Ireland will import some of Britain’s increasingly grim economic woes, even if we import fewer goods post-Brexit.
Ears of stagflation – where high inflation is associated with low or no growth – are now gripping the UK after Citigroup predicted price increases could hit 18.6 percent in January, an outcome that would trigger rate hikes of up to 7 percent could, analysts said.
The Bank of England forecasts the UK economy will enter a 15-month recession this winter and could stagnate for years after that.
Smaller Irish companies – particularly those in the agri-food and engineering sectors, which are more exposed to the UK market – are likely to feel the effects.
“This is a slow-cooking frog of a problem in our closest market, with which we still have a very close commercial relationship,” said Simon McKeever, chief executive of the Irish Exporters Association. “As it boils and boils and boils and the economy slows down over there, are they going to buy less and less of our stuff?”
This is a slow-cooking frog of a problem in our nearest market
Although trade with the UK suffered from Brexit last year, the UK was still the destination for 11 per cent of Irish goods in June.
For Indigenous businesses, the UK accounts for around 30 per cent of all merchandise exports, rising to around 60 per cent for agri-food.
Services exports to the UK rose by €1bn year-on-year in the first quarter, while imports from the UK – fuel in particular – are also increasing.
However, with real wages for UK workers falling 3 per cent in the second quarter, a record fall, and consumer confidence at its lowest level since 1974, this does not bode well for Irish businesses.
“A general drop in demand is likely to accompany deteriorating economic conditions,” said Kieran McQuinn, research professor at the Economic and Social Research Institute.
“All of this would have significant implications, particularly for Irish firms still trading with the UK.
“Irish SMEs would continue to source many of their inputs from the UK market. That could be quite important in terms of their cost.”
The UK remains an important market for Irish chemicals, beef, computer equipment, medicines and cheese, and IT services, according to CSO data.
Gerard Brady, chief economist at group Ibec, said a poorer Britain would likely affect wages in rural Ireland, where most UK-focused food companies are based.
“You could see very lean times for some companies that are very dependent on the UK. Probably at the SME end, where they are likely to be less diversified.
“Although you could see a fairly small impact on exports from a shock in the UK and consequently a fairly small impact on GDP, you could actually see a fairly large impact on incomes in the domestic economy.”
A weaker euro against the British pound should help exporters, said the IEA’s Simon McKeever, but it won’t offset the “perfect storm” of inflation, recession and possible energy shortages that he believes is blowing businesses around the world could meet.
He urges the government to consider corporate support.
https://www.independent.ie/business/brexit/irish-businesses-risk-being-dragged-down-by-uks-spiralling-economy-41929792.html Irish companies risk being dragged down by the UK’s economic spiral