Ibec cuts growth forecast and warns on risk from global tax reform

Employers’ group downgrades economic growth forecast on foot of extended lockdown

Ibec has cut its growth forecast for the Irish economy by two percentage points on account of “the length and severity of the current restrictions”.

The employers' group has also warned that the new US administration is more likely agree a deal on global tax reform, which posed a risk to Ireland and its low corporation tax regime.

In its latest quarterly outlook, Ibec said it was now expecting the economy to grow by 3.1 per cent in gross domestic product (GDP) terms this year. This is down from a forecast of 5.3 per cent just a few months ago and comes on the back of an extended lockdown since Christmas to curb the spread of the coronavirus.

It does not expect a return to normal trading in all sectors this year due to “ongoing social-distancing and public-health requirements but there is potential for life and commerce to take a more normal rhythm”.

Ibec also predicted unemployment would remain elevated for a prolonged period, possibly until 2023, echoing a warning from the Economic and Social Research Institute last week.

Ibec noted that the Covid-19 adjusted unemployment was currently just under 25 per cent – equating to more than 600,000 people.

It said large numbers are likely to come off the Government’s pandemic unemployment payment (PUP) “relatively quickly if construction is reopened over the coming weeks, as was the case last summer”.

The industry, which is only 40 per cent operational, is waiting to see if the Government will ease back restrictions come April 5th.

Ibec said it expected unemployment to average 15.6 per cent this year and 9.3 per cent in 2022.

"Lockdown measures in the first part of the year have been tough and protracted, placing additional pressure on the economy, with particular disruption to the labour market," Ibec chief economist Gerard Brady said.

“There are currently over 650,000 people unemployed, with a further 310,000 reliant on wage subsidies. The current restrictions mean that most will remain there well into the second quarter. While the impact of this has been significant, there is cause for optimism,” he said.

“An efficient vaccine rollout along with continued export growth will bring down elevated savings rates, get people back to work [in the second half of the year] and give the economy a much needed shot in the arm.”

Global tax system

In its report, Ibec also considered possible changes to the global tax system, noting “2021 may yet be a significant year for the tax element of our business model”.

It said the change in tone under the new US administration made agreement at OECD (Organisation for Economic Co-operation and Development) level more likely.

The OECD is pushing for changes to where the tax is paid and a minimum effective rate across jurisdictions, which would make it difficult for tech giants and other large multinationals to shift profits to low- or no-tax jurisdictions.

“It is clear that the current discussions between the US, EU and other large countries at the OECD level are now very much focused on a minimum effective corporate tax which is “not less than’ 12.5 per cent [the headline rate here€800 million and €2 billion per annum. Corporation tax generated a record €11.8 billion in receipts for the exchequer last year.