Ireland will continue to be among the fastest growing economies in the eurozone through 2020, the EU has predicted, as it warned about the “distortions” caused by relying on the huge number of multinationals based here.
In its new autumn forecasts, the European Commission projected that Irish GDP, after ballooning 7.8% this year, will grow by 4.5% and 3.8% in 2019 and 2020, respectively.
The forecasts suggest the Irish economy will grow at twice the rate of the eurozone as a whole, and by over three times that of the Brexit-hit UK economy.
A fall in Irish unemployment to below 5% in 2020 will lead to “upward pressure” on wages, and with inflation remaining “modest” — at only 1.4% in 2020 — households will enjoy higher levels of wealth, it said.
But the “unpredictability” of multinationals amid a rapidly changing global tax landscape following the US corporate tax cuts this year and the world trade spats sparked by President Donald Trump’s White House brings a degree of uncertainty to its forecasts.
“A large degree of unpredictability remains linked to the activities of multinationals, which could drive headline growth either up or down,” the commission warned. Its autumn EU-wide survey didn’t refer to the huge €1bn in early payments of corporation tax receipts collected from a small handful of multinationals that Finance Minister Paschal Donohoe partly used on the eve of last month’s budget to help plug over-spending in the health service. The move was heavily criticised by the budget watchdog, the Irish Fiscal Advisory Council.
On the 2019 “expansionary” budget, the commission said that new spending measures and income tax cuts amounted to 0.5% of GDP, partly offset by other tax rises of 0.2% of GDP.
On the UK and Brexit, the commission said that “the uncertainty around the future status of the UK outside the EU is expected to weigh on UK growth”. The British economy will grow 1.3% this year, with expansion slowing to 1.2% in each of the next two years, it said. Those forecasts imply the UK economy will grow at a slower pace than the EU-28 economy as a whole, of 1.9% and 1.8% in the next two years, according to the commission forecasts.
And UK economic growth rates will be close to those of troubled Italy — whose new government has clashed with the EU over its budget spending plans. The commission projects the Italian economy will grow 1.2% and 1.3% in 2019 and 2020, respectively.