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Patrick Semansky

Ireland's economy is on track for recovery but Brexit and Biden could soften our cough, says ESRI

Remarkably, the Irish economy is forecast to grow by 3.8% this year.

JANUARY’S CHANGING OF the guard in the White House is likely to have a “significant impact” on the Irish economy over the coming years, both positive and negative.

That’s according to the latest Quarterly Economic Commentary, published by the Economic and Social Research Institute (ESRI) this morning.

Remarkably, despite declines in employment and domestic consumption that were unprecedented in their scale and speed, the ESRI forecasts the Irish economy to expand by 3.4% this year.

That could be followed by further growth in 2021 of between 1.5% and 4.9%, depending on whether a post-Brexit trade deal is reached in the coming days and weeks.

In both of these scenarios, ESRI researchers also factored in a six-week national lockdown in January.

But Brexit and Covid aren’t the only potential risks to the economy.

During the last six years, Irish corporation tax revenues have been a major source of exchequer funds, outstripping forecasts by over €7 billion, according to the report.

In the past three years, this has been fuelled by the Trump administration’s 2017 overhaul of corporate tax, moving the country to “territorial based” system.

Effectively, this means that the US government stopped taxing the profits of American companies earned in a foreign country.

Simultaneously, US Republicans introduced a new system called the Global Intangible Low-Taxed Income (GILTI).

Aimed at saving American jobs and disincentivising corporations from off-shoring business to low tax countries like Ireland or Switzerland, it means that income earned over a certain threshold by an American company’s foreign subsidiaries is taxed at 10.5%.

There is evidence, the ESRI says, to suggest that this 10.5% rate was too low and that US companies continued to offshore business during the Trump administration.

“Amongst the evidence presented for this is the continued increase in the level of trade in pharmaceutical products between Ireland the United States in recent years,” the report argues.

Consequently, Irish corporation tax receipts have ballooned since 2017.

Corporation Tax Graph showing how Irish corporation tax receipts have outstripped forecasts since 2014.

But the ESRI highlights that “any changes to this legislation which sees a movement away from the territorial approach or witnesses an increase in the GILTI tax rate may result in lower domestic corporation tax increases for the Irish Exchequer in the future”. 

US President-elect Joe Biden has pledged to more than double the effective rate of GILTI during his term of office.

This, the report, argues, “underscores the potential vulnerability of future corporation tax receipts” and why the government can’t rely on them to fund current expenditure.

On the upside, the report highlights the “likelihood of re-engagement” by the US on international efforts related to climate change and Brexit as “clear positives for the Irish economy”.

A remarkable year 

In its final quarterly commentary year, the ESRI paints as full a picture as it can of the impact of the pandemic year on the Irish economy.

With GDP expected to grow by 3.8% for the full year, the outlook might seem relatively rosy.

Irish exports are still leading the charge.

Buoyed by booming pharma and computer services/tech sales — two sectors dominated by foreign companies based in Ireland — exports have actually increased year-on-year by 4.6%.

But the 2020 crisis has also laid bare the duality of the Irish economy.

While multinational-dominated sectors with a higher incidence of high-paid jobs have boomed, sectors of the domestic economy that produce lower-paid jobs (hospitality, retail, construction etc.) have suffered greatly.

Stripping out businesses that export altogether, domestic private consumption has collapsed by 9% and investment by a whopping 13.6% although there has been some recovery over the course of the year.

Screenshot 2020-12-16 at 17.24.51

Ireland’s labour market has also been devastated. 

Overall, the ESRI expects the Covid-adjusted unemployment rate to hit 18.4% of the total labour force for the full year. This is an upward revision from October when it was forecast to be just 16.8% and a stark increase on last year when unemployment was as low as 5%.

It’s too early to speculate about scarring effects — persistent, permanent negative impacts — on the labour market, however.

As public health restrictions have tightened and loosened, the unemployment rate has shifted down and up and back again over the course of the year.

That will be the case next year as well but economists will be watching these motions closely.

