Ireland heading for strong economic rebound – European Commission

Brussels upgrades outlook for economy but warns of fiscal risk from changes in taxation

The European Commission has upgraded its outlook for the Irish economy, saying it expected a strong, export-led rebound in the second half of 2021.

However, it warned that the Government’s budgetary position remained at risk from “potential changes to the international taxation environment” – a reference to the likely overhaul of corporate tax rules internationally.

In its Spring 2021 Economic Forecast, the Commission said it expects the Irish economy to grow by 4.6 per cent in GDP terms this year, up from 3.4 per cent previously, and by 5 per cent next year.

The euro zone economy as a whole will grow 4.3 per cent this year, and by 4.4 per cent next year, Brussels said.

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The Commission said it expected the Irish economy to rebound strongly in the second half of the year with exports increasingly benefitting from an improving external environment.

“Exports are expected to continue to be a strong driver of GDP growth, led by multinational corporations, particularly those producing medical devices and pharmaceuticals as well as those providing information and communication services,” it said.

"Improvements in the external environment, including in the US with which Ireland trades significantly, will benefit the economy," it said.

The Commission said household incomes will remain shielded from the crisis by State support and that the budget deficit would decrease from 2022 onwards, “but risks to the macro-fiscal outlook remain high”.

Ireland is expected to lose a substantial portion of its corporation tax base, €2 billion or more, from proposed changes to the corporate tax code internationally.

The US has proposed a minimum rate of 21 per cent on the international earnings of US companies, which is way above the Irish rate.

In its forecast, the Commission also noted that Ireland was the only European country to register positive growth last year.

However, it said the the labour market in 2020 stalled to a larger extent than shown by the headline numbers.

Eoin Burke-Kennedy

Eoin Burke-Kennedy

Eoin Burke-Kennedy is Economics Correspondent of The Irish Times