…
“However, growth has been seen over the last couple of years. This sector is incredibly resilient and will take the view of Brexit as an opportunity to re-calibrate, target new markets, and get back on track.”
In 1973, the UK accounted for 55 percent of Ireland’s total exports; in 2017, this figure was just 16 percent.
The economist Edgar Morgenroth, of Dublin City University, agrees with Lewis that Ireland’s openness to trade is a solution to the potential issues Brexit presents. However, on Frank Barry’s assertions about the role Ireland’s regional economic characteristics played during the recovery, Morgenroth notes some differences. He contends: “Ireland’s economic growth was driven really by foreign direct investment which was attracted by Ireland’s strong education system and corporate tax rate, not just its labour market.
“Ireland’s openness to global trade should actually protect us from the impacts of Brexit, not harm the economy.”
Brexit, though unpredictable and complicated, may not represent the setback to Ireland that some have forecast. Ireland has enjoyed close economic ties with the UK since gaining its independence in 1922. Yet the times have changed: in 1973, the UK accounted for 55 percent of Ireland’s total exports; in 2017, this figure was just 16 percent.
With exports to China increasing by 35 percent over 2017, dominated by food and drink, new opportunities for exporters will arise. Ireland’s growing reputation for developing trade links will lessen the economy’s reliance on the UK and halt any mass exodus of labour. Ireland faces uncertain times as a result of Brexit. Yet its ability to nurture global trade links should ensure its economy will flourish in the years to come.
Sean Pollock is a Scottish freelance journalist based in Dublin. His areas of expertise include business, economics and current affairs. Previously, Sean worked as an Economist and Policy Advisor at Enterprise Ireland and as a Researcher in Scottish Enterprise. Sean has a Masters degree from the University of Glasgow in Local Economic Development. He is on twitter at @SeanPollock44 and can be contacted through email on firstname.lastname@example.org
Feature image: Ha’penny Bridge, Dublin. Image: ireland.com