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24 March 2017
Since the Brexit referendum result Sterling has fallen by 18% against the Euro. This fall in Sterling will both increase the cost of Irish goods going into the UK and mean increased competition on Irish shelves from British products. It will damage tourism flows from the UK and drive retail activity of Irish consumers cross-border and online.
Of twelve potential options exchange rate volatility was identified as the key immediate challenge in a survey conducted by Ibec following the referendum result; it was a top three concern for 60% of firms . Within this, indigenous firms were much more worried about Sterling than multinationals. Indigenous firms, however, only account for around 11% of Irish exports and less than 15% of our exports go to the UK. As such total Irish exports may still experience growth.
However indigenous exporters spend as much in the domestic economy through purchases and wages as the multinational exporters. They also employ as many people, with even greater regional spread. These indigenous exporters are also much more reliant on the UK. Over 40% of their output goes to the UK, compared with only 10% of that from non-Irish companies.
Tourism and retail, our largest regional employers, will also face significant challenges. Retailers in counties near the border will face the prospect of losing a significant amount of customers over the border. In addition, increased online purchases from UK stores will be driven by the weak Sterling. This activity will take key consumer demand out of our towns and cities and cost jobs across the country.
Exchange rate volatility has occured before. This time is different, however. Previous bouts of Sterling weakness were cyclical; these recent changes represent a structural change in the strength of the currency. Depending on the political machinations in London a weak Sterling may be the new normal facing Irish business.
Falls in our exports, tourism or an increase in cross-border shopping (online or physical) will cost jobs. The potential loss of single market status from the UK will only intensify the existing currency pressures. It is vital the government reflect on its priorities in that context.