Ireland's economy has been the best performing in Europe since 2014, but with close trading links with Britain, its export-focused economy is considered the most vulnerable among remaining European Union members to the impact of its neighbour’s departure from the bloc.
The assessment followed a similar warning from Ireland's central bank on Friday that a no-deal Brexit could knock as much as 4 percentage points off the economy's growth rate in its first full year and up to 6 percentage points over a decade.
"It is important to recognise that such estimates may not capture the full impact, and the figures may be conservative," Finance Minister Paschal Donohoe said in a statement, citing the unprecedented nature of a sudden departure on March 29.
Ireland's economy would continue to grow, Donohoe said, but GDP growth would slow to 2.7 percent this year and around 1 percent next year compared to the 4.2 percent and 3.6 percent currently forecast.
Such an outcome would mean employment would increase more slowly than forecast and push the unemployment rate 2 percentage points higher than it would otherwise have been over the next five years.
Ireland's agri-good sector and indigenous small- and medium-sized enterprises that trade with the United Kingdom would likely be disproportionately hit, Donohoe said.
The public finances would also deteriorate and after posting the first budget surplus in a decade last year, the exchequer would return to a deficit of 0.2 percent of GDP this year and 0.5 percent next year.
"In the short-term, the appropriate fiscal strategy would be to allow the public finances absorb the shock – the in-built automatic stabilisers will provide the first line of defence for our economy, allowing a deficit to occur," Donohoe said.
(Reporting by Padraic Halpin; Editing by Janet Lawrence)
