Discuss about the Economic Impact of Brexit.
This study has been aimed to the concept of economics assignment. In this respect, this study has been tried to evaluate the macroeconomic impact of Brexit on Ireland. In addition, this study has been focused on the financial market of Ireland. In order to discuss the effect of financial market of Ireland, this study tried to show the effect of gross domestic product, the credit rating, foreign exchange rate, effect on stock market as well (Barrett et al. 2015). On the other hand, this study is also helpful to identify whether the changing in the governmental policies of Ireland would oppose the impact of Brexit or not. The effect of the value of trade, employment rate and the inflation rate of Ireland has also been mentioned in order to measure the effect of Brexit. Instead of this, this study is also beneficial to identify the microeconomic effect of Brexit on Ireland (Begg and Mushovel 2016).
Impact on the financial market
According to Busch, B. and Matthes (2016), exit of British from European Union has been making a negative effect to the GDP growth rate of Ireland. The GDP growth rate of Ireland has been decreased by 0.3% whereas the overall GDP rate of EU has been falling by the rate of 1%. As a result, it can be stated that this depreciation would lead to the export of Ireland, tariff rate, quotas and the consumer requirements (Stosic-Mihajlovcc and Zdravkovic 2016). On the contrary, it can be argued that the exporters of Ireland would include the movements of the exchange rate in order to meet the profitability margin as well as acquire the output the level of the country as mentioned by Dagnis Jensen and Snaith (2016).
On the other hand, Brexit has pushed the foreign exchange rate to suffer from deficit. The interest rate of Ireland has also been d ecreased. Therefore, in a synopsis, it can be concluded that the movement of Irish foreign exchange rate would reflect to decrease the investment after Brexit. The credit rating of Ireland has been decreasing after Brexit de Mars (2016).
In the words of Kostovicova (2016), the relationship between United Kingdom and Ireland, is seemed to be strained after Brexit. In this connection, the borrowing of foreign exchange reserves has been raised. In addition, the currency liquidity has been increased. As a result, this liquidity risk has been reflecting the higher inflation risk as well as the exchange rate pressure. On the other hand, higher rate of debt and the uncertain implementation in the bond markets cannot finance the debt sales excluding the constrain capacity after Brexit. Matthews (2015) mentioned that the property prices of Ireland has been suffering and has been decreasing by 3.03% after Brexit. Moreover, the tax rate of Ireland is also very higher after Brexit.
As per the statement of McGrath (2016), exit of Britain from European Union, the trade flow of Ireland has been reduced from the previous. On the other hand, after Brexit, Ireland would seek to free trade as well as no tariff trade transaction with European Union. However, it can be criticised that this new free trade may lead to fail. In this respect, the reason can be discussed as European Union is willing to avoid to appreciate Britain n order to defend. Therefore, Purdue, Huang and Economics (2015) added that after Brexit, the farmers of Ireland have been suffering the problem and they had to pay up to 40% rate of tariffs. This rate of tariff in turn affects the export of goods with the rest of the countries (Busch and Matthes 2016). Moreover, based on the new trade agreement, the Irish farmers would not like to import milk after Brexit from Britain due to the higher rate of import. This in turn reduces the overall money supply of United Kingdom in order to support the Irish agriculture (Simionescu 2016).
According to Stosic-Mihajlovcc and Zdravkovic (2016), at the post Brexit period, Ireland has been suffering from the situation of recession. As a result, the unemployment rate would be increased in Ireland. In this context, it can be stated that the pushing of social welfare rate would e also higher. The rate of unemployment after Brexit is 7.8 per cent. As a result, it can be concluded that the job market or the employment opportunity in the Ireland market had been massively decreased. Hence, Barrett et al. (2015) puts that the higher unemployment rate leads to the lower standard of living, income per person of Ireland. Moreover, the spending power of the people would be decreased. Higher unemployment rate reflect to the downward pressure of the wage of the employees. The higher unemployment rate leads to reduce the growth rate of an economy. As a result, overall spending of the country would also decrease (Begg and Mushovel 2016).
In order to discuss the inflation rate of Ireland after Brexit, it can be discussed with the help of the following table:
|
2011 |
2012 |
2013 |
2014 |
2015 |
|
|
Rate of inflation |
2.6 |
1.7 |
0.5 |
0.2 |
-0.3 |
Table 1: Rate of inflation of Ireland for last five years
The above table depicted the last five years inflation rate of Ireland. As identified by Begg and Mushovel (2016) it can be clearly observed that with the rise in time, the inflation rate has been decreasing. More precisely, it can be stated that the country has been suffering from the deflationary situation (Busch and Matthes 2016). After Brexit, the price level of the products will be lower, and the inflation rate will be negative. Therefore, the unemployment rate has been effectively increased. It can be also stated that the lower rate of inflation or the deflationary situation reflect the growth rate of the country. In this purpose, Dagnis Jensen and Snaith (2016) mentioned that the deflationary situation help to enhance the country’s capital to expand as well as construct new technologies.
