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GDP to slump by 3.5% over five years – ESRI

A report by the Economic and Social Research Institute (ESRI) has warned of a GDP reduction in Ireland of up to 3% as a result of protectionist trade policies.

The report, co-authored and funded by the Department of Finance, evaluates the macroeconomic consequences of protectionist policies here.

The paper examines the impact of both unilateral and bilateral tariffs and looks into the possible effects of a 10% non-tariff barrier imposed by the US.

This would restrict market access through regulatory changes.

The imposition of tariffs could lead to a reduction in Ireland’s GDP and Modified Domestic Demand (MDD) by as much as 3.5% and 2%, respectively, over the next five to seven  years compared to a scenario without tariffs, the paper warns.

A 10% non-tariff barrier imposed by the US would also have a notable negative effect on the Irish economy, with GDP and MDD potentially falling by as much as 3% and 1.5%, respectively, over the same time frame.

Protectionist policies will disproportionately affect Ireland’s traded sector, closely tied to global markets.

Production in that sector could fall by as much as 4% under these scenarios, compared to a 2% reduction in the domestic sector.

The traded sector drives a large portion of Ireland's exports and economic activity and is also a key source of well-paid jobs for the highly-educated.

Downturn

A downturn in this sector could lead to higher unemployment rates and a reduction in income tax revenues, further straining the Irish economy, the ESRI warns.

A sector is defined as being traded if at least 50% of total final uses are exported.

If US protectionist measures target sectors critical to the Irish economy, the damage could be more severe than projected, if multinationals relocate to the US in response to protectionist policies, further threatening Ireland’s economy and public finances.

The ESRI’s Dr Paul Egan said “Our research shows that protectionist policies have the potential to significantly impact the Irish economy, with the traded sector disproportionately affected.

“This, in turn, would lead to a significant impact on the labour market, consumption and the domestic economy as a whole. Protectionist policies may also prompt multinationals to relocate to the US, posing further risks to the Irish economy and public finances.”