Irish Times view on the economic outlook: risks and opportunities
Rebound from economic crisis has been remarkable but damaging scars remain
Despite fears about the impact of Brexit and other international challenges on the horizon, the economy continued to outpace most other EU countries, even if getting an exact measure of growth here is next to near impossible given the impact of the multinationals. Photograph: John Ohle
It has been another year of strong growth for the Irish economy. Despite fears about the impact of Brexit and other international challenges on the horizon, the economy continued to outpace that of most other EU countries, even if getting an exact measure of growth here is virtually impossible given the impact of multinationals.
The removal of the threat of a no-deal Brexit should underpin confidence going into 2020 although significant uncertainty on the implications of the UK’s exit remains.
There are signs of the effect of Brexit fears in the economic data but, broadly, businesses and consumers seemed to decide to just get on with it. It is likely that GDP expanded by at least 6 per cent – and even adjusting for the impact of multinational accounting, the underlying domestic economy probably expanded by 3 to 4 per cent.
The total number of people at work continues to expand by around 1,000 a week and has reached record highs. Incomes are also on the rise, with further increases expected next year. These are indicators of real improvements in living standards – and a tangible dividend from strong economic growth.
Taking a long-term perspective, the bounce back from the economic crisis has been remarkable, even if some of the damaging scars of that period remain. It is an appropriate time to consider where we go next.
Brexit will again be one the defining issues for 2020. Much of this year was dominated by the risk of the UK crashing out of the EU without a withdrawal agreement.
This would have led to immediate barriers to trade with the UK and also the need for controls at the Border. Another deadline – for a new trade deal – approaches at the end of 2020, and there will again be fears of the UK leaving without a deal. If this were to happen, the terms of the withdrawal agreement would protect the Border, though the threat of trade barriers in goods moving to and from the UK would re-emerge.
The goal for Irish negotiators remains one of damage limitation – and an important aspect of this will be the Government doing what it can to ensure the new trade arrangements relating to Northern Ireland work as well as they possibly can. There are both economic and political challenges here and Boris Johnson’s decision not to seek an extension of the transition period increases the risks.
The other big negotiating priority for 2020 will be in the area of global tax reform where Minister for Finance Paschal Donohoe faces a delicate task at talks brokered by the Organisation for Economic Co-Operation and Development (OECD). There are threats here to our corporate tax revenue and also our model of attracting foreign direct investment, though the extent of them is hard to judge.
These changes, and the threats from Brexit, underpin arguments to take a cautious approach to managing the public finances, notably in relation to our reliance on corporate tax revenues. The Minister for Finance secured agreement for a conservative budget for 2020, given the Brexit threat which then existed.
This was appropriate but challenges lie ahead, too, in setting in place longer-term measures to protect the public finances. Overruns in corporate tax have provided a buffer in recent years, largely to pay for overspending in the health service and we simply cannot rely on this continuing. Indeed, the ESRI has outlined the very significant risks were corporate tax revenues to take a serious hit.
The goal of government is to balance these risks against the need to continue to invest to build vital infrastructure and also to spend to improve public services, notably health. Delivery and value for money are key issues here – for whatever administration takes office after the next general election. Resources are available but they are not limitless.
Tackling the housing crisis, in particular, poses a particular longer-term challenge. Some progress has been made, but the plans developed by the Government are at a key stage now and big difficulties stand in the way of getting housebuilding to the required level and putting in place the necessary associated infrastucture.
All this is increasingly being framed by one dominant issue: climate change. There is a real feeling after the collapse of talks in Madrid of a lack of international coherence in tackling this issue. It would be wrong to use this to delay the required action here. That the latter is necessary should be obvious.
But as well as challenges and hard decisions, it surely also represents an opportunity for Ireland – to try to take a leading position in at least some areas in tackling this defining issue. The green agenda is not an add-on to economic growth priorities. It needs to be central to every big economic decision. For a country reliant on promoting, attracting and retaining mobile investment – whether from international or Irish interests – it is surely better to take the initiative, face reality and get ahead of this agenda.