Food exporters will be hit with tariffs as high as 50pc in January, making it impossible for Irish products to compete in the UK if there is no post-Brexit trade deal, the Central Bank believes.
he warning is included in the bank’s quarterly bulletin, published today, which sets out its expectations for the Irish economy. That now includes a hard Brexit in January, which will compound the economic hit from Covid-19 and further slow the recovery.
Meanwhile, the pandemic will push the national debt to a staggering €248bn by the end of 2022, based on three years of deficits when Government spending exceeds tax and other income.
The national debt stood at just €37.6bn at the end of 2007, before the bank rescues and the EU/IMF bailout. The debt had risen to €204bn by the start of the pandemic and is now set to spike further.
Borrowing is justified, and thanks to low interest rates is affordable at the moment, the bulletin states.
But in the longer term the debt will have to be cut, it says.
“The rise in the deficit and debt ratios is both warranted and necessary and is currently affordable; however, a path to lower and more sustainable levels will eventually have to be taken,” states the bulletin.
On Brexit, the Central Bank says the UK sales of the hardest-hit food and drink exports will collapse by 75pc if a trade deal is not agreed. That is based on the tariffs of 30pc to 50pc that will be added to the price UK buyers will face.
The Central Bank’s director of economics and statistics, Mark Cassidy, said if new economic forecasts assume there will not be a trade deal in place by the end of the year, trade between the UK and Ireland will be on so-called World Trade Organisation (WTO) terms, which can include big tariffs on food as well as other barriers that slow and disrupt trade.
A no-deal Brexit would mean the long-term costs of reduced access to UK markets will be front-loaded in early 2021. A less disruptive UK withdrawal would still increase costs but they would be delayed.
“In our latest forecasts it was considered prudent to make a change and assume that the EU and the UK move to trading on WTO terms from January 1 next. Such a development would have the effect of increasing costs, raising uncertainty and disrupting trade flows,” Mr Cassidy said.
While the effect would vary across the economy, agriculture and food would be especially hard hit and the effects would be felt “immediately”.
Applying the UK’s global tariff schedule to Irish exports would result in estimated tariff costs of between €1.35bn to €1.5bn, which would have to be paid by UK buyers.
“Tariffs of this magnitude would substantially reduce, or possibly eliminate, Ireland-UK trade in some products,” Central Bank economists warn.
Although the research does not say which products would be worst hit, the biggest financial hit would likely be to beef, which remains heavily reliant on the price-sensitive UK supermarket trade.
Moving to WTO terms could reduce the growth rate of the Irish economy by around 2pc in 2021.