PwC boss fears worst of economic damage wrought by Covid-19 has yet to come
O’Rourke points to slump in FDI and global tax issues as major additional concerns
Donald Trump with US treasury secretary Steven Mnuchin. “Mnuchin told the European big four finance ministers – Spain, France, Germany and the UK – that the US was ceasing participation in global tax talks for the moment.” Photograph: Evan Vucci/AP Photo
PwC managing partner Feargal O’Rourke believes we may have not yet seen the worst of the economic damage wrought by the Covid-19 virus.
“I don’t see the retail or hospitality sectors generating the sort of VAT receipts they were before the crisis. Confidence hasn’t come back, and I think the worst has yet to come,” he says. “That could come in the autumn, particularly if we get a second wave of the virus.”
That is not inevitable, or course.
“A huge amount will depend on the confidence of people to go out and spend again on holidays and white goods and start eating out again,” O’Rourke points out. “The Government’s job over the summer will be to generate confidence and spending, that will be the really tricky thing.”
The overall economic impact of Covid-19 has been massive, but it will be particularly severe on FDI flows.
“There is no doubt that the Covid-19 virus has added an extra layer on top of the variables we have to look at,” he says.
“Coming into the year we were still in very good shape in terms of investment. Tax revenues were in good shape and corporation taxes were continuing to increase notwithstanding three years of the Trump administration encouraging companies to come home. Employment in IDA-supported companies was continuing to grow.”
And then the virus struck.
“At a psychological level it will cause globalisation to begin to retract a bit,” he notes. “Companies may begin to think about moving a bit closer to home.”
He believes there will be some movement driven by a desire to become less reliant on China.
“The global economy will contract a bit and that may give rise to additional clamour for US companies to move home,” he adds. “But these corporations are global in nature, so I don’t really see much of that happening.”
Indeed, the scope for global companies to do so is rather limited.
“The big impact will be on the FDI flow,” O’Rourke continues. “The IDA can’t do marketing visits overseas. Overseas companies can’t do site visits here. FDI has gone into the freezer and expansion plans have also been frozen. When it comes to FDI, 2020 will be seen as a hiccup. It will be 2021 before it comes back.”
But that is by no means certain.
“We will have to see what the new administration in the US might look like and its attitude to trade. We will also have to wait and see when in 2021 the recovery starts to kick-in. Those are the two imponderables. I go to the US about twice or three times a year to knock on doors and try to interest people in setting up here in Ireland. My last visit was in January and at this point I think it will be next January before I visit again.”
He describes the normal FDI pipeline into Ireland as being full with companies at different stages of the investment journey with those starting out at one end and those ready to make an announcement at the other.
“That pipeline has been frozen.”
Global tax is another area of concern for him.
“US treasury secretary Mnuchin told the European big four finance ministers – Spain, France, Germany and the UK – that the US was ceasing participation in global tax talks for the moment. That was the key aspect of what he said. The US has said it would not participate until after the election. It’s a temporary halt, the US may well come back in after the election.”
Action at EU and individual state level in the absence of US participation could be problematic.
“One worry I have is that while the OECD will continue treading water until after the election, there is a possibility that the EU will act unilaterally to fill the breach. Ireland needs to stay at the table and keep an eye on developments and stop precipitous moves by the EU.”