Event

Ireland's financial markets took a pummelling in the aftermath of the UK vote on June 23rd to leave the EU. Banks and companies with exposure to the UK suffered most, before recovering some ground later in the week following the vote.

Analysis

Unsurprisingly, owing to the exposure to the UK of many Irish-listed companies, and the extent of the trade and investment ties between the two economies, the Irish Stock Exchange Overall Index (ISEQ) performed poorly in the aftermath of the vote. The day after the referendum, the index at close of trading was down by 7.7%, with much of the damage concentrated among the listed Irish banks, which were down by over 20%. Mirroring market reaction around Europe, June 27th was another difficult day for the ISEQ index, falling by 9.9%.

As in other European markets, there was a mid-week rally for the index, but it was less pronounced than in the UK, with the Irish index lagging the FTSE 250. The stock exchange closed the week down by 2.2%, making it the worst week for Irish-listed companies since February 2015. Companies with significant exposure to the UK, either through trade, direct investment or lending, were worst affected. Bank of Ireland, the country's largest bank and also the lender with most exposure to the UK, was the worst performer, losing 34.2% of its value between June 24th and July 1st. The hotel company, Dalata, which has operations in Ireland and Northern Ireland, lost 26.1% of its value, and Kingspan, a building materials giant that exports heavily to the UK, was down by 23.9%.

The hit taken by Irish companies highlights the extent of Ireland's vulnerability to the political and economic uncertainty triggered by the Brexit vote. This vulnerability will shape the Irish government's position during the EU's negotiations with the UK when they get under way. Ireland will lobby strongly to allow the UK to retain access to the European single market, potentially putting it at odds with the approach of other European countries.

Impact on the forecast

We have recently revised down our real GDP growth projections for Ireland, to a still solid 4.5% in 2016 (4.6% previously) and to 2.4% in 2017 (2.8% previously).