Ireland

In 2019, the Irish economy again performed impressively on key macroeconomic indicators. GDP growth was close to 5% and GNP growth was over 4%. Unemployment fell to 5%, a remarkable achievement given that it had been as high as 16% in 2012. Inflation remained at a very low rate of around 1%. The general government balance was in surplus at 0.2% and the general government debt as a percentage of GDP was 59%. Against a background of sluggish global economic growth and increasing uncertainty over the United Kingdom’s approach to Brexit, it marks a significant achievement that the Irish economy was able to perform so positively on these macroeconomic indicators. On the political front, the confidence-and-supply agreement between Fine Gael and the main opposition party, Fianna Fáil, negotiated after the 2016 general election, remained in place with an expectation that there will be a new arrangement following the general election in February 2020.

In 2021, as Europe rebounded from the pandemic, the Irish economy again performed impressively. GDP increased by some 13.5%, driven largely by growth in the export of goods and services, while GNP increased by 11.5% (Gleeson, 2022). Unemployment fell from 7% in January 2021 to 5.3% in January 2022 (CSO, 2022). In 2020, the inflation rate in Ireland amounted to about -0.46% compared to the previous year. This rose to 1.9% in 2021 (Statista, 2022). An Exchequer deficit of €7.4 billion was recorded in 2021, €5 billion below 2020 (DOF, 2022). At the end of 2021, the government’s debt as a percentage of GDP continued to fall to 56%, having briefly increased in 2020 to 58.4% amid the onset of the pandemic.

The October 2019 agreement between the United Kingdom and the European Union managed to avoid the catastrophic scenario of a “No Deal” Brexit. It also removed the threat of a terrestrial border between Northern Ireland and the Republic of Ireland, with the trade border instead located in the Irish Sea, meaning that customs arrangements will be based in the airports and seaports between Northern Ireland and the United Kingdom. The EU-UK Trade and Cooperation Agreement, agreed in January 2021, sets out the planned nature of trade in goods and in services, digital trade, intellectual property, public procurement, transport, energy, fisheries, social security coordination, law enforcement, and judicial cooperation between the European Union and the United Kingdom. The status of Northern Ireland – which remains a part of the European Single Market for trade in goods, while not being a part of the European Union – continues to cause controversy, as the UK government has repeatedly sought to renege on its commitment to uphold the agreement.

The implications for the Irish economy of the United Kingdom’s departure remain considerable. At the macro level, any significant fall in the United Kingdom’s economic growth rate will have repercussions for Irish exporters. Additionally, any sustained fall in the value of sterling relative to the euro will pose problems for import-competing companies in Ireland. The labor intensive agri-food sector has been identified as the sector at greatest risk. Ireland’s improved economic performance is attributable to relatively sound policy decisions, historically low interest rates and, most significantly, the continued growth of the export-driven multinational corporation (MNC) sector.

Ireland has long relied on a low corporate tax rate as an instrument to attract FDI. This policy has been highly successful and is supported across the political spectrum. However, it has increasingly attracted hostile comments from critics in foreign jurisdictions, who assert that some features of the way Ireland taxes corporations constitute “unfair” competition and encourages profit-shifting by multinational corporations.

In October 2019, the OECD proposed that countries should be allowed to tax companies in their jurisdictions even if the companies have no physical presence there. Such a change in tax legislation could have significant implications for the activities of MNCs that are based in Ireland. In October 2021, the government pledged support for the OECD international tax agreement, which establishes a global minimum effective corporation tax rate of 15% for MNCs with revenues in excess of €750 million. This is likely to have a major impact on the country’s industrial policy, given its reliance on FDI (DOF, 2021).

CSO (2022) Unemployment, CSO statistical release, 02 February 2022, available at: https://www.cso.ie/en/releasesandpublications/er/mue/monthlyunemploymentjanuary2022/#:~:text=The%20application%20of%20the%20standard,from%207.0%25%20in%20January%202021.

DOF (2021) Ireland joins OECD International Tax agreement, Department of Finance, 07 October, available at: https://www.gov.ie/en/press-release/59812-ireland-joins-oecd-international-tax-agreement/

DOF (2022) Exchequer deficit of €7½ billion recorded in 2021: Corporation tax receipts at similar levels to VAT, €13½ billion in COVID-19 related expenditure to support recovery – Ministers Donohoe & McGrath, Department of Finance, 05 January, available at: https://www.gov.ie/en/press-release/badf9-exchequer-deficit-of-712-billion-recorded-in-2021-corporation-tax-receipts-at-similar-levels-to-vat-1312-billion-in-covid-related-expenditure-to-support-recovery-ministers-donohoe-mcgrath/#:~:text=An%20Exchequer%20deficit%20of%20%E2%82%AC,now%20estimated%20for%20last%20year.

Gleeson, C. (2022) Exports drove Irish economy to growth of 13.5% in 2021, The Irish Times, 04 March, available at: https://www.irishtimes.com/business/economy/exports-drove-irish-economy-to-growth-of-13-5-in-2021-1.4818388#:~:text=Overall%2C%20GDP%20is%20estimated%20to,and%20services%20in%20the%20year.

Statista (2022) Ireland: Inflation rate from 1986 to 2026 (compared to the previous year), Economics and Politics International, Statista, available at: https://www.statista.com/statistics/375229/inflation-rate-in-ireland/