Ireland’s reliance on multinationals and international exports means “global shocks” pose “a great challenge for the Irish economy”, a new report has claimed.
The Economic and Social Research Institute (ESRI) study looked at what might happen with the Irish economy over the next decade.
The think tank describes the outlook as “relatively favourable” but the report authors stressed it is a projection, not a forecast, and said “the assumption that nothing will move the economy from its current trajectory is unrealistic”.
The report – entitled Ireland’s medium-term economic outlook: Risks and opportunities – warns the country is vulnerable to external risks and “unforeseen shocks”.
It said this is a particular issue because budget surpluses are based on windfall corporation tax receipts and “windfall taxes by definition could disappear rapidly”, meaning a five billion euro surplus could become a deficit of 13 billion euro.
The presence of multinational corporations “remains a tremendous positive for the Irish economy”, the report said, but it also highlights the importance of domestic businesses to help “mitigate” economic risk.
The report focused on a number of scenarios which could impact Ireland’s economy in the near future including: a global slowdown, a loss of competitiveness between Ireland and its trading partners, and an exodus of multinational companies and a change in the productivity levels of Irish-owned firms.
The report also found Ireland’s economy has had a ”remarkable performance” over the last 10 years, despite international and domestic challenges including Brexit and the pandemic.
It said this had led to employment and population growth “all of which should be celebrated”, but also that the speed of population growth after “a period of low public investment following the great recession” has contributed to the housing crisis.
ESRI director Professor Martina Lawless said, without any shocks, the projections show “a reasonably positive continuation of growth, although at a more moderate level than it has been over the last number of years”.
It also shows “a number of fairly plausible external risks could have significant repercussions on the economy”.
She said the most “impactful” ways to offset the risk would be “rebalancing the composition of the economy and supporting the productivity growth of the Irish-owned firms”.
She also noted that while the report covers the next decade, there are “much longer-term challenges” including an ageing population and climate change which are projected to hit economic activity in the mid to late 2030s.
She described the next 10 years as an “opportunity” for policies to promote the “fundamental building blocks that support economic activity”.
These include encouraging smaller firms to invest in research and development, building the country’s skills base and building up public infrastructure where there are “big deficits at the moment in housing, healthcare, transport and other utilities”.