“Obviously, if we see [the unemployment rate] consistently fail to drop as low each time there’s a loosening of restrictions, then that’s kind of an indication that there’s some scarring,” explains Conor O’Toole, a senior research officer with the ESRI.

If we see unemployment rates, “get more stubborn on the downside”, it’s evidence that jobs are being lost on a more permanent basis.

The ESRI also expects consumer expenditure to increase by around 11% next year, as households unwind excess savings built up over the course of the pandemic year.

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    Mute Ross MacCárthaigh
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    Jan 15th 2014, 3:26 PM

    Good News for clubs etc that want to travel to events and keep costs down. Such clubs usually struggle for funds. Ryanair making some good changes lately. Check in with phone next please!

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    Mute Stephen D
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    Jan 15th 2014, 4:47 PM

    You can’t get a flight for €20 and expect Emirates first class service. Maybe someday the naysayers will realize this.

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    Mute Dave Dson
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    Jan 15th 2014, 3:14 PM

    Now 20 people can have a sore arsê after 30 minutes instead of just one. Progress.

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    Mute William Grogan
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    Jan 15th 2014, 4:10 PM

    I’ve flown many times with Ryanair, I’m 6ft and I’ve never got a “sore arse”. Maybe your big fat wallet in your back pocket is causing your problem.

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    Mute Pat Donlon
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    Jan 15th 2014, 4:11 PM

    I think shareholders should fire Mr O’Leary with immediate effect for been an a!!hole for the last tn”years. All of the current changes were OBVIOUS and could have made them billions more if implemented long long ago

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    Mute John the Baptist
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    Jan 15th 2014, 4:33 PM

    yes Pat ‘ Billions’ and they were so obvious that Aer Lingus who have them for some time have also made ‘ Billions’ from them. Ask any Ryanair investor They are blissfully happy with Michael’s business model

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    Mute brian magee
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    Jan 15th 2014, 11:33 PM

    So Pat, you think that you could have created one of the largest airline in the worlds from what Aer lingus once described as a small regional airline.
    The man is a genius and has done a great job to date. I reckon the share holders live him

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    Mute gerbreen
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    Jan 16th 2014, 12:15 AM

    AL employee?

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    Mute Rodger 5
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    Jan 15th 2014, 5:41 PM

    How about cutting the cost of bringing a bike? you do get groups of cyclists.

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    Mute Conor Mac Manus
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    Jan 15th 2014, 3:44 PM

    Sounds very messy, imagine sharing a flight with a hen etc.

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    Mute Chris Judge
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    Jan 15th 2014, 3:59 PM

    It’s not going to be much messier than it already is. I assume people already travel in large groups on other airlines, even with Ryanair. This will just make it simpler to book those flights.

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    Mute ferbo
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    Jan 15th 2014, 4:48 PM

    And they will refuse boarding to some if they are short of seats – You pay for EU261 protection, but Ryanair do not allow EU261 claims for denied boarding! May their planes drop out of the sky!

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    Mute Aaron
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    Jan 15th 2014, 4:58 PM

    Your an absolute g*bshite!

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    Mute Aaron
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    Jan 15th 2014, 5:04 PM

    You’re*

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    Mute Ray McMonagle
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    Jan 15th 2014, 7:48 PM

    Ryanair do not oversell flights

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    Mute brian magee
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    Jan 15th 2014, 11:34 PM

    What are you on about? European air lines don’t over sell seats

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    Mute RonanM123
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    Jan 16th 2014, 3:05 AM

    All airlines do especially on high freq routes by around 5-10% on average.

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    Mute brian magee
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    Jan 16th 2014, 3:38 PM

    No they don’t

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    Mute Timmay Timeo
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    Jan 15th 2014, 9:50 PM

    Avoid avoid avoid….forever

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    Mute Aaron
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    Jan 16th 2014, 3:43 PM

    Brian Ryanair overbook their flights by 10% in most cases as studies show 10% of pax don’t show up. 189 pax on the plane, booked for 208, 10% no show for check in leaves just under a full flight

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