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Planning for Brexit

Planning for Brexit

In a referendum on the 23rd of June 2016 the UK electorate voted to leave the EU. As a result the changing relationship between the UK and Ireland will  be determined between EU and UK parliamentarians. The impacts on individuals and businesses in Ireland and the UK will range between minor where the agreement reached is similar to that between Norway and the EU, to major where the trade between the EU and the UK comes under the World Trade Organisation (WTO) tariff regime and labourr movement between the EU and the UK is curtailed.

Seamless Border


The Exchange Rate

In September 1992 Britain  adopted a floating exchange rate system after withdrawing the pound sterling from the European Exchange Rate Mechanism (ERM). The Brexit factor has already kicked in with a weakening of the pound against the euro and the dollar in this floating exchange rate system. The impacts may vary dependant on the types of goods and services.

The effects will be:
 1. The Higher prices of imported goods should spell a drop in demand.
 2. Exports should see a rise in demand because of the falling value of Sterling.

Euro/GBP Exchange Rate

Source: Graph compiled from Central Bank of Ireland Data

USD/GBD Exchange Rate
Source: Graph compiled from Central Bank of Ireland Data

Business Sector Analysis

The methodology BPPM shall be using to measure potential impacts on sectoral businesses is an econometric model. This model focuses on the behavior of the Irish and UK economies in terms of gross domestic product, product consumption,  employment, product imports and product exports using variables such as tarriffs, exchange rates, and interest rates.The price elasticity of demand for products is the degree to which demand for a good or service varies with its price. Price elasticity of demand varies both within and between sectors dependent on  factors such as:

1. - Availability of Substitutes

2. - Definition of Product 

3. - Number of Product Uses

The USA and the UK are by far, Ireland’s largest trading partners. The impact of currency changes is reflected by the fact that exports to the UK decreased from 12.29% (€13.8.4bn) 2015 to 11.39% (€13.31bn) in 2016.

Irish Exports 2015 and 2016

The impacts of price changes brought about because of exchange rates and tariffs can be examined for good and services within the following sectors.

Food and Live Animals
Crude Materials, Inedible, Except Fuels
Animal and Vegetable Oils, Fats and Waxes
Manufactured Goods Classified Chiefly by Material
Miscellaneous Manufactured Articles
Beverages and Tobacco  
Mineral Fuels, Lubricants and Related Materials
Chemicals and Related Products, n.e.s.  
Machinery and Transport Equipmentt 
Commodities and Transactions n.e.s.  

Irish Exports Classified by Commodity 2014-2016

Irish Exports Classified by Commodity 2014-2016

Changes in Irish Exports to Great Britain and Globally 

Changes in Irish Exports to Great Britain and Globally

Source: Chart compiled from Central Statistics Office Data

% Change in Irish Exports to Great Britain

Effects of Brexit on the UK and Ireland Economies

The formula for an economy’s annual gross domestic product GDP is the sum total of C + G + (X – M), where C, and G represent consumer spending and government spending. (X – M) which represents exports minus imports, or net exports. If exports exceed imports, the net exports figure would be positive, indicating that the nation has a trade surplus. If exports are less than imports, the net exports figure would be negative, and the nation has a trade deficit.

Irish Imports & Exports 1992 - 2016         Personal Consumption

Local Government Expenditure          Gross Domestic Product
Source: Figures from Central Statistics Office (CSO)

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