In the past decade, Irish businesses and households have experienced three once-in-a-lifetime events – the financial crash, Brexit and a global pandemic. The resilience of the country to these shocks has been remarkable. At no other time in our history could we have approached challenges such as these with real confidence. Over the coming months – as we return to public spaces, to offices, to our experience economy – we should again take confidence that the Irish economic model remains robust with real reasons for optimism.
Despite the challenges, we continue to see the future of the Irish economy as a place with significantly more opportunity than risk. Trade and investment openness are providing an escape hatch from a crisis. Ireland’s export strength is continuing to provide the resources both in terms of incomes and taxation, which will allow us to grow strongly after the pandemic. This is, in many ways, a repeat of what we experienced during the global financial crisis. The overall pattern for Irish exports is expected to be strong again in 2021 – rising by more than 5 per cent – as demand in sectors like food, technology and life sciences continues to drive the Irish recovery.
There will be continuing volatility in the global economy as we reopen, however – activity is growing strongly but is a long way from business as usual. Supply-chain challenges are commonplace on global markets with shortages and double-digit price spikes in many key inputs impacting on business.
For example, the average container costs across shipping routes to northern Europe, increased from $1,700 last June to more than $13,000 in June 2021. For some commodities, these prices challenges may be shortlived. Other costs may take more time to normalise. But for the competitiveness of a small, open island economy, the impacts are far from trivial and must be watched.
Exports and investments
The second leg to our small, open economic model is in the domestic distribution of the incomes and resources earned from exports and investments by Irish firms abroad into local economies.
Early indicators of domestic recovery give us reason to be confident. Credit and debit card data, retail sales, footfall measures and strong VAT returns all indicate the potential for a rapid recovery in consumption. This, in conjunction with positive improvements in employment as sectors reopen, shows an economy well-placed to see a rapid recovery in economic activity as the vaccine is fully rolled out.
Over the next decade, we are entering a time of great promise and ambition. Ireland’s era of catch-up gains in living standards is nearing its end. We are now a rich country. This means that every coming mile on the journey to sustainable and high living standards will be harder than the last. Policy will be as much about making our standard of living sustainable, in its broadest sense, as it will be about striving for an aspiration of wealth.
However, being a rich country also means that we have the skills and resources to make those gains if we deploy them strategically. Confidence and investment in our fundamental economic strengths can help us adapt to changes in our business model enforced by global corporate tax change and Brexit. We can also do so while improving on other non-economic quality-of-life drivers, like fixing long-standing infrastructural deficits and meeting our hugely ambitious climate targets.
Fiscal discipline
Between 2021 and 2025, Ireland will deliver a capital budget of €60 billion, an increase of one-quarter on the plans set out in the National Development Plan in 2018. The Government is now matching Ibec ambitions, set out in 2013, to reach a target of 4 per cent of gross domestic product for public capital investment. This quantum of prudent borrowing identified must be balanced by fiscal discipline when it comes to day-to-day spending, but it represents the correct balance between fiscal risks and society’s needs.
Continuing this path of investment-led growth will also need Government to pay significant attention to competitiveness in the private sector. Our current budget plans are predicated on tax revenues driven by economic growth of the order of 4.5 per cent annually. Businesses will be the key to delivering that growth. Ultimately our plans are only deliverable if we can produce continued expansion of our export base and returns on investments by Irish firms at home and abroad.
While these surpluses in our current account of what we sell over what we buy or borrow from the rest of the world have been at record levels in recent years, this has been partly driven by unexpected corporate tax receipts and record saving by both business and households.
However, it has been predominately driven by record expansions in substantial activity that we see in manufacturing plants and offices up and down the country. Continued vigilance and support will be needed for Irish firms to internationalise, export and grow their operations globally. If the Government can support business on this competitiveness path, then the private sector will generate the resources to sustain ambitious plans for public investment and fix many of our major social challenges. In this sense, the fates of private competitiveness and ambitions for public investment are intertwined.
Danny McCoy is the chief executive of employers’ lobby group Ibec
