In the EU Commission’s Winter Economic Forecast it states that Ireland’s economy will grow at the fastest rate in Europe with a predicted GDP growth of 4.5 per cent in 2016. This is a significant increase when compared to the statistics which were published by the Commission in May. They had previously stated that Ireland would experience a 3.5 per cent growth, but are now saying that this figure is more representative of 2017, when Ireland’s growth rates will begin to slow down. This growth can be explained by Ireland’s strong recovery which was initially driven by net exports but is now based more so on domestic demand across economic sectors. Ireland’s SMEs are also exporting more due to the weak euro and the improved access to finance.
However, the Commission has warned that these figures “should be read with some caution given their typical volatility.” This is especially true now that the talk of a Brexit is becoming increasingly prevalent. With the possibility of a Brexit looming darkly in the background, a long period of uncertainty for Ireland and Irish recovery may lie ahead. The Economic and Social Research Institute has warned of grave consequences for Ireland if a Brexit was to become reality and while at the moment Ireland’s recovery is the strongest in Europe, a British exit from the EU could cause some major problems for the Irish economy.
There would be a significant blow to trade, which would in turn lead to rising prices and falling wages, and ultimately have an extremely negative impact on Irish business and the Irish appeal to foreign investors. As the UK is our closest neighbour, it is only natural that it is our largest trade partner. Brexit could result in higher prices on imports, due to new trade restrictions on the movement of goods that could come into force. It has been estimated that the drop in bilateral trade between the two economies could result in a drop of up to 20% of total trade flows.
However, trade is not the only economic driver that will be affected, with the possibility of border controls between the Republic of Ireland and Northern Ireland becoming stricter, meaning that it may no longer be possible to cross the border without having a passport. Northern Ireland itself would also face some negative consequences were this situation to arise due to the Single Electricity Market, which has existed on the island of Ireland since 2007. This allows Irish electric companies to sell electricity in Northern Ireland, without which Northern Irish electricity companies might be unable to meet the demand of their customers.
Others who stand to be adversely affected by the UK leaving the EU are the hundreds of thousands of Irish emigrants living in the UK for work and studies as their right to residency in the UK , and the right to residency of UK nationals living in Ireland could be thrown into question should the Brexit occur.
This situation is entirely dependent on David Cameron’s ability to get an agreement from EU leaders to present a deal which would reframe Britain’s membership of the union which not only satisfies the government’s demands but also poses as an attractive offer to British voters in a referendum. Ireland’s economic fate seems to be in the hands of the British people and EU leaders. However Enda Kenny must place himself in a position in which he works with Cameron to ensure that a deal which serves Britain’s interest – indirectly serving Irish interests – is proposed by the EU.
So while 2016 has been predicted as a positive year of economic growth for Ireland it also has the potential to be a year of uncertainty and panic as the future of Ireland’s outstanding recovery could be demolished by our closest neighbour.
By Bill Horan and Kate Weedy