That the Irish economy is more exposed than most to what economists call external shocks is little surprise. At a time of significant uncertainty, the latest research paper from the Central Bank is welcome not only because it tries to put some estimates on our exposure, but also because it shows the range of factors which influence growth here.
We have tended to focus on Brexit when assessing the international risks facing the economy – and this is appropriate – but there are other threats, too, particularly as Irish trade and financial links grow across the world. For example a rise in US interest rates would have a significant impact here and so, to a lesser extent, would an increase in oil prices. In a sobering conclusion, the research does find that, for all shocks it examines, Ireland is consistently more exposed than other countries.
One of the most notable risks to Ireland is a drop in UK growth due to Brexit. The research finds a negative shock taking 1 per cent off the UK growth rate would cause a “significant and permanent decline in Irish output growth”.
Growth would fall here by close to 0.5 per cent as a result over the next decade, it estimates. One of the notable features of the research is the long-lasting impact on growth here of such "shocks", whether from the UK, from newer trading partners such as China or from a general fall-off in world economic performance.
Of course policy here cannot be drawn up on the basis of shocks which, by their nature, are unpredictable. But nor is it clever to ignore them, particularly when – like Brexit – the risk, if not its magnitude, is clear. The economy has bounced back remarkably after the years of the crash and, even allowing for the oddness of Irish statistics, growth here has been encouraging – and remarkable.
But we have been operating in a benign environment with low interest rates and reasonable international growth. It is best to realise, in an uncertain world, that, as the old investment saying goes, “past performance is no guarantee of future results”.
