Irish Central Bank Warns of 100,000 Jobs Lost if No Deal

July 31, 2019

The Central Bank of Ireland has sounded off about potential ‘cliff-edge’ risks in the event of a no-deal, no-transition Brexit:

“The main outstanding source of risk to financial stability in Ireland stems from a worse-than-expected macroeconomic shock. This could arise if the expected negative impact through trade channels is compounded by a sharp increase in uncertainty and a fall in confidence, with knock-on effects to Irish employment, incomes and investment. Ireland’s relatively acute exposure to Brexit may also negatively alter investor sentiment towards Irish assets, with adverse implications for financing conditions of an already relatively indebted private sector. Given the extent of direct and indirect exposures, this would result in unanticipated losses for the domestic financial system.”

The Central Bank forecasts that in a No Deal scenario Irish economic output could be approximately 6% lower in 2020. In the understated language of central bankers they warn of

“… severe financial market dislocation and have potential knock-on effects for financial stability in Ireland. Negative income shocks arising from a disorderly Brexit scenario would present challenges to the private sector in Ireland, and the domestic banking system from which they have borrowed .Despite recent delevering and balance sheet repair, the Irish non-financial sectors remain heavily indebted. Household debt as a percentage of disposable income ranks fifth highest within the EU and slightly above the OCED average,while a small pocket of SMEs still carry high debt levels. Irish retail banks remain the most important source of external financing for households and SMEs. The exposure of the Irish banking system to SMEs is significant vis-à-vis sectors that would be most affected by a disorderly Brexit, such as agriculture (Primary Industries), manufacturing, retail trade and tourism (Hotels & Restaurants). In addition, one quarter of Irish banks’ credit exposures are directly to borrowers in the UK, predominantly to the household and corporate sectors, (62% and 31% of UK exposures, respectively), creating a direct source of risk from a disorderly Brexit.”

Yesterday’s third quarterly report report from the bank 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 in the event of no deal. The Irish workforce is only two and a quarter million – one fifteenth the size of the UK. This would be like the UK losing 1.5 million jobs, almost 5% of the workforce…

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The Irish business community is getting uneasy and going to start demanding politicians get real and show some flexibility over the backstop. The Irish economy is at full capacity with GDP growth forecast to come in at a scorching 4.9% this year, this would plunge to 0.7% next year in the event of no deal…

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