The Irish economy’s expected rebound next year from the Covid-19 shock would be “dampened but not derailed” in the event that the UK fails to agree a future trade agreement with the EU, according to debt ratings agency Standard & Poor’s.
“The recent decision to continue negotiations to reach a trade accord between the UK and EU means that we are maintaining our base-case assumption that a limited free trade agreement (FTA) will be agreed to prior to year-end,” S&P said in a report on Thursday.
“Nevertheless, given the substantive issues that remain to be resolved and the limited time available, the talks might still flounder.”
S&P estimates that the underlying Irish domestic economy – which strips out the activities of multinationals – will recover from a 6.4 per cent contraction this year to grow 4 per cent in 2021. This assumes that a basic FTA is agreed, averting the need for World Trade Organisation (WTO) tariffs to kick in from January, which would hit the food and agriculture sector the most.
WTO tariffs on meat range from 20 per cent for pig meat to 34 per cent for poultry and 70 per cent-plus for beef. Even with a deal, customs procedures, bureaucracy and transport delays arising from Brexit will have a negative economic impact, according to economists.
Failure to conclude an FTA would knock 1.4 percentage points off S&P’s 6 per cent gross domestic product growth (GDP) forecast for the UK next year.
Talks extension
Negotiations between the EU and UK were extended on Sunday after British prime minister Boris Johnson and European Commission president Ursula von der Leyen agreed to continue the process despite major differences remaining. These centre on three issues: fisheries, the EU’s insistence on a so-called level-playing field for how goods are produced, and the settlement procedure for any future disputes.
Minister for Foreign Affairs Simon Coveney told RTÉ Radio on Tuesday that he viewed silence from both sides as an indication that “there’s a serious, if difficult negotiation continuing”.
“We think the loss of goodwill that would stem from this potential rupture could make it difficult for the EU and UK to resume trade negotiations quickly,” S&P said. “Still, we don’t rule out the possibility entirely – if, for example, the disruption caused by no-deal leads to significant social unrest or extreme market volatility that risks investor confidence.”
S&P added: “But we see it as more likely that incentives to compromise would be reduced and the willingness to collaborate in other areas of mutual interest could be adversely affected.”
It said that a breakdown in talks would make it more difficult for the EU to make future decisions on allowing UK financial services providers access to the single market in exchange for maintaining regulatory equivalence.
