Ireland economy being hit with Brexit uncertainty

With its economic and social ties, historically, with Britain, Ireland will, of course, be most affected — of the EU countries — with UK’s departure from the bloc. And concern in the country grows by the day even at this late stage. Business confidence has dropped to its lowest in more than three years and it has fed into weaker orders, lower exports and flat-lining jobs growth, the latest purchasing managers’ index (PMI) shows.
The AIB Ireland Manufacturing PMI is a closely watched economic indicator because it gives near real-time insights based on a regular survey of hundreds of business managers. Those responses are rolled into a single index that shows growth and contraction based on a simple scale where numbers above 50 indicate expansion and numbers below show contraction. AIB’s chief economist Oliver Mangan said the threat of a hard Brexit is hitting Ireland just as a global manufacturing slowdown takes hold.
He said: “The sharp slowdown in global manufacturing activity over the past year is being clearly felt in Ireland. Brexit uncertainty is an additional negative factor weighing on manufacturing.” The latest survey for August shows manufacturing conditions deteriorated for the third month running and at the fastest pace in almost six-and-a-half years during the month. The index posted 48.6 in August, down from 48.7 in July. Until this summer the index had charted continuous expansion since 2013.
Jobs numbers have held up so far with growth, albeit marginal and possibly reflecting some extra hiring for Brexit preparations. August data shows declines in manufacturing output, in overall new business and export sales. Manufacturers responded by decreasing their own purchasing activity at the fastest rate since September 2011, with likely knock-on effects in cooling the wider economy.
The latest domestic data tallies with a research paper published last week by the Bank of England about conditions in the UK. It showed Brexit has cut productivity among UK companies by between 2pc and 5pc since the June 2016 vote to leave the European Union. Most of the shortfall reflects a fall in productivity within businesses as senior managers commit several hours per week to planning for Brexit, the researchers said.
In Ireland, business sentiment towards activity in the coming twelve months was the lowest in more than three years. That matters, because any indication of businesses pulling in their horns can become self-fulfilling, prompting others to delay or reduce orders. In the latest PMI survey, panellists attributed the fall in total new orders to ongoing Brexit uncertainty which had negatively affected customer demand. Weaker orders from the UK, stemming from ongoing uncertainty, was the principal factor behind reduced export sales.
Meanwhile Ireland is set to be handed one of the top jobs in the European Commission to give it a major influence on future trade talks with the UK. Phil Hogan is in line to be appointed to the position of Trade Commissioner, a job that will put him in the centre of negotiations on the future relationship with the EU and the UK. The appointment will be seen as evidence the EU is standing firmly behind Ireland in the event of a hard Brexit.
Hogan has been one of the most vocal critics of the UK’s tactics in the current Brexit negotiations, recently describing Prime Minister Boris Johnson as “unelected”. He has warned a no-deal Brexit will create a “foul atmosphere” with the EU that will have “serious consequences” for the UK’s chances of a future trade deal. Member states are still battling for key roles on the new commission ahead of a formal announcement by incoming president of the European Commission, Ursula von der Leyen.
There is still a possibility she could reshuffle her plans, but a number of sources said Hogan was the clear front runner for trade. His current agriculture portfolio is expected to go to Poland. The Trade Commissioner is responsible for representing the EU at the World Trade Organisation and other international forums.
And while they will not directly head up trade negotiations with the UK after Brexit, sources said the person would be a “central player” in the process. Regardless of whether there is a Brexit deal, the EU expects talks on new trading arrangements to begin at some stage. The Irish government made no secret of the fact it was lobbying for a significant job for Hogan in the wake of Brexit. (The author is our foreign correspondent based in the UK. He can be contacted on andyjalil@aol.com)