Effects of Brexit & Covid-19 & future prospects for the Irish economy
We had a very interesting discussion with economist Jim Power at our recent virtual members’ guest speaker event on the “Effects of Brexit and Covid-19 and future prospects for the Irish economy”. The global pandemic has changed everything in 2020 but everything is set up for a rapid recovery once the virus is brought under control due to the pent-up demand and accumulated savings during the lockdowns.
The global pandemic changed everything in 2020 but a very aggressive and coordinated policy response using fiscal and monetary policy in perfect harmony has worked well.
There has been a further massive fiscal stimulus ($1.9Tn) from President Joe Biden which is leaving nothing to chance. The return of a multilateral approach to global affairs should be a positive.
The global corporation tax agenda is gathering pace and may present some challenges to Ireland.
Statistically, Ireland did well in 2020 on a GDP basis (+3.4%) but this needs to be treated with caution due to multinational trade flows.
Ireland has a dual economy and workforce – Output from the multinational sector is +18.2%; non-multinational sector -9.5% in 2020. FDI, public sector, financial services, professional services are doing very well while tourism, hospitality, non-essential retail, personal services, airline industry, arts and entertainment are having a very tough time.
In 2020, Irish income tax at €20.7Bn is only down 1% on 2019 and is the second highest year on record. By contrast, VAT at €12.4Bn in 2020 is 17.8% down YOY.
Chemicals and related products are now 66% of total Irish exports and up 13.8% in 2020 which indicates how multinational trade flows dominate and distort the Irish economic picture.
Irish household and corporate finances look heathy overall with household deposits +€15Bn to reach €126.4Bn by the end of January 2021 and non-financial corporate deposits +€11Bn to reach €73.6Bn by the end of January 2021.
Brexit: Bi-lateral trade has been damaged by customs checks and bureaucracy with January Irish exports to the UK down 13.7%: Imports from the UK was down 64.6%.
EU exports to UK were down 27.4%; EU imports from UK were down 59.5% in January.
Overall, the outlook is positive for the Irish and global economies assuming that Covid-19 can be brought under control with vaccines.