The Government is being urged to keep its nerve and roll out its spending plans on roads, public transport, businesses, and education, to meet the threats of Brexit, trade wars, and the reforms of global tax regimes (which could undermine the country’s corporation tax).
Business group Ibec, in its latest quarterly bulletin, also reiterated that it wants Finance Minister, Paschal Donohoe, in his October budget, to bring in business-friendly reforms to capital gains tax and specific employment incentives, as well as tax credits for small firms.
Even if there is no crash-out Brexit fright at Halloween, Ibec projects that the pace of economic growth will still halve, to 4%, this year, compared with 2018, and slow again to grow by only 2.7% in 2020. Consumer spending will hold up well, nonetheless, it projects.
However, a further sharp slide in sterling, in the event of a hard Brexit, will slow Irish economic growth to a crawl, suggesting the economy would barely avoid a technical recession, in forecasts that chime with projections by the Central Bank and the Economic and Social Research Institute.
“In the event of a no-deal Brexit, we expect significant impacts from continued depreciation in the value of sterling, cancelled investment, falling consumer confidence, rising costs, and significant trade disruption,” said its chief economist, Gerard Brady.
“The economy may still grow, but growth would more than halve in 2020 and employment growth could fall below 0.5%,” he said. “The best way to prepare the economy for the challenges ahead is to follow through on funding key areas of our economic infrastructure, through the National Development Plan, a new national innovation strategy, and by setting out a clear plan for the funding of higher education,” Ibec said.
Irish business continues to focus on the political initiatives in Westminster that may halt a drift to Britain crashing out of the EU without a transition deal on October 31. In the past two weeks, sterling has slumped as low as 92 pence against the euro, as British prime minister, Boris Johnson, pledged to stick to preparations for a no-deal Brexit, despite the huge body of evidence, on both sides of the Irish Sea, that a sudden exit will damage the Irish and British economies, as well as peace here.
Sterling clawed back some losses, to trade at 91.25 pence at the end of last week, after British Labour leader, Jeremy Corbyn, pitched a “time-limited” unity government, ahead of a British election, to oust Mr Johnson. Mr Johnson travels to Germany and France tomorrow and Wednesday, to reaffirm his determination for a new Brexit transition deal, or he will take Britain out of the EU at the end of October.
Analysts are waiting for Mr Johnson’s first major meeting with Taoiseach Leo Varadkar, which could determine the direction of sterling and the outlook for many Irish stock market-listed companies.
Any further sharp slide of sterling towards parity, or 100 pence, against the euro, would threaten the existence of many small Irish exporters, many analysts predict. And a sterling crisis would also likely renew pressure on Irish bank shares.
Ibec said that amid all the uncertainties, Irish household incomes have posted “broad-based” increases. It notes official figures showing towns, including “Malahide, Celbridge, Maynooth, Greystones, Leixlip, Naas, Swords, and Carrigaline, in the commuter belt of Dublin and Cork, have household incomes of €60,000 or more.”
It added: “On the other hand, incomes in towns such as Letterkenny, Cavan, Wexford, Sligo, Tralee, Ballina, and Enniscorthy are €35,000 or less.
“Longford is the only large town where median incomes are below €30,000.”
And on housing costs, Ibec cites figures showing that housing shortages mean tenants pay a third of their income in rent bills in Dublin, and just over 30% in Cork, forcing more low-income people, in particular, to make long commutes to get to work.