11 Feb 2020, 09.09
The Parliamentary Budget Office (PBO) has published its Quarterly Economic and Fiscal Commentary. The PBO’s flagship Quarterly Commentary updates Members on key economic and fiscal developments and explores significant areas of interest.
The Irish economy continues to grow at a rapid pace. In the first nine months of 2019 the economy grew by 5.9% and employment grew by 2.7% with 60,000 more people at work. However, growth in recent years was concentrated in certain sectors of the economy.
In the last three years, 71.4% of growth was driven by sectors that are dominated by multinational companies. The remaining sectors only accounted for 28.6% of growth. This contrasts with the last phase of growth during the 2000s when domestic sectors were the key drivers of growth. From 2004-2007, multinational sectors only accounted for a third of growth with the domestic sectors accounting for the remainder. These dynamics have changed the structure of the economy. Multinational dominated sectors now account for 44% of output (GVA) up from 22.7% in 2008.
Exports continued to experience strong growth in 2019. In the first ten months of last year Ireland exported €12.4 billion more goods (11% higher) than the same period in 2018. However, growth was concentrated in certain markets and sectors. Chemical and pharmaceutical products accounted for 61% of export growth. Irish exports to China almost doubled last year (up 96%) while exports to the US grew by 19%. Together, new exports to China and the US accounted for 75% of total export growth.
Looking out to 2020, downside risks remain on the horizon. While Ireland has some breathing space on Brexit, a hard Brexit is still a possibility. The dependence of the State on the economic activity and revenue contributions of a few highly productive multinational corporations remains a key risk. In addition, capacity constraints persist in housing, health and childcare, making it harder to attract workers from abroad. Other international risks remain as global growth has showed signs of slowing. The US economy continues to grow, however, business investment (excluding intangibles) fell by 2% in Q3 2019. This could have knock on implications for Ireland as US companies accounted for a significant share of Irish business investment in recent years. Prudent fiscal policy will be crucial in managing these risks in the short term, with very limited room for additional stimulus via monetary policy.
Director of the PBO, Annette Connolly, said: “Risks remain for the public finances. Much of the increased spending in recent years has been financed by Corporation Tax receipts. While receipts from this tax head are prone to volatility, the types of spending it is funding are generally less so. This poses a major challenge for the delivery of public services.”
The Quarterly Economic and Fiscal Commentary is available here