COVID-19 and Brexit hit different parts of the economy
The COVID-19 pandemic continues to have a major impact on the Irish economy. In addition, the risks of a hard Brexit without a free trade agreement by the end of the year appears a real possibility. While the potential economic impacts of Brexit have been substantially overshadowed by the COVID-19 crisis, layering a hard Brexit on an economy dealing with COVID-19 could make the previously estimated effects of Brexit worse. The extent of overlap in exposure across sectors to the two different shocks is an important consideration for the near-term economic prospects.
Research released today by the ESRI and Department of Finance finds that there is limited overlap between the sectors at risk from a hard Brexit and those currently being most impacted by COVID-19. Each sector is ranked in terms of its exposure to each shock using three categories: severely affected sectors, moderately affected sectors and unaffected sectors.
The sectors worst affected by the COVID-19 shock were Wholesale and Retail Trade, Accommodation and Food Services, Construction and Industry. Using estimates based on modelling trade barriers in goods and services, we find that these sectors are fairly limited in terms of their exposure to Brexit. The industries Brexit trade barriers would be expected to most strongly impact include agriculture, food and traditional manufacturing as these are all highly reliant on the UK as an export destination. Financial services are also potentially highly exposed to changes in market access between the UK and EU.
No sector was found to be in a category of severely exposed to both the Brexit and COVID-19 shocks. However, some sectors did fall into the category of being severely exposed to one shock and moderately exposed to the other, a combination that does leave them at some risk if the two shocks are combined. The research also notes that the ranking of risk exposure is at a sector level and that impacts on individual firms may differ from this.
Looking further at supply chain linkages to examine how sector risks could transmit to suppliers and purchasers more widely, the research also finds limited exposure of sectors most impacted by COVID-19 being further hit by Brexit.
Martina Lawless, author of the report and a Research Professor at the ESRI, said: “Overall, these findings suggest that adding the Brexit shock to that of COVID-19 brings a wider range of sectors exposed to economic risk but that they do not layer further substantial risks onto those sectors that have already taken the largest COVID-19 hit.”