New research by the Central Bank says a Chequers-type Brexit agreement would leave Ireland economically worse off than a so-called soft Brexit, in which the UK remained in the European Economic Area.
In its latest quarterly economic bulletin, the Central Bank says a Chequers-style agreement would have a significant negative long-run impact on Irish output and employment levels.
The Central Bank has found the impact of a Chequers agreement would be an economic halfway house - not as bad as a hard Brexit, but significantly worse than a soft Brexit.
It would reduce Irish GDP by 1.7 percentage points more than a soft Brexit, while it would create a 1% fall in employment and a rise in the unemployment rate here.
But a WTO-based hard Brexit would have twice as much impact on employment.
Much of the impact would be felt in industries exporting to the UK, as the Chequers analysis shows British imports declining by 11% and domestic demand falling by 4% over a five-year period, driven by a further weakening of sterling.
But it says these negative impacts could arrive sooner if there is no deal on the UK’s exit terms by March, and could be made worse by turbulence in the stock, bond and currency markets.
Until the summer the debate on which sort of post-Brexit relationship the UK would have with the EU has focused on two options.
These are the soft Brexit, in which the UK would remain in the European Economic Area - sometimes called the Norway option - and the hard Brexit, in which the UK would be outside the customs union and rely on a WTO-based trade agreement similar to that enjoyed by Canada.
Central Bank warns of hard Brexit effect pic.twitter.com/XNkMRojzCO— RTÉ Business (@RTEbusiness) October 12, 2018
The Chequers White Paper, published in July, proposes a "facilitated customs arrangement" in which the UK applied EU customs rules and tariffs to goods intended for the EU market, and applied a separate set of rules and tariffs to goods for the UK market.
Services - the bigger part of the UK economy - would be excluded, and the UK would make its own trade agreements with other countries.
The Central Bank bulletin, published today, says "a future trading relationship along the lines of the White Paper proposals would have a significant negative long-run impact on Irish output and employment.
"This is because, while the White Paper marks an improvement relative to a WTO-type agreement, it still implies a significant curtailment in the UK's market access to the EU, compared to the full access for both goods and services which it currently enjoys."
The Central Bank analysis of the Chequers plan is based on an assessment by the National Institute for Economic and Social Research (the British equivalent of the ESRI), which was published in August.
It applied the British findings to the Central Bank’s COSMO economic model to find the impact on Ireland.
Nevertheless the Central Bank's working assessment is that a deal will be struck by Christmas on the terms for the UK’s departure from the EU. This will set in motion a two-year transition period, minimising any Brexit impact until after 2020.
This and the stronger than expected economic performance in the first half of this year has led the Central Bank to upgrade its growth forecasts for this year and next.
It says GDP should grow by 6.7% this year and by 4.8% next year.
Underlying domestic demand - a measure that strips out intangibles and aircraft leasing effects - shows a growth forecast of 5.6% for this year and 4.2% next year.
It says the current economic performance is "very welcome" - but says it is important to be "pro-active in mitigating pro-cyclical dynamics and building up buffers to limit the costs of future downturns".