Amundi CIO sees slowing economies long-fingering OECD plan for 15% tax

The investment chief of Amundi, Europe’s largest asset manager, has said there is little prospect of an international deal for a minimum 15 per cent tax rate for large companies being enforced in the near term as countries prepare to fight for investment in a weakening global economy.

"If we are entering into an era of lower growth I'm afraid that there will be more competition between states to attract capital and companies," Vincent Mortier, Amundi's chief investment officer (CIO), told The Irish Times. "That's why I'm not super-optimistic that it will be enforced… in the short term."

Some 136 countries and jurisdictions, including the Republic, agreed last October to an Organisation for Economic Co-operation and Development (OECD) plan for multinationals to be subject to a 15 per cent tax rate from 2023.

However, the Polish government blocked efforts to implement the accord across the European Union earlier this month, arguing it was concerned about the minimum tax coming into force without new rules preventing big multinationals from booking profits in the most tax-favourable countries.

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US treasury secretary Janet Yellen is also facing trouble getting support in Congress for the plan, mindful that law-making will grind to a halt in August through to mid-term elections in November, when there is the prospect of Republicans, many of whom oppose the deal, taking control of one or both legislative chambers.

Amundi, which has more than €2 trillion of assets under management, moved this month to shave 0.5 percentage points off its global economic growth forecast, and now expects expansion of 3.3per cent to 3.7 per cent.

Contraction

Mr Mortier said there was a risk Europe could at least enter a technical recession – defined as two quarters of contraction – this year as a result of the war in Ukraine.

“I think the likelihood of recession [in Europe] is growing day by day,” said Mortier, who was promoted to the role of CIO from deputy CIO in February. “The big question is whether it will be just a technical recession or whether it will last a bit longer.”

He noted that the brunt of the hit from the Ukraine war would be borne in Germany, Europe's largest economy, Austria and other eastern areas.

While financial markets are currently pricing in the European Central Bank (ECB) pushing through about 0.6 percentage points of rate rises this year to tackle soaring inflation, which would take its deposit rate, currently at minus 0.5 per cent, into positive territory, Mr Mortier said the bank may stop after one or two hikes.

“The big thing is the enormous amount of debt issued by [euro zone] states,” he said. “They cannot afford to pay much higher long-term rates… the ECB might be happy to see some inflation over the short term, given all the financing needs.”

Debt

Aggregated euro zone government debt jumped by €1.24 trillion in 2020 alone to €11.1 trillion, or 98 per cent of its gross domestic product, from 83.9 per cent in 2019, according to Eurostat.

Figures for 2021 are set to be published by the EU’s statistics agency later this month.

ECB bond-buying programmes kept market interest rates in check even as governments borrowed heavily to support their economies during the Covid-19 crisis. Net bond-buying is currently on track to end by the close of the third quarter of the year, though ECB board member Isabel Schabel has publicly raised the prospect of it continuing for longer if the euro zone economy fell into deep recession because of conflict in Ukraine.