After Brexit, it can be seen that the GDP growth rate of Ireland has been decreased. As a result, it can be seen that the economy has been suffering from the deflationary situation as mentioned by Kostovicova (2016). Therefore, the unemployment rate has been increased and the price of the products has also been decreased. Due to the higher rate of unemployment, it can be predicted that the consumer’s spending for the goods as well as for services has been reduced. As a result, lower consumption spending reflects to the lower rate of aggregate demand. Matthews (2015) opined that marginal propensity to consume has been reduced.
As per the opinion of Purdue, Huang and Economics (2015), Ireland has been suffering from the deflationary situation after Brexit. Therefore, the demand for the goods and services has been decreased. People are not willing or demand less to purchase the goods and services. As a result, the supply would also be decreased (Dagnis Jensen and Snaith 2016). Therefore, it can be concluded that the prices of the products would be decreased. Firm’s production would be massively decreased. Henceforth, Simionescu (2016) cited that based on the demand and supply of goods, nation’s currency can be determined as nation’s currency has been played an important role in order to estimate the country’s growth.
Conclusion
The overall study has been tried to demonstrate the effect of Brexit on the macroeconomic factors as well as on the microeconomic factors of Ireland. In this connection, this study has tried to estimate the impact of Brexit on the financial markets of Ireland. Moreover, in this connection, this study has tried to measure the GDP growth rate of Ireland, which has been falling after Brexit and the rate was 0.3 per cent. On the other hand, after the analysis, it can be observed the foreign exchange rate of Ireland has also been decreased. Moreover, the trade situation of Ireland has also been hampered. The unemployment rate has been decreased and the country has been suffering from the deflationary situation. This refers that the demand and the supply has been reduced. Furthermore, consumer spending has been massively falling after Brexit. This in turn reduces the firm’s production.
After analysing the study, it can be concluded that with the rise in the aggregate demand, the deflationary situation of the country can be mitigated. Aggregate demand can be improved by improving the government spending of the country. As a result, the money supply of the country will be increased. The unemployment rate of the country will be improved. The standard of living and the consumption level will be also improved. The demand and the supply will be improved. Moreover, the firm’s production level will be significantly improved. Ireland will be at better position. As a result, the GDP growth rate of the country will be effectively improved.
References
Barrett, A., Bergin, A., FitzGerald, J., Lambert, D., McCoy, D., Morgenroth, E., Siedschlag, I. and Studnicka, Z., 2015. Scoping the possible economic implications of Brexit on Ireland. ESRI Research Series, 48.
Begg, I. and Mushovel, F., 2016. The economic impact of brexit: jobs, growth and the public finances.
Busch, B. and Matthes, J., 2016. Brexit–The Economic Impact. A Meta-Analysis, IW-Report, (10).
Dagnis Jensen, M. and Snaith, H., 2016. When politics prevails: the political economy of a Brexit. Journal of European Public Policy, pp.1-9.
de Mars, S., Murray, C.R.G., O’Donoghue, A. and Warwick, B.T., 2016. Policy Paper: Brexit, Northern Ireland and Ireland. Northern Ireland and Ireland (June 1, 2016).
Kostovicova, D., 2016. What previous political divorces in Europe tell us about the emotional impact of Brexit. LSE European Politics and Policy (EUROPP) Blog.
Matthews, A., 2015. Implications of British exit from the EU for the Irish agri-food sector. Trinity Economic Papers, (215).
McGrath, P., 2016. Brexit and Likely Implications for Ireland. Available at SSRN.
Purdue, D., Huang, H. and Economics, N.T.M.A., 2015. Brexit and its Impact on the Irish Economy. National Treasury Management Agency, Dublin.
Simionescu, M., 2016. The Impact of BREXIT on the Foreign Direct Investment in the United Kingdom (No. bep-2016-07). St Kliment Ohridski University of Sofia, Faculty of Economics and Business Administration/Center for Economic Theories and Policies.
Stosic-Mihajlovcc, L. and Zdravkovic, I., 2016. Brexit impact on Serbian economic development. Journal of Process Management. New Technologies, 4(3), pp.24-29.
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