This Article attempts to quantify the macroeconomic impact of Brexit on the Irish economy. Given both the political and economic uncertainty, we consider a range of alternative scenarios. We focus on the most well understood channels through which Brexit will affect Ireland, namely though lower trade, incorporating the impact of tariff and non-tariff measures, and the potentially positive impact of FDI diversion to Ireland. Our approach, and the main contribution of this paper, is to build up estimates of each of these channels from a range of recent microeconomic studies, so our estimates are anchored in the empirical literature. We then use these micro-estimates to calibrate macro scenarios; specifically we generate alternative paths for the UK and international economy using the NiGEM global model and assess the impact on Ireland using the COSMO model. Overall, in each scenario, the level of Irish output is permanently below where it otherwise would have been were the UK to decide to remain in the EU.

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2018 saw the Irish economy register another sizeable increase in activity with GDP estimated to have risen by 6.7 per cent. While some of this increase is due to the disproportionate activities of a select number of multinational firms, the underlying performance of the economy is still remarkably strong. Increases in taxation receipts, even aside from corporation taxes and the ongoing dynamic performance of the labour market, are compelling evidence of this. However, the present year has seen international sources of growth cool; the underlying weaknesses in the Chinese economy along with the deterioration in the trade relationship between the US and China have contributed to a reduction in the global outlook. The recovery in the Euro Area has also stalled somewhat. Inevitably, this will impact on the domestic economy, with the contribution of the trade balance to growth set to decline. These developments have led us to revise downwards our forecast of real GDP growth in 2019 from 4.2 per cent in the previous Winter Commentary to 3.8 per cent for 2019. It should be noted that all forecasts in the Commentary, unless otherwise stated, assume that the United Kingdom remains a member of the European Union. The importance of Brexit for the Irish economy has seen the Department of Finance commission a joint research project with the ESRI to examine various different Brexit scenarios using COSMO-the structural model of the Irish economy. Other empirical work completed by researchers at the Institute (Lawless, 2016a; Lawless, 2016b; Lawless and Morgenroth, 2018) 1 examining the Brexit issue from a microeconomic persective has also been used in this exercise. The results of this analysis, which are published in a paper with the Commentary (Bergin et al., 2019), are used in the Commentary to examine the implications for the short-run growth outlook of the different scenarios. Therefore, like the previous Commentary, we produce a baseline set of forecasts under a no-Brexit scenario and complement this with a set of forecasts associated with certain Brexit outcomes. Overall, this results in a baseline real GDP forecast of 3.8 per cent for the Irish economy in 2019 and 3.4 per cent in 2020. However, under a no-deal exit for the 1

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Q u a r t e r l y E c o n o m i c C o m m e n t a r y -S u m m e r 2 0 1 9 | i