[i] The figures show that while Irish consumer sentiment declined in July in the wake of the UK Brexit Vote, the drop was relatively modest. The index fell by 3.8 percentage points to 99.6 in July, down from 103.4 in June, but the scale of the drop was more muted than that seen in either March or May. Moreover, the July sentiment index still sits comfortably above its long-term average.
Slow growth in UK Economy
It is true that the overall Irish consumer sentiment result for July does not suggest any dramatic fall-out from the results of the UK referendum on EU membership. But it would be foolish for policy-makers and businesses in Ireland to conclude that the UK economy will not be adversely affected by the Brexit vote. The recent economic forecast from the UK’s National Institute of Economic and Social Research (NIESR) are not optimistic about the prospects for the UK Economy.[ii]
NIESR forecasts that UK GDP will grow by 1.7 per cent in 2016, slowing to just 1% in 2017. Further it concludes that the UK has a 50/50 chance of falling into recession within the 18 months following the Brexit vote. Simon Kirby, who is the Head of Macroeconomic Modelling and Forecasting at NIESR, put the “recession risk” in very careful language when he said:
“We expect the UK to experience a marked economic slowdown in the second half of this year and throughout 2017. There is an evens chance of a ‘technical’ recession in the next 18 months, while there is an elevated risk of further deterioration in the near term…”.
What could this mean for Irish exporters? In terms of distribution of exports, close to 14% of all Irish exports went to the UK in 2015. The key sectors making up the €15,513m in exports to the UK in 2015 are listed in Table 1. With a more sluggish UK economy and weaker sterling, Irish exporters will have to work harder if they are to hold their markets in the UK, especially if sterling stays weak. For many exporters, it will mean having to accept cuts in their euro earnings. Of course, with weaker sterling, imports from the UK should fall in price, especially for the prices of many consumer foods. One downside, however, of such a trend is that there will be increased competition for Irish companies competing with UK imports.
Table 1 : Goods Exports to UK, 2015
Government support for Irish Exporters
Aware of the need to monitor Brexit’s impact, the Government convened a special meeting of the Export Trade Council on 20 July.[iii]
Box 1 summarises the role of the ETC. Specifically, the meeting was convened by the Minister for Foreign Affairs and Trade, Charlie Flanagan TD, in order to focus on the steps needed to support and enhance Irish business overseas in the wake of the British referendum decision to leave the European Union.
Box 1: What is the Export Trade Council?
- The Export Trade Council (ETC) brings together senior Ministers with an economic focus, the heads of the State agencies involved in promoting trade, tourism, investment and education abroad with the support of the Embassy network, and members drawn from the private sector.
- The ETC is chaired by the Minister for Foreign Affairs and Trade. The ETC has met regularly since 2011, including for special consultations in advance of the UK referendum.
- The current members of the Council include the Chair: Minister for Foreign Affairs and Trade, Charlie Flanagan TD, and the Minister for Education and Skills, Richard Bruton TD, the Minister for Agriculture, Food and the Marine, Michael Creed TD, the Minister for Jobs, Enterprise and Innovation, Mary Mitchell O’Connor TD, and the Minister for Transport, Tourism and Sport, Shane Ross TD.
- The heads of the State agencies that work closely with the Department of Foreign Affairs and Trade and the Embassy network in promoting trade, tourism, investment and education are also represented on the Council: Enterprise Ireland, IDA Ireland, Bord Bia, Tourism Ireland and Science Foundation Ireland.
- The private sector is also represented on the Council by IBEC and the Irish Exporters Association, as well as by a number of business people with a track record in the relevant sectors.
Source: Website of the Department of for Foreign Affairs and Trade
Following the July meeting, Minister Flanagan stated that the ETC
“… had a very productive discussion which focused on how Ireland responds to the current challenges and opportunities. Ireland has a number of key markets where we have a strong, established presence, such as the UK, the US, France and Germany – these and other EU markets present opportunities to deepen our market penetration”.
The Minister’s press release also referred to the fact that market diversification had been identified as a key mitigating factor with regard to risks to the Irish economy, with particular reference to Brexit. The ETC meeting noted that new commercial attaché posts had been created in Argentina, Brazil, Mexico, Indonesia and Romania, to enhance market access for Irish companies as part of his Department’s new economic diplomacy strategy. In addition, there are plans to diversify and develop a market presence in emerging markets in Latin America, Asia and Africa. The next ETC meeting will focus on the Asia-Pacific region.
Overall Response to Brexit
The ETC is only one strand of the Government’s overall strategy responding to the Brexit vote, but a very important strand. The work of the ETC will be facilitated by a new trade, tourism and investment strategy for 2017–2021. That strategy is being drafted by the Department of Foreign Affairs and Trade to ensure there is a coherent medium-term plan to enhance and improve how Irish exports and investment are supported. Also, the Department of Foreign Affairs and Trade is establishing a Trade Coordination Group involving all the Departments and Agencies represented on the ETC. The Group will meet monthly and its primary task will be to ensure an enhanced level of coordination and collaboration across all of the Departments and Agencies engaged in supporting Irish business overseas, under the aegis of the Council.
The Government’s watching brief on the effects of Brexit on trade will continue to be monitored by the Department of Foreign Affairs and Trade. With increased export activity in South America, Asia and Africa, it is hoped that that Irish businesses will work successfully and productively with the Export Trade Council.